Potential return of billions to investors following the recent BFH ruling

In a landmark decision, the Federal Finance Court (BFH) has ruled that foreign investment funds can claim a refund of capital gains tax on German dividends (Az. I R 1/20). This change, which was generally positively evaluated, has the potential to benefit investors to the tune of up to €4 billion.

The tax equalization of domestic and foreign investment funds, brought about by the investment tax reform of 2018, is the foundation for this ruling. However, it's important to note that the refund goes to the fund itself, not directly to the investors.

If the fund company receives a refund of the incorrectly levied capital gains tax, it could potentially benefit investors through refunds being made to the fund. This could have a positive effect on the value of the fund's assets, indirectly benefiting investors.

However, there are no direct claims by investors for the refund of capital gains tax. The responsibility for asserting refund claims lies with the fund company, not with individual investors. Affected investors do not have to take action themselves; the fund company is obligated to do so.

In the case of deceased investors, their heirs benefit from any refund to the fund, provided they still hold the fund shares and have not sold them in the meantime. But if investors have sold their fund shares in the meantime, they have no claim to a retroactive refund.

The tax treatment of accumulating funds has been criticized, as taxation occurs before the inflow, leading to a higher tax and administrative burden for investors. The simplification of the system with the introduction of the advance flat rate and the standardization of the taxation of income from public funds has helped alleviate some of these issues.

Daniel Sahm, a partner at the tax firm Gärtner & Sahm in Rottenburg am Laim, specializes in tax issues related to capital investments. He emphasizes that the issue concerns the legal ability to assert claims for refund rather than investor liability. Investors have no personal liability if they cannot claim repayment of capital gains tax on German dividends from foreign investor savings funds.

In conclusion, the BFH's decision could have significant financial implications for investors in foreign funds. While the refund goes to the fund itself, the potential positive impact on the value of the fund's assets could indirectly benefit investors. It's a step towards harmonizing tax rules and simplifying the system, making it more favourable for investors.