Brussels, 30/01/2009 (Agence Europe) - On Wednesday 28 January 2009, the European Commission launched a formal investigation into tax incentives that Germany is planning to grant to risk capital companies and individuals investing in key companies. The German authorities says the EU state aid rules to not apply to any of the new measures but the Commission has its doubts because the measures seem to selectively benefit certain companies.
The draft German law on capital investment (MoRaKg) aims to facilitate the provision of investment capital to young medium-sized companies by providing tax incentives to risk capital companies and individuals investing in key companies. At this stage, the Commission fears that this clarification does not meet the guidelines set out in a letter to finance ministers on sales tax exemptions and provides greater incentives to risk capital companies. The Commission's second source of concern is the fact that these risk capital companies would be entitled to deduct losses of the target companies, which is apparently not the case for similar investment companies, even where they invest in the same target companies. Thirdly, individuals investing in key companies would be granted income tax incentives if their investment makes a profit. The Commission notes that a particular target company could receive private investment from several sources and fears that overall, these tax incentives would be too large. Fourthly, the Commission doubts that the planned measures fall within the EU risk capital guidelines for small and medium-sized enterprises, particularly because the definition of key companies does not rule out the provision of capital investment to large companies and struggling companies. Fifthly, in order to benefit from these incentives, risk capital companies would have to have their head office (Sitz) in gem any and manage their company in Germany, which would exclude foreign investment companies and might therefore violate Article 43 of the EC Treaty (on freedom of establishment). The Commission has invited interested parties to comment on the planned legislation. (C.D. trans fl)