Tax Compliance for Private Equity Funds — Current Developments

Open questions as well as various innovations and changes in the area of formal tax compliance occupy domestic and foreign private equity funds and their investors on an almost daily basis. The current developments on selected topics of formal tax compliance are outlined below.

The separate and uniform determination of the bases of taxation from foreign partnerships in which several (domestic) taxpayers have an interest has gained considerable importance, not least due to the decision of the German Federal Fiscal Court ("BFH") of August 2011, in which the BFH commented for the first time on the qualification of the activities of a private equity fund.

Also with regard to the required notification of the acquisition of interests in foreign partnerships and corporations by domestic natural persons and corporations, further previously unresolved issues have been clarified in the meantime following intensive discussions with the tax authorities.

In connection with the U.S. Foreign Account Tax Compliance Act ("FATCA"), with which the U.S. would like to record the worldwide, i.e. in particular the foreign income of U.S. taxpayers completely and without gaps, some relief is currently emerging through the draft of an intergovernmental agreement between the U.S. and the finance ministries of the G-5 countries. This presentation of current developments on selected topics of formal tax compliance is an update of the articles covered in the FYB Financial YearBook in previous years.

1. Separate and uniform determination of income from foreign partnerships in which several domestic taxpayers participate - relevance of income qualification

The trend highlighted in the FYB Financial YearBook 2010, according to which the tax authorities are increasingly approaching individual German investors and requesting them to submit a separate and uniform declaratory statement, has accelerated in the recent past. In daily consulting practice, a considerable increase in such requests can be observed. In this context, the tax authorities have also started to inform the investor contacted of the other German investors known to the tax authorities and, with reference to the relevant statutory provisions in the Tax Code,