Xetra-Gold: redemption ruled tax-free

News Arnulf Hinkel, financial journalist – 29.03.2018

Since the Federal Fiscal Court (Bundesfinanzhof, BFH), confirmed the rulings of the Fiscal Court of Saxony and Münster in May 2015, holders of Xetra-Gold bearer bonds benefit from tax exemption for profits on sale. The BFH ruling states that Xetra-Gold should be treated equal to physical gold regarding tax purposes. There is, however, one restriction: if Xetra-Gold is purchased and re-sold within one year, the resulting profit is subject to taxation. This leaves but one question: what about redeeming Xetra-Gold for bullions? In this case, profits are also possible if the gold price has risen since the purchase of the Xetra-Gold bearer bond.

No minimum holding period for redemption for physical gold

With its recent decision (case IX R 33/17), the BFH has taken a clear position on this matter: in the court's view, the redemption of Xetra-Gold for physical gold does not constitute a sale and shall therefore not be subject to the withholding tax. This means that Xetra-Gold owners who wish to exercise their right to redeem their bearer bonds for gold bars need not adhere to the one-year holding period to benefit from tax exemption. Therefore, Xetra-Gold can be exchanged for physical gold at any time, tax free.

BFH ruling to date applies only to Xetra-Gold

It is important for investors to know that the withholding tax exemption rule cannot be transferred directly to other gold-based ETCs after a one-year holding period. In the case of the Gold Bullion ETC, the Fiscal Court of Thuringia passed an identical ruling in 2017, which is, however, not yet legally binding, as an appeal against this ruling has been filed with the BFH. At present, the exemption from the withholding tax of Xetra-Gold on sales profits after a one-year holding period therefore represents a truly unique selling point.

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