Commission Decision of 30 September 2009 on aid scheme No C2/09 (ex N 221/08 and N 413/08) which Germany intends to grant to modernise the general conditions for capital investments (notified under document C(2009) 7387) (Text with EEA relevance)

• Published date: 09 January 2010
• Date of Signature: 29 January 2010
• Official Gazette Publication: Gazzetta ufficiale dell’Unione europea, L 6, 09 gennaio 2010,Diario Oficial de la Unión Europea, L 6, 09 de enero de 2010,Journal officiel de l’Union européenne, L 6, 09 janvier 2010,Diario Oficial de la Unión Europea, L 101, 22 de abril de 2010

9.1.2010 EN Official Journal of the European Union L 6/32

---

COMMISSION DECISION

of 30 September 2009

on aid scheme No C2/09 (ex N 221/08 and N 413/08) which Germany intends to grant to modernise the general conditions for capital investments

(notified under document C(2009) 7387)

(only the German text is authentic)

(Text with EEA relevance)

(2010/13/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and having regard to their comments,

Whereas:

1. PROCEDURE

(1) By letter dated 30 April 2008, registered at the Commission on the same day, the German authorities notified the Commission of two measures relating to liability for trade tax and exemption from the restriction on loss carry forward (N 221/08), for the purpose of legal certainty. By letters dated 26 June and 23 October 2008 the Commission asked for additional information. Germany responded by letters dated 24 July and 21 November 2008, registered on the same day.

(2) By letter dated 22 August 2008, registered at the Commission on the same day, the German authorities notified the Commission of a third measure concerning tax benefits for private investors (N 413/08), for the purpose of legal certainty. A meeting between the German authorities and DG COMP took place on 9 October 2008. Germany then submitted additional information by letter dated 19 November 2008, registered on the same day.

(3) On 28 January 2009 the Commission initiated the formal investigation procedure for all three measures. The summary of the decision was published in the Official Journal on 14 March 2009 (2). The German authorities submitted their observations in a letter dated 3 March 2009, registered on the same day. Third parties submitted their comments in letters dated 9 and 14 April 2009, registered on the same day. Germany was informed of these comments on 23 April 2009 and submitted its response thereto in a letter dated 22 May 2009, registered on the same day.

2. DESCRIPTION

2.1. Objective of the measures and budget

(4) The notifications relate to three tax measures and include two definitions of beneficiaries. All measures have been incorporated into the Bill to Modernise the General Conditions for Capital Investments (Gesetz zur Modernisierung der Rahmenbedingungen für Kapitalbeteiligungen, hereinafter ‘MoRaKG’). These measures have the common objective of facilitating the provision of private venture capital to a specific group of companies, defined as ‘target enterprises’ (hereinafter TE).

(5) The first measure (registered under N 221/08) aims to facilitate the provision of risk capital by applying specific eligibility criteria for ‘venture capital companies’ (hereinafter VCC) to be exempted from the liability for trade tax (Gewerbesteuerpflicht). Germany estimates the annual tax loss from this measure at EUR 90 million.

(6) The second measure (also registered under N 221/08) mitigates the restrictive anti-abuse rules on loss deduction, allowing TEs to carry forward the losses if a VCC acquires their shares. Germany estimates the annual tax loss from this measure at EUR 385 million.

(7) Under the third measure (registered under N 413/08), natural persons investing in TEs (hereinafter also referred to as ‘private investors’) are entitled to income tax benefits in the case of capital gains on divestures. Although the tax advantage is granted directly to the private investors, TEs may benefit indirectly from this measure in that they receive more investment. Germany estimates the annual tax loss from this measure at EUR 30 million.

