German Taxation of Islamic Finance (Sukuk)

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1 German Taxation of Islamic Finance (Sukuk) Andreas Patzner BaFin Conference on Islamic Finance May 2012

2 Contents Particulars Slides Islamic Financial Instruments 2 Sukuk (Islamic Bond) 3 Sukuk (Islamic Bond) under the German tax law 4 Sukuk (Islamic Bond) under the EU-Law-Claims 5 Conclusion 6

3 Islamic Finanical Instruments Islamic Financial Instruments Equity based Debt based Special form Mudaraba Musharaka Murabaha Sukuk Sukuk-al-Ijara 2

4 Sukuk (Islamic Bond) Sukuk-al-Ijara (Sale-and-lease-back) Transfer of the assets/ sell buildung Initiator/Lessee pay price pay rent SPV/Lessor lease or investment in Sukuk-Certificates Purchase Price Stocks Investors The first Sukuk in Europe: Saxony-Anhalt in Germany

5 Sukuk (Islamic Bond) under the German tax law Sukuk- Certificates are from a German income taxation perspective full-riskcertificates Income and capital gains from such certificates are subject to corporate income tax of about 30 % for corporate... subject to income tax of up to 45 % for business individual... subject to flat tax of % for private individual Where investment funds hold Sukuk-certificates one has to distinguish Sukuks based on leasing transactions are regarded as tax disadvantageous DDI-Bonds Sukuks based on stocks (delta 1) are tax advantageous Non-DDI-Bonds 4

6 Sukuk (Islamic Bond) under the EU-Law-Claims Discrimination Opportunity Case Opportunity Oopportunity Country EU-Claiming Country Opportunity Country Sukuk/Corporation EU-Claming Country Sukuk/Corporation = Vehicle in your country Final Dividend Withholding Tax (WHT) Dividend Distribution EU-Claiming-Countries: Germany, France, Netherlands, Italy, Norway, Finland, Spain Discrimination Corporations resident in an EU-Claiming Country receive a full refund of Dividend- WHT with regard to Dividend-Distributions from resident companies. Sukuks who are not resident in the claiming country do not receive a full WHT-Refund. Dividend-WHT-Refund No Dividend WHT Corporations, Sukuks resident in an Full Refund of Opportunity Country can file claims Dividend-WHT against this discriminatory tax-treatment. SPV invested in Germany (Inbound-Case) SPV invested in foreign Countries (Outbound-Case) Opportunity Vehicles Corporations (LLC or Ltd.) Sukuks EU-Claiming Country Sukuk/Corporation Refund of Dividend-WHT in case of Sucess. 5

7 Conclusion Key messages about German Taxation Islamic Finance: No specific tax rules for Islamic Finance and Sukuks Sukuk are similar to traditional bonds Sukuk are Shari`a compliant 6

8 Jürgen Nagler Andreas Patzner Rechtsanwalt/Steuerberater Financial Services Tax Partner THE SQUAIRE/Am Flughafen Frankfurt/Main T apatzner@kpmg.com Die enthaltenen Informationen sind allgemeiner Natur und nicht auf die spezielle Situation einer Einzelperson oder einer juristischen Person ausgerichtet. Obwohl wir uns bemühen, zuverlässige und aktuelle Informationen zu liefern, können wir nicht garantieren, dass diese Informationen so zutreffend sind wie zum Zeitpunkt ihres Eingangs oder dass sie auch in Zukunft so zutreffend sein werden. Niemand sollte aufgrund dieser Informationen handeln ohne geeigneten fachlichen Rat und ohne gründliche Analyse der betreffenden Situation KPMG AG Wirtschaftsprüfungsgesellschaft, eine Konzerngesellschaft der KPMG Europe LLP und Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International, einer Genossenschaft schweizerischen Rechts, angeschlossen sind. Alle Rechte vorbehalten. KPMG und das KPMG-Logo sind eingetragene Markenzeichen von KPMG International Rechtsanwalt/Steuerberater Financial Services Tax Manager THE SQUAIRE/Am Flughafen Frankfurt/Main T JNagler@kpmg.com Belgiz Ergisi Financial Services Tax Associate THE SQUAIRE/Am Flughafen Frankfurt/Main T bergisi@kpmg.com Selami Dindas Financial Services Tax THE SQUAIRE/Am Flughafen Frankfurt/Main T sdindas@kpmg.com