Investment funds holding assets affected by sanctions due to the Ukraine war need to solve problems caused by their lack of liquidity. One solution is to separate the illiquid assets into so-called side pockets. With regard to the tax consequences of the creation of side pockets, the German Federal Ministry of Finance (BMF) has published its draft for equitable tax relief regulation. In our view, the BMF does not go far enough.

In our beinformed of 15 December 2020, we already reported on the German Fund Jurisdiction Act, the objective of which was to make Germany more attractive as a fund location through a series of tax measures. One of these measures was the extension of the circumstances for a finding of VAT-exempt management under § 4(8)(h) of the German Value Added Tax Act (Umsatzsteuergesetz) of venture capital funds. This measure came into force on 1 July 2021, but without a definition of venture capital funds. The tax authorities have now made up for this omission almost a year after the amendment came into force with a letter by the German Federal Ministry of Finance (Bundesfinanzministerium). The definition is based on venture capital funds as defined in the EU Venture Capital Funds (EuVECA) Regulation. In addition, further requirements are mentioned in order to benefit from the advantage of VAT-free management.

Two weeks ago, the supreme tax authorities of the federal states published their decrees on the application of § 1(2)(a) of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) for changes in the shareholder partnerstructure of partnerships and § 1(2)(b) of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) for changes in the shareholder structure of corporations. There are positive and surprising developments to report. We would like to highlight some aspects of the decrees here, in particular the new developmentsfor corporations.