An appeal is pending before the Federal Fiscal Court (Bundesfinanzhof, or BFH) in
respect of the tax exemption provided for under section 11(1) sentence 2 of the German Investment Tax Act for German real estate funds (in the version applicable until 31 December 2017). The question of the appeal is whether the failure to grant the exemption constitutes discrimination against foreign real estate investment funds and violates the free movement of capital principle. The BFH suspended the proceedings and asked the ECJ for a preliminary ruling on the matter.
The decision of the ECJ will be of significance as there are numerous tax regimes in the EU where domestic funds or domestic REITs enjoy a tax privilege which is not granted to foreign comparable market players. These privileges exist because legislators risk being unable to tax the German-sourced income of foreign funds where an equivalent exemption is granted.
