Tax Compliance for Private Equity Funds
With the entry into force of the KAGB, new private equity funds — unless they are funds of a capital management company (“KVG”) only registered with BaFin — must be established in the legal form of an investment limited partnership (“Invest-KG”) or investment stock corporation (“Invest-AG”). In principle, the provisions of the German Commercial Code (HGB) are also applicable to these Invest-KGs, but the German Investment Code (KAGB), as a lex specialis, is to be applied with priority. As a result, size-dependent relief options under the HGB, for example, cannot be taken advantage of.
Exclusive accounting in accordance with the HGB now only applies to alternative investment funds (“AIFs”) that are not Invest-KGs or Invest-AGs and that are also not covered by certain transitional arrangements. These transitional provisions relate in particular to public AIFs for which, in addition to the German Commercial Code (HGB), the corresponding provisions of the German Investment Code (KAGB) including supplementary provisions of the German Capital Investment Accounting and Valuation Ordinance (“KARBV”) or the German Investment Act (“VermAnlG”) apply.
With regard to the individual changes, a distinction must be made between new private equity funds, i.e. those already launched under the application of the KAGB, and private equity funds already existing before the introduction of the KAGB. — In the annual financial statements of a “new” Invest-KG, the following items must be adjusted or expanded in comparison to the previous HGB financial statements under the application of the KAGB:
- different balance sheet structure
- Recognition of an “unrealized result” in the income statement
- Application of special valuation methods
- Expansion of the disclosures required in the notes to the financial statements under HGB
- Presentation of a (profit and loss) utilization account
- Presentation of a statement of changes in equity
- Preparation of a management report (expanded compared with the HGB)
The applicability of the individual laws to the “old” private equity funds already existing before the introduction of the KAGB, on the other hand, is determined by various factors, such as the end of subscription (“final closing”) as well as the end of investment activity. The legal changes lead to various extensions of the existing reporting requirements under the German Commercial Code (HGB). The following positions must normally be added to the previous degree:
- Activity Report,
- Report on the remuneration of the KVG
- Overview of investments
- Information on the total expense ratio according to KAGB
With regard to the annual financial statements of a “new” Invest-KG, there is an obligation to audit as well as to disclose within six months after the end of the financial year. At the same time, the annual financial statements must be submitted to BaFin.
If the VermAnlG applies to “old” private equity funds, the extended annual financial statements must be audited and disclosed within nine months of the end of the financial year. By contrast, if the HGB is applied with the corresponding transitional provisions of the KAGB, no mandatory audit of financial statements will be required in the future either. The size-dependent relief option for filing the balance sheet with the Federal Gazette also continues to exist for these private equity funds. However, in both cases, the (audited) annual financial statements must be submitted to BaFin immediately after preparation and made available to the public, for example. be made available on the website of the respective fund manager (Alternative Investment Fund Manager, AIFM).