Controversial discussion over the proposed tax consultation regulation

In the world of finance, the market for tax consulting has been a lucrative attraction for financial investors. The small and medium-sized nature of the industry has made it an appealing target, with investors employing complex structures to gain entry.

Recent developments, however, suggest a shift in this landscape. The draft bill, known as the "Ninth Act Amending the Tax Consulting Act," aims to restrict foreign ownership by financial investors in the tax consulting market.

This proposed legislation has sparked debate among legal professionals. Critics, including Dirk Uwer, partner at Hengeler Mueller, have harshly criticised the draft bill, stating that the justification for the new regulation is a written lie. Noerr lawyer Mayer, on the other hand, warns of potential legal conflicts, such as the shareholder and capital structure of EU audit firms being subject to the law of their respective country of origin, which could contradict the current draft.

The draft bill seeks to stop indirect participation through a seemingly innocuous addition that "clarifies" requirements for shareholders of tax consulting firms and participants on the further levels of multi-tiered companies. If implemented as currently formulated, it would require multi-tiered participation structures to comply with German tax consulting law at every level, including foreign audit firms.

Private equity has already made its way into the German tax consultant landscape. Firms such as EQT (invested in WTS), KKR (involved in the financing of the tax consultant group ETL), and Afileon (backed by the Swiss Partners Group) are among the players in this space. Afileon, a private equity-backed tax consulting firm, has gathered around 100 professionals under its umbrella in 22 partner firms, with more than 80 other firms expressing interest in cooperation.

Afileon, within the framework of an EU holding, has warned against an expansion of the "German special way" in foreign ownership. The foreign ownership ban stipulates that "professionally unrelated third parties" may not be shareholders in a tax consulting firm and may not acquire a pure capital participation.

The search results do not provide specific names of companies in the tax advisory sector currently held by private investors that could be affected by the proposed law; the information only discusses the potential regulatory changes affecting financial investor participation in tax advisory firms in general.

As the draft bill goes through a hearing procedure, associations, chambers, and states can now express their views. The draft bill, if implemented as currently formulated, could have explosive potential for investors due to the lack of an explicit grandfathering provision for existing participations, according to Florian Hirschmann, partner at Ashurst.

Hartmut Schwab, President of the Federal Chamber of Tax Consultants, emphasises the importance of clients being able to rely on the fact that consultants who have deep insight into confidential company information are free from conflicts of interest.

With Brussels expected to have an influence on the final version of the draft, it is estimated that the bill will come into effect no earlier than mid-2026, with the final version looking significantly different from the current draft. The future of the tax consulting market in Germany remains uncertain, as investors and industry professionals await the final decision.