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.