German Tax Court: Carried Interest and Liquidation Proceeds Exempt from VAT

• The Lower Saxony Tax Court held that a private equity manager’s carried interest above its capital share is not subject to VAT.
• The court also ruled that the manager’s share of liquidation proceeds in proportion to its capital contribution is not VAT-relevant.
• It found no taxable exchange of services: the payments were general profit distributions arising from the corporate relationship, not remuneration for specific management or expertise services.
• The existence of a hurdle rate and the manager’s influence over investments did not convert the profit share into VATable consideration, because the payments depended on profit outcomes and lacked a direct link to a specific service.

Source: fgs.de

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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