Germany: Taxation of securities lending transactions - Draft guidance released
Published: 20 February 2018
The German Federal Ministry of Finance has released draft guidance on the German Investment Tax Act of 2018 which was introduced on 1 January 2018.
The draft, which is only available in German, can be found on the website of the International Securities Lending Association (ISLA) (here).
The Investment Tax Act changes the tax treatment of income arising to foreign investment funds from securities lending and repo transactions over German equities. Transactions in scope would only cover income from securities lending and repo transactions between a lending investment fund and any counterparty conducted over the relevant dividend record date. Transactions completed before, or entered into after the dividend record date, in absence of a real dividend payment and therefore consequently in absence of the manufactured dividend payment, will be treated as out of scope.
The draft guidance also provides that tax must be collected by withholding. However since withholding cannot be enforced by German tax authorities on non-resident borrowers, lenders would be required to file a German corporate tax return and declare the income as received. The guidance is silent on whether manufactured dividends would be covered as dividends or other income under double tax treaties where the investment fund is able to claim benefit. The ISLA has submitted a response to the draft guidance (here).