With the German investment tax reform come many changes. In addition to dividend and real estate income, there is one other form of taxable income that, until now, has been not been in the center of attention as much: other German source income. Our beinformed demonstrates that this income surprisingly may include foreign source income too.

With its decision dated 30 May, 2017, the German Federal Fiscal Court referred to the European Court of Justice (“ECJ”) several questions on the potential state aid qualification of the tax exemption according to Sec. 6a of the German Real Estate Transfer Tax Act. This provision – under specific circumstances – exempts group restructurings involving property holding companies, which as such generally qualify as a taxable acquisition under the German Real Estate Transfer Tax Act, from taxation.

Under the current tax regime Germany grants a tax exemption only for domestic funds but not for foreign funds. The Fiscal Court Münster (20/04/2017,10 K 3059/14 K) ruled that this does not violate the EU freedoms because the situation of German funds is not comparable to that of foreign funds. In the case at hand a foreign real estate fund (a Luxembourg fonds commune de placement, or FCP) holds German real estate directly. The foreign fund claimed that it should be exempt from German tax on the rental income. It argued that because of the tax exemption granted to a German domestic fund, a Luxembourg fund should be granted the same treatment and thus receive the same tax exemption privilege.