Germany Seeks To Reignite Private Equity Market

by Ulrika Lomas, Tax-News.com, Brussels

21 June 2004

A tax measure was put before the German parliament last week intended to boost the country’s stagnating private equity industry.

Under the proposals, which were finalised by the finance committee following a series of behind-closed-doors meetings last week, the amount of carried interest that is subject to taxation will be reduced from 100% to 50%.

Until April 2002, carried interest was generally treated as a capital gain and therefore exempt from tax for fund managers.

However, seeing this as a loophole, the finance ministry declared that carried interest was a fully taxable fee “for services rendered,” which, combined with plummeting equity markets, put an abrupt end to fund-raising, which the proposed new measure hopes to reverse.

The tax break, which has cross-party support, appears to have been well received.

"The thrust of the law is very positive," Andreas Rodin, partner at tax and law firm Pollath & Partners, told the Financial Times. "Germany is now back within international standards."

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