Fund Taxation Alert 2024-10

On 21 August 2024 the German Federal Fiscal Court (BFH) issued its judgement on the KPMG test cases (IR 01/20, IR 02/20) on the refund of dividend withholding tax to foreign investment funds for refund for the years prior to 2018.

For further details please check our previous KPMG Alert here.

On 13 December 2024, the Federal Central Tax Office issued a decision to refund the withholding tax (WHT) levied on a German dividend distribution to Luxembourg Investment Fund for the years 2008, 2010 and 2011.  Before that refund, there has been intensive communication between the Central Tax Office and KPMG, regarding certain formalities (e.g. comparability of the fund with German investment funds and whether current formalities are still met by the fund). The refund is only linked to the principal amount and late interest is to be paid out via a separate refund decision. As a reminder, BFH considered in its judgement that late interest amounting to 6% per year should be paid in addition to the reimbursement of the reclaimed amounts.

This situation indicates that investment funds are already being positively assessed to test the refund process, which would then take place on a large scale from 2025.

This reimbursement performed outside of KPMG’s test case seems to indicate that the German tax authorities are willing to reimburse undisputed reclaims claims as quickly as possible and in a large manner in 2025. One of the reasons is that the reimbursement decision prevents further late interest from accumulating.

We expected that positive notice refund and payments would be issued to the test claimants first, as various legal issues are still being coordinated between the Hessian Tax Court, the Federal Central Tax Office and KPMG.

However, following this first refund notice, we can expect that once the process for the assessment is fully implemented, it will eventually trigger larger scale refund movements for all claimants, advancing all outstanding decisions currently pending at the BZSt.

It is important to highlight that the German tax authorities may challenge refunds of WHT based on fund qualification of the investment fund (especially from 2012), the beneficial ownership of the shares on the dividend ex-date and formalities such as the current account number. It is therefore important to carefully review any decision received from the German tax authorities and to file an objection letter if the reclaimed amount is not fully reimbursed or in case of (partial) rejection. Under such a scenario, the deadline to file an objection is of one month. It is therefore advisable to put in place a Power of Attorney appointing a German tax advisor to monitor and review all letters received from the German tax authorities. We will continue to monitor the evolution of the cases and update you once further details are available.

Should you have any questions/comments, do not hesitate to contact us.