GERMANY- Proposals by Germany’s coalition government that individuals are to pay capital gains tax on profits from share sales is causing concern for the fund industry, and threatening the new third pillar pensions system.

According to the new proposals, investors, who now pay no capital gains tax if they hold shares for more than a year, will face a tax of between 20% and 49%, depending on their income, irrespective of when they sell.

Fund management companies are concerned that this will destroy the equity culture that has been gradually building up in Germany, as well as preventing the private pensions market from growing.

Says Carsten Boehme, spokesman for DWS Investments in Germany: “the introduction of the capital gains tax would have dramatic consequences. The third pillar system is much needed as the pay-as-you-go system is not working.

"The state asks people to put money aside for retirement, placing it in equities, and then they are told that the savings are going to be taxed. It’s complete nonsense and it’s going to make it very difficult to grow the third pillar market.”

A further proposal by the government is to make banks report the revenues of each worker to the financial authorities. Banking accounts would then be transparent, showing each individual’s gains and interest.

“It depends on how employers will react, but this could lead to fund companies transferring to Luxembourg and Switzerland, so that accounts remain private. It could have similar repercussions to the introduction of the Quellensteuer (withholding tax),” says Boehme.

It is unsure whether the proposals will make it through the Bundesrat, however. “The proposals have received such a negative reaction,” believes Boehme. The German government has made the proposals to help it balance its budget.




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