Germany to end fund discrimination

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GERMANY – German finance minister Hans Eichel announced today that as of 2004 foreign funds will no longer be discriminated against, following pressure from asset managers, organisations and the European Parliament.

Speaking at the University of Frankfurt today, Eichel said that the German government had looked into current tax laws under which investors pay more tax to invest in foreign funds than in domestic funds.

He said that in 2004 foreign funds would no longer be discriminated.

The current law, states that investors in foreign-domiciled funds have to pay tax on their total dividend income, compared to investors in domestic funds who pay tax on half their dividend income.

In December, 11 US and European fund managers joined forces to campaign against the German government’s new tax proposals. They were backed by FEFSI, the European federation of investment funds, and Germany’s mutual fund association, BVI.

Alan Ainsworth, chairman of the Investment Management Association’s European strategy committee, and lobbyist against the discrimination, welcomed the decision.

“This is a major step forward and is extremely helpful,” he said. “We understand that the discrimination cannot be reversed immediately, but that the new laws will be amended accordingly as part of the UCITS implementation, which must be completed by February 2004. We look forward to participating in drawing up the legislation.

“This reversal, of what would have been a very serious discrimination and barrier to cross-border business, is a result of intense lobbying by the UK industry, working in close co-operation with FEFSI and the German industry itself.

“It is the first time that such a collaborative, pan-European effort has been launched. We hope that this will set a precedent which will encourage the European authorities to take timely and effective action against other discriminatory measures that exist in Europe.”

Also today, Eichel announced plans to introduce a law which would help the alternative asset investment industry in Germany. Currently hedge funds are unregulated, but Eichel says a draft will be drawn up for a law that would essentially allow some hedge funds to be regulated.

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