meatro

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About meatro

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  • Location Freimann, Munich
  • Nationality USA
  • Gender Male
  • Year of birth 1989
  1. I‘d like to share what I know about this and put the little conundrum out there of how this should be taxed in DE. If anyone has any constructive ideas or experience, I’m all ears. WHAT IS A GRANTOR TRUST ETF   A person's shares in any US ETF aren't necessarily treated the same in terms of taxation or what the shareholder actually owns since not all US ETFs have the same legal structure. To know which ETF has which structure, you need to read the specific ETF prospectus. Physically-backed commodity ETFs are often formed as "grantor trusts" (as opposed to the common "open-ended funds" for securities). These are formed in the US on the legal basis of the Investment Company Act of 1933 and 1934. They give a direct interest in a fixed portfolio. Examples of this is SGOL or GLD, the world's largest gold ETF . The trusts holdings are separate from the finances of the company and thus "Sondervermögen", meaning that even if the company is bankrupt, the shareholder will be paid out the equivalent of the value of the shares. Some further juicy legal bits from the SGOL prospectus (here): SGOL is a „Grantor Trust“ formed and subject to New York law.  Further, it is a "non-mortgage widely held fixed investment trust". The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust. The Trust holds only gold bullion and, accordingly, received no income during the year.   HOW ARE THEY TAXED IN THE US   A bit of a pain, but clearly defined. The US taxation of these ETFs on the federal level is lined out in tax documents provided by the ETF. The grantor trusts are pass-through entities, meaning that the IRS treats the shareholder as if they own the actual thing the ETF holds (i.e. gold) and the shareholder is directly taxed for any distributions, expenses and so on. This is done without the shareholder ever actually posessing the commodity. Simply owning these ETFs without selling any shares causes capital gain / loss calculations for a federal US tax return. This is because the ETF expenses (TER) are funded by selling some of the underlying gold, teeny tiny bits, each month. These sales are made automatically and the money is never received by the shareholder, it goes straight to the institutions involved in maintaining the ETF. But since the shareholder is treated as the owner of the fund's holdings, each sale is a taxable event. This math becomes pretty unwieldy without a spreadsheet, especially if you have multiple lots since the calculation is done on a per-lot basis. The shares of each individual lot will have originally been worth a different amount of gold which is adjusted downward over time. Also, each lot is held for a different period of time which is relevant to determine if the sale was long or short-term. When the ETF shares are sold, these micro TER sales are factored in to adjust the cost basis down.   HOW ARE THEY TAXED IN GERMANY   I doubt there is a definitive answer.   The issues are several about why this isn't common knowledge / maddeningly niche... Germany doesn't have trusts and interprets them on a case-by-case basis. Grantor trusts in the US are also used for estate planning and most literature deals with that use case. MIFID II makes purchasing any US-domiciled funds as a European resident nearly impossible since mid-2018. Germany doesn't allow ETFs which only have a single holding seit 22. Juli 2013 / Inkrafttreten von Kapitalanlagegesetzbuches (KAGB). The rough German equivalent for people interested in exchange traded commodities is an ETC, which is an "Inhaberschuldverschreibung" / bearer bond. Some of these are physically backed by a single commodity. These ETCs are generally treated as "Wertpapiere" and not as owning the physical commodity yourself unless they meet very specific conditions outlined here. These conditions do not apply for most common US grantor trust ETFs. https://www.bundesfinanzhof.de/de/entscheidung/entscheidungen-online/detail/STRE202010206/   > the crux is whether Germany views the grantor trust commodity ETF shares as some sort of passive investment interest in the commodity market (and therefore as ownership of shares in a fund) or actual ownership of the physical commodity (like the US does).   If commodity, then the US and DE methods line up fairly squarely in terms of calculations involved to compute capital gains and losses on the monthly micro sales and the final sales of the shares. It should be mentioned that the income tax would be quite different. Kapitalertragssteuer for gold is taxed according to EStG § 23, not EStG § 20. EStG § 23 is much more favorable for gains in Germany as it is tax free after a holding period of a year, though these tax savings could be largely moot for a US citizen in Germany since the US will tax the gold as a collectible (generally with your ordinary income rate) no matter what.   