German real estate taxation is not my specialist subject. However, the recent case of the L-Fund (Case C-537/20) has potential relevance for EU funds investing in Irish real estate. Under German law, a non-resident real estate fund was subject to German corporation tax on its German real estate income. However a German resident fund was not. In the case of a German fund, tax was instead levied on the investors through a withholding tax. The CJEU determined that this constituted a restriction on the freedom of capital under Article 63 of the TFEU.
This has relevance for Ireland because the German system has some similarities with the Irish tax regime for real estate funds. Aside from being horrendously complex, the Irish rules distinguish between Irish and non-Irish funds. Regulated funds which are resident in Ireland are generally exempt from Irish tax. Withholding tax is levied on payments to non-residents, unless they are within a number of exempt categories. By contrast, non-Irish funds are subject to corporation tax on their Irish income. The L-Fund raises the question as to whether such treatment is compatible with the TFEU. Non-Irish funds which are based in the EU may well feel that L-Fund principles are of potential application to their tax treatment.
It may be time to revisit the Irish rules, in advance of such cases coming before the CJEU.
Article 63 TFEU must be interpreted as precluding legislation of a Member State which makes non-resident specialised property funds partially liable to corporate income tax in respect of the income from property which they receive in the territory of that Member State, whereas resident specialised property funds are exempted from that tax.
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