Cross-border tax arrangements for PE and VC funds

Effec­tive Janu­ary 1, 2020, the law intro­du­cing an obli­ga­tion to notify cross-border tax arran­ge­ments (“DAC 6”) ente­red into force. With this noti­fi­ca­tion requi­re­ment, the legis­la­tor is pursuing the goal of iden­ti­fy­ing tax avoid­ance tactics at an early stage in order to be able to close any unin­ten­tio­nal loopho­les in the tax laws that have exis­ted to date in a timely manner. In addi­tion, the finan­cial autho­ri­ties are to be enab­led to unco­ver facts rele­vant to audits. Ther­e­fore, mana­gers of PE and VC funds should be made aware of any exis­ting noti­fi­ca­tion obli­ga­ti­ons of cross-border tax arrangements.

The noti­fi­ca­tion requi­re­ment covers all direct taxes, such as income tax, corpo­rate income tax, trade tax, and inhe­ri­tance and gift tax. On the other hand, (import) sales tax as an indi­rect tax is excluded. The same applies to excise taxes, customs duties and social secu­rity contributions.

In prin­ci­ple, the obli­ga­tion to notify applies to the so-called inter­me­diary, i.e. any person who markets, designs, orga­ni­zes or makes available for use by third parties a tax arran­ge­ment or mana­ges its imple­men­ta­tion by third parties. In the case of a private equity and venture capi­tal fund, the fund mana­ger is also regu­larly regarded as an inter­me­diary. In parti­cu­lar, the lawy­ers or tax advi­sors advi­sing in connec­tion with the cross-border tax struc­tu­ring at the level of the fund company or at the inves­tor level are deemed to be inter­me­dia­ries and will take over the noti­fi­ca­tion to the Fede­ral Central Tax Office (“BZSt”), provi­ded that they are released from their statu­tory duty of confi­den­tia­lity on the part of the fund or investor.

In prin­ci­ple, fail­ure to report new cases (as of 01.07.2020) is punis­ha­ble by a fine of up to EUR 25,000. On the other hand, as things stand at present, there are no sanc­tions for failing to report old cases. All arran­ge­ments that were reali­zed before June 25, 2018 (old cases) are not covered by the new noti­fi­ca­tion requi­re­ment as defi­ned in DAC 6. — Provi­ded that the first step of the imple­men­ta­tion took place from 06/25/2018 to 06/30/2020, there is a noti­fi­ca­tion obli­ga­tion until 08/31/2020.

About Chris­toph Ludwig
Chris­toph Ludwig joined BLL directly after comple­ting his busi­ness studies at Ludwig Maxi­mi­lian Univer­sity in Munich, where he has been a part­ner since 1998. Chris­toph Ludwig specia­li­zes in the ongo­ing manage­ment of natio­nal and inter­na­tio­nal private equity and venture capi­tal funds and in provi­ding compre­hen­sive advice to wealthy (private) indi­vi­du­als with an entre­pre­neu­rial back­ground. The range of services in the private equity sector includes the prepa­ra­tion of annual finan­cial state­ments and tax returns for dome­stic struc­tures as well as compre­hen­sive and complex sepa­rate and uniform decla­ra­ti­ons for dome­stic share­hol­ders of foreign private equity funds, inclu­ding any AStG declarations.