Germany: tax law changes with impact on brokers and foreign life insurers

Brokers expanded obligation to support tax authorities

Brokers have to report capital-accumulating life insurance contracts that are concluded after 31 December 2009 between a person residing in Germany and an insurer having its registered office and management abroad. The data will then be collected by the Central German Tax Office (Bundeszentralamt für Steuern). Insurance companies can also voluntary inform the Central German Tax Office by 30 March of the next year and notify the insurance broker of this fact.

The duty to report is not supposed to apply, however, to foreign companies having a registered branch office in Germany.

Foreign insurers are to withhold flat-rate capital gains tax

Also, the obligation to withhold capital gains tax has been expanded due to the amendment of the 2009 annual tax bill. It now includes domestic branches of foreign insurance companies.

This affects gains from capital-accumulating life insurance policies (in terms of §20(1) No. 6, with corresponding amendment in §43(3) of the German Income Tax Act (EStG)). It first influenced the capital gains accruing to creditors after 31 December 2008.

Foreign branches are obligated to withhold the capital gains tax regardless of whether the payout of the insurance benefit is carried out through them or not.

The legislative intent is to treat foreign and domestic insurance companies as equally as possible by way of this amendment and to ensure compliance with German tax law. The Association of International Life Offices, AILO, which represents the interests of the foreign life insurers in Germany, did not express any concerns about this.

Tax advantage has been narrowed

The amendments from 2008 relating to the "taxation of capital gains and income from capital assets in life insurance policies in connection with the flat-rate capital gains tax", including the legislative intent, took up nine pages by themselves.

With this adjustment, so-called asset-managing insurance contracts in which the "investor acts as the one in control" became subject to capital gains tax.

At the same time, life insurance contracts that are "offered with minimalistic coverage" are no longer to enjoy tax privileges.

The financial experts were complying with the suggestions made by the Federal Council in full.

Tax-optimised money market funds under pressure

There has also been consent between the coalition fractions and the Federal Council with regard to tax-optimised investment assets, for which so-called deemed distributions are to become subject to flat-rate capital gains tax in the future.

However, it can be concluded from the joint motion for amendment that has been submitted that numerous exemptions are to be possible.

As stated in the paper, "this parliamentary bill satisfies the Federal Council's wish with regard to money market funds, which are primarily addressed, and purposefully closes the current tax loophole caused by the combination of the transitional rule with the non-taxability of accumulated income from futures transactions or securities sales."