German Coalition To Axe Investment Fund Tax Break

by Ulrika Lomas, Tax-News.com, Brussels

28 November 2005

Germany's new coalition government announced last week that a tax break for investors in certain funds will be scrapped, in a bid to recoup around EUR2 billion (US$2.4 billion) annually for the government in lost tax revenues.

As a result of a new bill approved by the German Cabinet at its first legislative session on Thursday, individuals who invest in specialist closed funds, such as those concerned with film and media financing, shares in commercial shipping operations, wind farms and leasing, will no longer be permitted to write off losses against income tax.

The new rules will affect all closed funds launched after November 10, including all shares in such funds acquired after the same date.

The funds have become popular amongst those on high incomes, and government spokesman Ulrich Wilhelm was quoted by Dow Jones as stating that the bill aims to promote "more tax fairness".

The move also represents a step towards Chancellor Angela Merkel's goal of narrowing the country's EUR35 billion budget deficit in order to bring its finances back into line with the European Union's Stability and Growth Pact, which underpins the euro.

The bill must receive the approval of both parliamentary chambers before going into effect, and will be an interesting test of the coalition's legislative effectiveness.

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