GERMANY - Fund industry association BVI has failed in its efforts to persuade the government to introduce future tax breaks on investment funds designed for retirement saving.

In late May, Germany's Bundestag, or lower house of parliament, approved a draft law introducing a 25% capital gains tax on securities and investment funds.

If, as expected, the Bundesrat (upper house) follows suit, the capital gains tax will take effect from January 2009 as it is intended to help finance a major corporate tax reform to be undertaken next year.

Arguing Germans need an incentive to save for retirement, BVI president Wolfgang Mansfeld urged the government last January to provide tax breaks on funds used for that purpose.

Specifically, Mansfeld's demands entailed waiving the tax if a saver holds on to a fund for at least 12 years or if the saver begins to withdraw from the fund after 60.

But the government draft law to be approved by the German parliament has ignored the BVI's case and the law now being introduced does not permit investors to count losses against capital gains for more than one asset class.

Said the BVI: "The planned capital gains tax will lead to more bureacracy, has worsened the conditions for retirement saving and unfairly discriminates against funds."

The BVI added while its demands had been ignored by Berlin, "we'll continue an intense dialogue with lawmakers regarding our concerns and there is the hope that the tax can be improved in the future".

But other asset management sources in Frankfurt told IPE: "Basically, the BVI was told to shut up about the tax by the BDI and BdB [Germany's main industry and banking lobbies, respectively].

"That's because they are afraid that the governing Social Democrats might torpedo the whole corporate tax reform if the BVI complains too loudly."

A BVI spokesman said "it was news to him" the BDI and the BdB have tried to influence his associations dealings with Berlin.

Spokespeople for the BDI and the BdB were unavailable for comment.

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