Online message – Thursday, February 1, 2024
Corporate tax | Union lawfulness of fund taxation according to the InvStG 2004 (BFH)
A fund for collective investments set up under Luxembourg law in the form of a specialized investment fund can be qualified as a special purpose asset within the meaning of Section 1 Paragraph 1 No. 5 of the Corporation Tax Act and be subject to limited corporation tax liability on its domestic income (BFH, judgment of October 11th. 2023 – IR 23/23 (IR 33/17), published on February 1, 2024).
Facts and procedure:
The subject of the proceedings is the question from the BFH to the ECJ v. December 18, 2019 – IR 33/17 (BFHE 269, 225) on the preliminary ruling and the subsequent ECJ ruling L Fund v. April 27, 2023 C 537/20, EU:C:2023:339 (see our online message from October 22, 2020).
The plaintiff is a so-called fund for collective investments (fonds commun des placement – FCP), designed as a specialized investment fund (SIF), which was launched under Luxembourg law via specialized investment funds and is subject to investment supervision in Luxembourg.
A SIF-FCP is an authorized undivided set of assets managed on behalf of the community of investors. Their liability is limited to their contribution and their rights are embodied in their shares. The SIF-FCP does not have its own legal personality. As a specialized investment fund, it is essentially not subject to taxation in Luxembourg.
The plaintiff is not traded on the stock exchange. Neither the headquarters nor the management are located in Germany. It was set up as a closed real estate fund initially for ten years (with an option to extend by one year). He has two institutional investors who are also not based or have their management in Germany. The right to return shares during the contract term was excluded.
The plaintiff earned income from renting out real estate in the years 2008 to 2010 (years in dispute). The plaintiff made the first distributions in the fall of 2010.
The plaintiff submitted corporate tax returns for the years in dispute in accordance with limited corporate tax liability; At the same time, he denied being liable for corporate tax. The FA, on the other hand, assumed a limited corporate tax liability and set corporate tax.
The FG Münster, which was then called upon, essentially confirmed the tax authorities’ legal opinion in its dismissal judgment of April 20, 2017 10 K 3059/14 K.
The BFH dismissed the lawsuit after the decision of the ECJ v. April 27, 2023 – C-537/20 “L Fund” responded to its request for a preliminary ruling and overturned the judgment of the FG Münster.
The BFH judges stated:
According to the standards of domestic law, the plaintiff is subject to limited corporate tax liability.
However, for reasons of Union law, the plaintiff must be granted tax exemption in accordance with Section 11 Paragraph 1 Sentence 2 of the Investment Tax Act in the version applicable in the years in dispute (InvStG 2004).
According to the wording of the provision, the requirements for the application of the tax exemption contained in Section 11 Paragraph 1 Sentence 2 InvStG 2004 in favor of the plaintiff are not met. However, in the judgment L Fund of April 27, 2023 – C-537/20, issued on the basis of the Senate’s order for reference in the context of the present proceedings, the ECJ, which is responsible for the interpretation of Union law, decided that Article 63 of the Treaty on the Functioning of the European Union Union as amended by the Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community TFEU (Official Journal of the European Union 2008, No. C 115, 47) is to be interpreted as conflicting with the legislation of a Member State in which non-resident special real estate funds are partly subject to corporation tax on real estate income which they derive on the territory of that Member State, while resident special real estate funds are exempt from this tax.
This means that the plaintiff is out
To grant tax exemption under Section 11 Paragraph 1 Sentence 2 InvStG 2004 for reasons under Union law. Contrary to the opinion of the BMF, the granting of tax exemption cannot be made dependent on the condition that investor taxation is comparable to domestic structures.
Those:
BFH, judgment of 10/11/2023 IR 23/23 (IR 33/17) (GR)
Location(s):
NWB ZAAAJ-58323