Real estate investment trusts (Reits) may not be launched in Germany as planned in January 2006 beca...
Real estate investment trusts (Reits) may not be launched in Germany as planned in January 2006 because of government concerns that international investors might be able to avoid paying tax on dividends.
The uncertainty over Reits has been caused by split views within the Federal Ministry of Finance. Speaking at the International Investment German Austrian Forum in Frankfurt, Clemens Schafer, head of product development and management of DB Real Estate Management, said the tax department within the Federal Ministry of Finance is concerned that if a Reit has foreign investors they will not pay tax on dividends to the German authorities. Reits have to distribute 90% of their income to shareholders, with investors paying the tax.
"Under double taxation treaties, dividends are taxed where the investor lives," said Schafer. "The tax department is concerned about missing out on revenues if investors live outside Germany. All the suggestions have drawbacks. A withholding tax or over-riding double taxation treaties may be challenged in German courts or the European Supreme Court."
The capital markets team at the Federal Ministry of Finance wants Reits to be introduced as they believe it will strengthen the country's financial markets. Schafer added: "Whether Reits will be introduced in January 2006 depends on which team will be stronger and whether the property industry can organise itself to present one view. I was more confident in February but now there is a 50:50 chance."
Meanwhile, Achim Putz, founder, chairman and partner of SJ Berwin, is more optimistic about the outlook for hedge funds. In Germany, he said around B18bn has been invested in hedge fund products since the start of January 2004 but this will increase because insurance companies can now invest up to 5% of their restricted assets in hedge funds. "The potential is shown by the fact that the 70 largest insurance companies have B40bn to B50bn in assets."
He said fund of hedge funds have found it difficult to comply with the need of all the underlying funds to detail all potential dividends and income tax liabilities.
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