If shares, then I do not know how Germany would tax the monthly micro sales within the trust with no sale of shares or how this would interact with the final sale of the shares themselves. The micro sales might simply be ignored as TER (like for open-ended funds) and the final sale is not adjusted. Or the micro sales math looks something like „return of capital“, previously dicussed for a „NY royalty trust“ here: https://www.toytowngermany.com/forum/topic/342543-wash-sales-in-german-tax-law/?do=findComment&comment=3582373 although I assume it would actually be something different, but the basis is adjusted downward over time by the micro sales, which themselves would be taxed in the present day (as a dividend?).   I tried breaking down the structure of SGOL/GLD to figure out how DE might view it, but realized I do not know how such a thing would be determined by Germany… the definition of fund could be looked up, but the definition of owning something through something like an ETF grantor trust? I just don’t know where to start. > If someone has an idea how to view this through a German lens (the process or the end result, although less satisfyingly stimulating), holler.  I'm ready to level up!      
  2. @Straightpoop I am a big fan of your work and am a little flattered that you got in on this post.    Thank you for correct references to the current law and BMF decision!  That clears up the poorly referenced Haufe link. I did not mean to bring up FIFO for currency since that is it's own and rather unfortunate can of worms ^^  I'm just going to mentally sweep that under the rug for now.   I went down the rabbit hole to see if a typical US brokerage account meets the criteria of the account type referenced in § 20 Abs. 4 Satz 7 EStG i.e. Sammelverwahrung or Streifbandverwahrung as mentioned in BMF 18.1.2016  BStBl I S. 85 Tz 99 ff.  I glimpsed the nuts and bolts of the underlying infrastructure of financial markets along the way to basically find that, yes, nearly any brokerage account anywhere would be Sammelverwahrung or Streifbandverwahrung.  There is no practical alternative.   My understanding: Sammelverwahrung is the general system for private investors to own stocks without actually having the physical paper issued stock shares.  The shares are at a national central securities depository (CDS), which through of string of contracts and organizations (with clearing-houses and broker-dealers) eventually connect a number of share to an individual brokerage account owner.  Streifbandverwahrung would be if those shares were somehow physically separated into a little group to denote that it belongs to a specific person's.  But anyone normally just has access to a number of shares and not to any specific physical shares.  This system allows us all to trade stocks easily and cheaply compared to the hassle of actually moving pieces of paper around.  Actually kind of neat!   I was hoping for a way out of § 5 DepotG by definition, maybe due to some odd Americanism, but it's not the case.   I was also hoping that the fly in the ointment would be a little black exfoliating orb but my Juristendeutsch just isn't up to snuff: Konkrete Einzelweisungen des Kunden, welches Wertpapier veräußert werden soll, sind insoweit einkommensteuerrechtlich unbeachtlich. I'd wager that "insoweit" makes this statement refer to the context of a single account and not to any and all shares owned by a person.  As we know, this is also not the practice due to sub-accounts.  I wonder:  if a non-German account openly offers the methods of LIFO, HIFO, and so on and the customer took them up on that offer, would that be considered a "konkrete Einzelweisung" since it may be a default set-up (however unlikely), doesn't require any explicit action of the customer as to what exactly should be sold, and is a general offer that extends to anyone indiscriminately.  If that were true, this statement would only prohibit specific share identification, and that only maybe.  But I am just wondering over here.   With or without the exact interpretation of that sentence, I agree with your general reasoning: the German FIFO applies to accounts and not to all shares of a taxpayers.  The § 20 Abs. 4 Satz 7 EStG alone does not read this way to me given my newfound and crude knowledge of Sammelverwahrung as outlined above, but the BMF decision makes it clear in 98 ff.  It helps that "manual LIFO" is an accepted practice in Germany for several years.  I guess it is a law that most Germans never consider and therefore reasonably effective in getting the government higher taxes than if there was officially LIFO, although it is a bit odd for a law to ultimately be about account-specific bookkeeping and substantially nothing more. That reasoning also avoids ripping a hole in the fabric of the brokerage-cost-basis-method continuum for anyone from the US who happened to move to Germany later in life (that is, until that person unwittingly has a washsale, as far as I can tell).   Not that this person was in anyway considered during the making of this law, but it is a nice outcome.  Plus, it also more convenient for anyone who has a US account who might have otherwise had performed manual LIFO just to be safe.   Thank you again!  