2.2. Beneficiaries of the measures

(8)

The beneficiaries of the three tax measures in the MoRaKG are VCCs and TEs as defined by the MoRaKG and private investors, mostly business angels, as follows: Trade tax measure Exemption from the prohibition on loss carry forward Income tax benefit VCCs Directly Indirectly No TEs No Directly Indirectly Individuals No No Directly

(9) VCCs are companies which are recognised as such by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht — BaFin) and which are not simultaneously registered as an equity investment company (3) (Unternehmensbeteiligungsgesellschaft). Further criteria for qualification as a VCC are as follows: — their articles of association must have as their object the acquisition, holding, management and sale of venture capital participations. 70 % of the total assets managed by VCCs must be equity holdings in TEs, — they must have their legal domicile (Sitz) and their corporate management (Geschäftsleitung) in Germany, — their initial capital (Grundkapital) or the contributions made by their members under the company’s memorandum of association must amount to no less than EUR 1 million, — they must have at least two managers, who must be trustworthy and suitably qualified to manage a VCC.

(10) TEs must be incorporated enterprises (Kapitalgesellschaft) and fulfil the following conditions: — they must have their legal domicile and corporate management in a State that is a contracting party to the Agreement on the European Economic Area, — at the time when the participation is acquired by a VCC, they must have owner’s equity of not more than EUR 20 million, — they must have been set up not more than ten years before the time when the participation is acquired by a VCC, — at the time when the participation is acquired by a VCC, they must not have had any securities (Wertpapiere) admitted to or traded on an organised market or an equivalent market.

(11) The measure does not elaborate on the definition of a TE as regards the definition of firms in difficulty (4).

2.3. Trade tax

2.3.1. Background

(12) German trade tax (Gewerbesteuer) is raised by local authorities with respect to economic activities carried out by permanent business establishments on the territory of a community/municipality. The idea is that these permanent business establishments should contribute to the cost of the local infrastructure they use. Trade tax has to be paid by all undertakings, irrespective of their legal status, if they are engaged in trading activities (gewerblich tätig) in the sense of trade tax and income tax law. Incorporated firms (Kapitalgesellschaften) are always considered to be engaged in trading activities. For partnerships (Personengesellschaft), a distinction is made with regard to their activity: if an undertaking is a partnership and it carries out exclusively asset management activities (vermögensverwaltend), it is not subject to trade tax. On the other hand, partnerships which are engaged in trading activities are subject to trade tax.

(13) The Federal Ministry of Finance issued a letter (5) (hereinafter letter of 2003) on the distinction between trading activities and asset management activities of venture capital funds and private equity funds (hereinafter VCF/PEF). On the basis of this letter, VCFs/PEFs are subject to trade tax if their activity is considered to be a trading activity. However, if they pursue only asset management, they are not subject to trade tax. This letter of 2003 is based on a judgment of the Federal Financial Court (BFH) of 25 July 2001 (6), according to which VCFs/PEFs do not pursue a trading activity where the following criteria are complied with: — no use of bank loans/no acceptance of collateral, — no extensive separate organisation to manage the fund portfolio, office use not more than what a large private fortune would require (7), — no market exploitation using professional experience, — no public offering/own-account trading, — no short-term investment, — no reinvestment of the proceeds of sale, — no own commercial activity in portfolio companies (eigenes unternehmerisches Tätigwerden in den Protfoliogesellschaften), — no commercial character or ‘commercial infection’ (gewerbliche Infektion) (8).

(14) In substance, these criteria are intended to clarify the traditional distinction enshrined in German tax law between trading and non-trading activities of VCFs/PEFs. Asset management is seen as a non-trading activity. The distinction between trading and non-trading activities is very fine and the subject of numerous court decisions, inter alia, by the Federal Financial Court. As a general rule, VCFs or PEFs are engaged in trading activities whenever the trading of assets (short periods between purchasing and selling assets, such as securities) represents a significant part of their activities (9).

2.3.2. Clarification on trade tax under the MoRaKG

(15) According to the notification, Article 1 Section 19 of the MoRaKG includes a ‘clarification’ of the letter of 2003, and allegedly there is no substantial difference between the two.

(16) Under the above provision, VCCs in the legal form of a partnership which are engaged only in the acquisition, holding, management and sale of venture capital holdings and which have holdings only in incorporated companies shall be treated for income tax purposes as companies carrying out asset management activities. VCCs shall be deprived of their non-trading status especially where they

...