The German Federal Tax Court decided whether the German CFC rules also apply to foreign companies located outside the European Union. Whereas the German CFC legislation, in the case of companies located within the European Union, provides for an exemption if the foreign company can prove "real economic activity", such an exemption is not granted to companies located outside the European Union. The German Federal Tax Court believes that this may be contrary to the principle of free movement of capital. The Court therefore puts this question to the European Court of Justice.
The Bundesgerichtshof (German Federal Civil Court) decided on whether a fund manager may ask for an administration fee in addition to the management fee. As far as banks are concerned, this practice by and large has been found to be not in line with German law. The Court now ruled that the same is not true in a fund context. Under German investment law, a fund manager has a right to be reimbursed for reasonable expenses incurred in the best interest of the fund. This right exists side-by-side with the management fee to which a fund manager is entitled. However, the Court's decision makes it clear that reimbursement clauses are only for covering costs and not for providing an additional profit margin to the fund manager.
The German Investment Tax Reform will enter into force on 1 January 2018. Meanwhile, the German Fiscal Authorities are working on a comprehensive circular to address and clarify important questions arising in connection with the interpretation of the new law before the end of the year. In advance of this circular, the German Federal Ministry of Finance issued a letter to the relevant fund industry associations in which the Ministry explains its view of the determination of the partial tax exemption regime applicable to real estate funds, equity funds and mixed funds.
