Audit and declaration of fund income under criminal tax law and in the income tax return

Audit and declaration of taxable fund income: At a time of low interest rates on low-risk financial investments, the volume of investment in domestic and foreign investment funds is rising. These funds pool investors’ assets and invest them in financial instruments, companies and property. In particular, units in foreign accumulation-type investment funds be subject to not the so-called flat-rate withholding tax and are from the Investors must be declared on the income tax return (taxable fund income). Calculating capital gains accurately is a very complex process and is usually difficult, if not impossible, for investors to do themselves.

Welcome to the world of funds

There are numerous different types of investment funds, such as bond funds, equity funds, property funds, mixed funds, index funds and specialised funds. Most of these are subject to the Investment Tax Act (InvStG), which provides for special rules governing the taxation of these forms of investment. It has been amended several times in the past and was most recently amended in a fundamental way with effect from 1 January 2028.

Particularly in the case of reinvesting investment funds – especially in the years prior to 2018 – investors are sometimes completely unaware that reinvested income is subject to tax. This is because, in the absence of a distribution, there is no immediate inflow to the investor. Admittedly, the custodian banks usually point out in the small print of their income statements that certain taxable income may not be included in the statement. However, in our experience, this note is rarely taken into account.

As a result, taxable investment income is sometimes not declared for many years. This often only comes to light when the shares are sold. Although taxation is levied retrospectively by the custodian bank when shares are sold from a portfolio managed in Germany, this does not constitute a final settlement and does not exempt the investor from the obligation to declare such income.

Even the banks managing the custody accounts do not always apply the correct tax deduction. In some cases, the tax certificates issued are also incorrect, which often results in significant tax disadvantages for investors.

When should you check your investment accounts?

Particularly when it comes to enquiries from the tax authorities, you should act swiftly but prudently, whilst seeking legal advice. We are also on hand to provide comprehensive support for a thorough review of your investment portfolios and assets with regard to all tax-related matters, with a team comprising specialist solicitors, qualified tax lawyers and tax advisers.