EUROPE – Eleven US and European fund managers have joined forces to campaign against the German government’s new tax proposals, which they feel discriminate against foreign investment managers.

Under a new law proposed by the German government, investors in funds run by foreign fund managers would pay twice as much capital gains tax as investors in domestic funds, and the 11 firms fear that the tax may force many foreign fund managers out of business.

The current law, whereby investors in foreign-domiciled funds have to pay tax on their total dividend income, compared to investors in domestic funds who pay tax on half their dividend income, has already been criticised as discriminatory. The latest capital gains tax proposals have only served to anger foreign fund managers further.

It is believed that the new legislation, if passed, would compromise Germany’s obligations under European law in addition to contradicting the commitment of EU governments to liberalise the single market for financial services in Europe.

Although the German government has said that it will review discriminatory measures in 2004, fund managers feel it could be too late by then. The new tax laws are expected to take effect in February 2003.

The 11 management firms, all active in the German investment funds market, have asked for talks with Frits Bolkestein, the European commissioner for the single market. The firms have also written an open letter urging the German government to remove the discrimination, and to meet its obligations regarding a single market in Europe.

The letter will be sent to each member of the German parliament ahead of the government’s plan to present a draft bill later this month.

FEFSI, the European federation of investment funds, and Germany’s mutual fund association, BVI, have agreed to support the following 11 fund management firms:

Fidelity Investment Services
Franklin Templeton Investments
Gartmore Investment Management
Goldman Sachs Asset Management Europe
Henderson Global Investors
JP Morgan Fleming Asset Management
Jupiter International Group
M&G International Investments
Merrill Lynch Investment Fund Managers
Schroders Investment Management
Threadneedle Investment Services

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