Urdorf, 31 October 2016 | Under the Investment Tax Reform Act of 19 July 2016, German capital gains tax (KESt) can now only be refunded or credited under certain conditions. The introduction of the new Section 36a of the Income Tax Act (EStG) is intended to secure dividend taxation in Germany and remove the basis for so-called cum-cum transactions. Regardless of whether individual market participants have carried out such transactions, the banking and investment industries must collect extensive data retroactively from 1 January 2016 in order to verify that the requirements for the correct treatment of KESt have been met so that fund prices can be determined accurately. In close cooperation with its customers, Profidata Group has developed a solution in XENTIS for capital management companies (KVGen) that administer domestic funds, which meets this regulatory requirement.

Until now, foreign investors have been able to transfer shares and participation certificates in German companies to tax-exempt residents, e.g. fund companies, shortly before the dividend date in order to avoid paying capital gains tax through cum-cum transactions. Based on Section 36a of the German Income Tax Act (EStG), the legislator has closed this tax loophole. KVGen are now required to hold dividend-bearing securities held in funds for at least 45 calendar days without interruption and with a hedge ratio of less than 30% beyond the date of the dividend payment.

XENTIS provides both proof of compliance with holding periods and information on positions that are hedged for tax purposes. To do this, XENTIS users employ a standardised reporting module that can be implemented with minimal effort. The report contains a detailed list of all holdings based on the first-in-first-out consumption sequence required by law. For each of these lots, the proportionate dividend amount, the holding period per disposal and the necessary and booked provisions for capital gains tax are listed. XENTIS also supports both the conservative and progressive interpretation of Section 36a of the German Income Tax Act (EStG), giving users the choice of creating KESt provisions either when the dividend is posted or only when the holding period is violated. In accordance with customer specifications or as an exception, the report only shows positions subject to KESt. Furthermore, the report compares the market values of KESt-liable holdings with the economic exposure of hedging transactions and indicates deviations from the maximum permissible ratio. When determining the hedge ratio, the hedging contribution of related parties, e.g. subsidiaries, is taken into account.

Stefan Rockel, Managing Director of Universal Investment GmbH and Chairman of the Tax Committee of the Federal Association of Investment and Asset Management (Bundesverband Investment und Asset Management e.V.), summarises: "The implementation of the Investment Tax Reform Act involves considerable effort for all affected investment companies, ties up a lot of human resources and puts us under time pressure. Although many questions remain unanswered, it is all the more important that Profidata has provided the right solution in the shortest possible time so that proper tax treatment can be ensured. We are confident that the new regulations on the taxation of public and special investment funds will also be covered by XENTIS in the manner required by us from 1 January 2018."

Profidata Group

Peter Klein, Management Board
Profidata Group
In der Luberzen 40
8902 Urdorf
Switzerland
Phone
peter.klein@profidatagroup.com