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German tax reform to bolster private equity industry

The German government is considering proposed tax reforms today, which are designed to bolster the country's flagging private equity industry. The reforms recommend that the percentage of a general partner's carried interest that is subject to taxation should be reduced from 100 per cent to 50 per cent.

Until 2002, carried interest was generally considered a capital gain and therefore tax free, but two years ago the finance ministry moved to close what it considered a 'loophole', declaring carried interest a fully taxable 'fee for services rendered. The reforms are widely expected to command cross-party approval.

'The thrust of the law is very positive,' Andreas Rodin, partner at tax and law firm Pollath & Partners, told the Financial Times. 'Germany is now back within international standards.'

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