German Investment Tax: Case Study

Tax transparency for a Hedge Fund platform

The Issue

An international Hedge Fund operation has identified Germany as one of its key markets in Europe. One element that was key to the client's approach of the market was to ensure that future investors would benefit from a most advantageous taxation position on their returns; with this in mind, the funds should be considered "tax transparent" under German rules. The main constraints were:

• The client's sales team was confronted with the request for a commitment to full "tax transparency" of the funds, after marketing of the fund commenced;
• Various fund administration companies have been providing services to the client, each working in a different environment and/or jurisdiction;
• Neither the client nor the administrators involved had any experience in German tax reporting.

We have been requested to assist the client and its administrators with regard to tax reporting functionalities and we have also been asked to review the tax reporting of the funds.

Our Approach

Our approach to the project included the following steps:

• Phase 1

A tax technical training has been held for key staff of the Hedge Fund house and for the main administrators. A task force has been created, for which a three day workshop on the tax technical details was organised.

• Phase 2

The administrators have set up German tax functionalities, which were tested by our team. This test was again followed by a debriefing workshop with the task force in order to discuss findings, recommendations and tax technical questions.

• Phase 3

Technical implementation was finalised by the client's task force and "live" production of tax reporting has started. Finally, the tax reporting for all funds has been submitted to us for review.

The Outcome

At the end of the project, all funds were compliant with German tax reporting requirements, i.e. achieved a "tax transparent" status. The client's objectives were met, including:

• Set-up of a competence centre in the client's organisation;
• Effective knowledge transfer and ongoing support by our team;
• Reducing (recurring) efforts for the administrators to establish the annual German tax reporting;
• Ensure a smooth and quick review/certification process at reasonable cost for the client.