Germany: Amendment to the withholding tax relief procedures for foreign investment funds - Update
Note: This announcement originally published on 22 June 2021 has been updated with further information on Clearstream Banking’s processing rules for accounts with a Standing Instruction. The changes are highlighted.
Clearstream Banking1 would like to inform customers that the Upper House of the German Parliament on 28 May 2021 approved the bill pertaining to the modernisation of withholding tax relief procedures (AbzStEntModG; Abzugsteuerentlastungsmodernisierungsgesetz), parts of which are due to enter into force on 1 July 2021, especially amendments to the German Investment Tax Act.
The bill foresees a change in terms of the relief at source procedure applicable to income payments subject to German withholding tax (for example dividend and taxable interest payments) paid to a foreign investment fund (“beschränkt körperschaftsteuerpflichtiger Investmentfonds”). In this context, newly issued fund status certificates will contain information on the corporation tax status (“Körperschaftsteuerstatus”) of the certified investment fund. Current valid certificates that are already submitted to Clearstream Banking, however, will stay valid according to a letter issued by the Ministry of Finance on 1 June 2021 (BMF – reference GZ IV C 1 - S 1980-1/19/10027 :006 DOK 2021/0577184).
Prior to the change, for customers of Clearstream Banking holding securities on behalf of a foreign investment fund who obtained and provided a fund status certificate for classification of the fund pursuant to § 1 InvStG, the German withholding tax (Kapitalertragsteuer; KESt) was reduced to 15% at source irrespective of the location of the fund. If the fund status certificate was submitted after the payment date of the event, the overpaid KESt amount (11.375%) could be reclaimed from Clearstream Banking AG (CBF). Therefore, the law provides the possibility of a reversal of the overpaid tax within a period of 18 months following the initial income payment date upon customer request.
Impact on customers
In accordance with the above-mentioned bill, any application for the reversal of overpaid tax, via presentation of a fund status certificate with retroactive validity, will no longer be possible via Clearstream Banking Frankfurt AG (CBF). Instead, the reclaim must be addressed directly to the Federal Central Tax Office (Bundeszentralamt für Steuern; BZSt).
Consequently, as of 1 July 2021 customers providing a fund status certificate for a foreign investment fund after the payment date of the taxable income event cannot be refunded. Full tax must be withheld. Clearstream Banking will in turn issue a tax voucher upon customer request.
The original fund status certificate needs to be in place at Clearstream Banking Frankfurt (CBF) before the taxable income event is due to be paid. To avoid delay of certificate recording, customers are reminded to send the fund status certificates to the following address:
Clearstream Banking AG
Attn: Tax Support Frankfurt - OSF
D-60485 Frankfurt am Main Germany
As announced before, if the fund status certificate is not available to CBF - that is, the party obliged to pay the tax at the time the investment income is received -, the tax must be withheld and paid in full by CBF. If a customer cannot provide a valid fund status certificate for all positions on the account with a reduced tax rate of 15% by the time of income payment, the respective position must be transferred before the income payment to an omnibus account without standing instruction.
Customers must in any case provide a break down to disclose the fund company (identified by the Ordnungsnummer) and the relevant holdings of the fund company per single income payment to get taxation at a reduced rate of 15% (withholding tax standard rate including solidary surcharge). Complete information must be provided to CBF 30 calendar days after the record date of the taxable income event latest, using the existing Upload Beneficial Owner List functionality.
Customers must uphold these duties. If a correct upload disclosing the entirety of the fund companies and respective holdings is not provided after mentioned 30 calendar days, Clearstream Banking will reverse the entire original payment and repay with full tax deduction.
Other tax certification requirements remain unchanged as described in the Market Taxation Guide.
Clearstream reserves the right to amend taxation retroactively if the described procedure is not approved by the tax authorities.
For further information, please contact the Clearstream Banking Tax Help Desk or Clearstream Banking Client Services or your Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.