GERMANY – Proposals to apply a new capital gains tax to both profits that funds make on investments and gains investors make on the funds are to be amended.

In November 2002, German finance minister Hans Eichel proposed the application of a “double taxation”, which enraged the fund industry. Previously capital gains at the fund and investor level were exempt from tax, but the new proposals called for taxation at both levels.

On Friday, however, it was announced by government officials that the draft legislation was to be amended. It is believed that the double taxation proposal will be scrapped in the new draft.

Says Frank Bock, spokesman for the BVI, Germany’s mutual fund association: “The new draft for the tax bill will arrive at the beginning to mid-February. We think that the double tax will not be introduced, but we are waiting to see the new draft for confirmation.”

Although the announcement has pleased fund market participants, the discriminatory elements of the proposal – with regards to foreign funds – have not been discussed. It has been proposed that investors in funds run by foreign fund managers will pay twice as much capital gains tax as investors in domestic funds.

The European Commission is looking into the proposals, and last week a group of 11 fund managers, backed by the BVI UK-based Investment Management Association, a trade body for the asset management industry, threatened to sue the German government if the proposals go ahead.