  3. To the financial heroes out there and us everyday folk who appreciate your wisdom, I wanted to talk about the reach of the FIFO cost basis calculation method in DE.   QUESTION   My understanding is that DE law requires FIFO (First-In, First-Out) Specifically Einkommensteuergesetz (EStG) §23 Absatz 1 Nr. 2 Satz 3 EStG "dass die zuerst angeschafften Beträge zuerst veräußert wurden".   But who or what exactly does it apply to?  At the very least, for domestic brokerage accounts held by German tax residents. Thus the Finanzamt assumes FIFO for all brokerage capital gains reported. At the very most, for international brokerage accounts held by German tax residents.  I assume this is the case since any DE tax resident is "unbeschränkt steuerpflichtig" and these are the laws that govern that ... but want to be dead-sure.   REPERCUSSIONS   If (1) and international, legal cost basis methods are allowed by the Finanzamt, there would be a considerable tax advantage for US brokerage account holders, since they offer a wide variety of spunky methods: https://en.wikipedia.org/wiki/Cost_basis LIFO (Last-in First-Out), HIFO, Specific share identification (Spec ID), and more.  FIFO is often the standard default method, but can be easily configured in most accounts. LIFO is a decent tax advantage for buy-and-hold investors who may need to get at some of their invested money, since the most recently invested money normally has lower capital gains than older money.   If (2), some US citizens may have been unknowingly stepping in it. i.e. a US citizen may have been using LIFO in their taxable accounts for years.  It's tax smart after all.  Then they move to DE and become DE tax residents... would the Finanzamt allow them to continue their bookkeeping (1) or does it immediately set up a "parallel world" of would-have-been-FIFO bookkeeping (2)?  (I envision this like the wormhole from Sliders with a bunch of stage wind and flashing blue lights)   If the wormhole is opened and you keep your non-FIFO US accounting method, any share you sell in the US would have a different cost basis than its DE counterpart.  It would be hard to get Foreign Tax Credits to line up. Heck, if the wormhole is opened and you stop using LIFO just before moving to DE, would the shares ever be in sync?  Or does the DE required FIFO apply only to shares sold after getting DE tax residency?    ONE PRACTICAL WORKAROUND this is a tax tip from several German forums which I haven't see here and would like to share.  I call it "manual LIFO".   The FIFO rule only applies to an account, not to all of a person's shares that may be distributed amongst different accounts.  Not even all shares at one broker, just a specific account. Source: https://www.haufe.de/finance/haufe-finance-office-premium/einkuenfte-aus-kapitalvermoegen-1026-fifo-methode_idesk_PI20354_HI9285880.html " Nach Auffassung der Finanzverwaltung ist die Fifo-Methode depotbezogen zu berechnen. Auch ein Unterdepot ist ausreichend. "   So a good broker which offers sub-accounts makes manual LIFO pretty doable.  You have two sub-accounts at the same brokerage, you can transfer the shares you want to sell from account A to B, then sell all in account A or B (whichever is now only consisting of the newest shares).  Taadaa, manual LIFO!  The great thing is that you can start making use of it any time, if you haven't in the past.  You are still sticking to FIFO at all times.   (Also, this manual LIFO is either some sort of weird German loophole which will one day be shored up... or hopefully something that encourages the law to be changed so that regular ole one-account LIFO is also possible)