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German Fears Realised As Foreign Fund Managers Revolt Over CGT

by Philip Morton, Investors Offshore.com

03 December 2002


Following the widespread condemnation of Germany's new capital gains tax plans by domestic funds, a powerful group of European and American fund managers marketing into the country has hit out at the measures, suggesting that they will prove doubly damaging for foreign funds.

In a letter to the Financial Times published on Monday, Alan Ainsworth and Sheila Nicoll, writing on behalf of 11 of the leading international investment management firms active in the German market explained that:

'The effect of this (CGT change) will be to apply a double layer of tax on investors in funds as opposed to those who invest direct in equities. This is perverse, in that authorised investment funds have an important role to play in retirement saving and have clear investor protection benefits given their accessibility, diversification and regulated status.'

The letter continued: 'In addition, however, German tax law as it affects investment funds already puts German funds at a significant advantage over funds marketed into Germany from elsewhere in Europe, and we understand that the effect of the new law as proposed would be seriously to amplify this discriminatory effect.'

The fund managers urged the German government to act quickly in addressing this inequality of treatment, suggesting that if it fails to do so, it will be shirking its obligations under the EU commitment to liberalising the single market for financial services in Europe.

Speaking to the Financial Times following the publication of the letter, a spokesman for the European Commission warned that: 'The Commission is taking a dim view of tax discrimination against funds from other member states and will want to examine the German law very carefully.'


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