Private equity investors have come to know it through painful experience – Section 13 Foreign Tax Act (Außensteuergesetz “AStG”). According to this provision, so-called interim income of a capital investment nature, in particular interest income, had to be declared separately.
What may seem unspectacular at first glance has in practice meant that participants in domestic and foreign partnership structures had to fulfil additional reporting obligations in addition to the partnership tax return. Particularly in the case of multi-level fund structures with a large number of holding companies upstream of the actual target portfolio companies, the search for so-called passive income of a capital investment nature became an administrative challenge that was almost impossible to manage in practice, especially since shareholders with very small holdings of less than 1% calculated through the partnership often (understandably) fell on deaf ears with their extensive requirements for holding company annual financial statements and other documents, particularly in the case of foreign funds. It was often objectively impossible to comply with the statutory declaration requirement, yet taxpayers were often threatened with harsh estimates for the passive income sought, amounting to at least 20% of the market value of the shares held, and even accusations of tax evasion. Taxpayers and their advisors can now breathe a sigh of relief:
On 19 December 2025, the Federal Council amended Section 13 of the AStG almost unnoticed as part of the so-called Minimum Tax Adjustment Act, which contains amendments to a large number of tax laws.
The extended additional taxation is thus regularly off the table for private equity funds and their investors.
Since then, passive income of a capital investment nature only has to be declared if an investor holds at least a 10% stake in a foreign company with low-taxed capital income. Since investments in private equity funds are based on the calculated investment ratio of the respective investor, the new regulation should no longer have any practical relevance, with very few exceptions.
The new regulation applies retroactively to all assessment periods from 2022 onwards.
Practical tip:
From the 2022 assessment period onwards, only the partnership tax returns will therefore have to be prepared for investments in private equity partnerships. It must also continue to be examined whether applications for repayment of contributions pursuant to Section 27 (8) of the Corporation Tax Act (KStG) are to be submitted (RoC applications). The latter applies in particular if there are corporate holding companies based in the EU or third countries in fund structures. As usual, RoC applications must be submitted by the distributing corporation, which in turn often poses a major challenge, especially in the case of foreign holding companies. Last but not least, the usual reports on foreign shareholdings pursuant to Section 138 of the German Fiscal Code (AO) must of course continue to be prepared, but in this case the reporting obligation remains with the domestic taxpayers, who must obtain the necessary information from the respective fund companies.
Good news:
With the new regulation applicable since 2022, the proportional exclusion of trade tax reductions pursuant to Section 9 No. 2 of the Trade Tax Act (GewStG) will no longer apply in many fund structures. If trade tax assessment notices have already been issued, objections should be filed or an application for amendment should be submitted at the latest when the reservation of review pursuant to Section 164 of the German Fiscal Code (AO) is lifted or in the upcoming tax audit.
