Tax Relief

Germany: Change in withholding tax relief for overseas funding funds

Note: This notice, originally published on June 22, 2021, has been updated with further information on Clearstream Banking’s processing rules for standing order accounts. The changes are highlighted.

Clearstream Banking1 advises customers that on May 28, 2021, the Bundestag approved the draft law to modernize the Withholding Tax Relief Modernization Act (AbzStEntModG), some of which will come into force on July 1, 2021, in particular amendments to the Investment Tax Act.

The draft law provides for a change in the withholding method for income that is subject to German withholding tax (e.g. dividend and taxable interest payments) that is paid to a foreign investment fund. In this context, newly issued fund status certificates contain information on the corporate tax status of the certified investment fund. Current certificates that have already been submitted to Clearstream Banking, however, remain valid in accordance with a letter from the Ministry of Finance dated June 1, 2021 (BMF – Reference GZ IV C 1 – S 1980-1 / 19/10027: 006 DOK 2021/0577184).

background

For Clearstream Banking customers who hold securities in the name of a foreign investment fund and who have received and submitted a fund status certificate for the classification of the fund in accordance with Section 1 InvStG, the German capital gains tax (KESt) was reduced to 15% at the source before the change, regardless of 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 for the ability to reclaim the overpaid tax within a period of 18 months from the date of the first income payment at the customer’s request.

Impact on Customers

According to the aforementioned draft law, an application for repayment of excess taxes paid by submitting a retrospective fund status certificate is no longer possible via Clearstream Banking Frankfurt AG (CBF). Instead, the reclaim must be sent directly to the Federal Central Tax Office (BZSt).

As a result, customers who submit a fund status certificate for a foreign investment fund after the payday of the taxable income event cannot be refunded as of July 1, 2021. The full tax must be withheld. Clearstream Banking in turn issues a tax certificate at the customer’s request.

The original fund status certificate must be submitted to Clearstream Banking Frankfurt (CBF) before the taxable income event becomes due. In order to avoid delays in the registration of certificates, customers are reminded to send the fund status certificates to the following address:

Clearstream Banking AG
Attn: Tax advice Frankfurt – OSF
D-60485 Frankfurt am Main Germany

If the CBF fund status certificate – i.e. the tax debtor at the time the investment income is received – is not available, the tax must be withheld and paid in full by CBF, as already announced. If a customer cannot submit a valid fund status certificate for all items on the account with a reduced tax rate of 15% by the time the income is paid out, the respective item must be transferred to a collective account without permanent instructions before the income is paid out.

In any case, customers must provide a breakdown of the disclosure of the fund company (identified by the serial number) and the respective investments of the fund company per one-off income in order to receive taxation at the reduced rate of 15% (standard withholding tax rate including solidarity surcharge). The complete information must be made available to CBF no later than 30 calendar days after the record date of the taxable income event using the existing “Upload list of beneficial owners” function.

Customers must meet these obligations. If no correct upload is made after the specified 30 calendar days, specifying the totality of the fund companies and the respective holdings, Clearstream Banking will cancel the entire original payment and repay it with full tax deduction.

Other requirements for the tax certificate remain unchanged, as described in the Guide to Market Taxation.

Clearstream reserves the right to change taxation retrospectively if the procedure described is not approved by the tax authorities.

additional Information

For more information, please contact the Clearstream Banking Tax Help Desk or Clearstream Banking Client Services or your Relationship Officer.

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1. Clearstream Banking together means Clearstream Banking SA with its registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, entered in the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG with its registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and entered in Register B of the District Court of Frankfurt am Main, Germany under the number HRB 7500.

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