GERMANY Trends and Developments Contributed by: David Jansen, Wulf Kring, Maria Risse and Marcel Seemaier, Willkie Farr & Gallagher LLP
German investors themselves rather than any partner - ship-type investment fund through which outbound investments are made. The new Foreign Tax Act, applicable for the tax assessment periods from 2022 onwards, has signifi - cantly increased the relevance of German CFC tax provisions for German investors with respect to their outbound investments through foreign partnership- type investment funds. One significant change is the introduction of a rebut - table presumption that a German taxpayer jointly controls the relevant fund partnership (or at least the respective feeder fund) together with all other German and non-German investors in the fund. While the law and tax authorities’ circular only provides limited guid - ance on how to rebut such presumption in practice, the circular at least states that, if a German investor participates directly or indirectly through a partner - ship, the presumption is principally deemed rebutted if the investor holds less than 5% in the relevant part - nership by the end of the financial year of the foreign company incurring low-taxed passive income which might be subject to German CFC taxation. However, investors should be aware that, under current special rules, low-taxed passive capital investment income may even be attributed to an investor irrespective of the minimum percentage held by a German investor and any acting in concert with other investors. With respect to the attribution of low-taxed pas - sive capital investment income to German minority investors not acting in concert with other investors, the government draft of the so-called Minimum Tax Adjustment Act ( Mindesteueranpassungsgesetz ) pub - lished on 3 September 2025 proposes significant relief for German fund investors. Low-taxed passive capital investment income will only be attributed to German tax-resident investors if they directly or indirectly hold – alone or together with related parties – at least 10% of the voting rights or nominal capital in the foreign company at the end of its fiscal year. In addition, a new exemption threshold for the recognition of low-taxed passive capital investment income being incurred by a foreign subsidiary may be introduced, according to which such income is disregarded if it does not exceed one third of the total income of the foreign company
and the total amount does not exceed EUR100,000. If implemented, both changes should facilitate side- letter discussions between non-German sponsors and German fund investors going forward. The initial min - isterial draft provides that the 10% minimum share - holding quota will apply retroactively from the begin - ning of 2022, while the new EUR100,000 exemption threshold will only take effect starting in 2026. New Draft Legislation – Act to Promote Investment and Innovation in Germany (Standortfördergesetz) With the change of the German government in spring 2025, several legislative initiatives of the previous administration, such as the Zukunftsfinanzierungsge - setz II , were discontinued. However, the new German government also intends to improve the tax frame - work for investments made by regular investment funds (so-called Chapter 2 funds) and special invest - ment funds (so-called Chapter 3 funds) in venture capital, private equity, infrastructure and renewable energies. In this context, a first ministerial draft of the so-called Act to Promote Investment and Innovation in Germany ( Standortfördergesetz ) was published by the Federal Ministry of Finance on 22 August 2025. If implemented, the new law will particularly provide for the following changes regarding the taxation of opaque German investment funds and (semi-opaque) special investment funds, which are generally expect - ed to apply from 2026 onwards: • According to the draft, an investment fund’s active, entrepreneurial management of its assets will no longer, by itself, jeopardise its qualification as an investment fund under the Investment Tax Act. However, earnings generated at the fund level from such activities will generally be subject to tax. The overarching principle that German invest - ment funds are generally exempt from corporate income tax and trade tax will remain in place, albeit with certain modifications. Specifically, activities such as granting B2B loans, holding investments in corporations without any intention of short-term trading, and holding interests in deemed com - mercial partnerships (provided that such partner - ships carry out only asset administrative activities) as well as non-German commercial partnerships without German nexus should also qualify for tax exemption. On the other hand, income derived
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