ISLA Responds to German Ministry of Finance’s Draft Circular

ISLA has sent a letter to the German Ministry of Finance responding to their draft circular released on 25 January 2018. 

Steve Raddon, BNYM and Chair of ISLA’s Tax working group, summarised what the response intends to do:

  • Demonstrate and explain that enforcing lenders to file a German Corporation Tax return may have a significant and negative impact on liquidity, and ask the BMF to consider whether a German or foreign agent (lending agent, borrower, onshore service provider, etc.) can be appointed to withhold tax,
  • Explain that funds may need to change their year-end to tie in with the accounting requirements of the corporate tax return,
  • Request clarity on the dates around in-scope transactions – the circular as drafted suggests that if the loan is over the pay date, the trade is in scope even if a manufactured payment is not due,
  • Ask whether offshore branches of German banks can/are required to be a withholding agent, and
  • Request details of the tax office to whom a non-resident fund should file a return.

This is a direct response to the draft circular – further issues will be raised during the next phase of our engagement with EY.  The main point ISLA make in this submission is that to ensure the maximum amount of available liquidity is retained, there should be optionality around withholding of the tax rather than the enforcement of a lender to file a corporation tax return.

ISLA have stressed the urgency of the formal publication of this circular, given the significant change to the tax base it makes.

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