(Denied) Tax Neutrality of Capital Repayments — The Hidden Introduction of Substantive Taxation?

The taxation of private equity funds and the shareholders of private equity funds who are taxable in Germany taxable in Germany, has become increasingly important in recent years.
more and more into the focus of the financial administration. In the area of auditing specialized teams with corresponding personnel reinforcement were established, These teams are intensively trained internally by more experienced auditors by experienced auditors with regard to the special features of private equity structures.

In principle, this is also to be welcomed from the point of view of the private equity industry and its tax advisors, as it facilitates a constructive exchange on factual issues, which in most cases also leads to an appropriate agreement on doubtful issues in the course of a tax audit. In recent years, numerous topics have been discussed intensively and objectively, and compromises acceptable to both sides have been found in each case, also taking into account the different structures of the private equity funds. As an example, we would like to mention the discussions regarding the (non-) application of the building owner decree to private equity funds and the resulting capitalization of an annual management fee for the acquisition of portfolio companies or target funds (we already described the initial discussions on this topic in the FYB Financial Yearbook 2018).

These approaches to solutions found together with the tax authorities are also of enormous importance because, following the agreement, they are implemented accordingly in the subsequent ongoing annual tax returns and these topics do not supposedly have to be discussed again in the follow-up audits and determinations and calculations made do not have to be adjusted.