German Rail Extension Coming from Venice?

Yes, the German Pass Extension applies to the direct train that departs Venice at 13:35 and arrives in Munich at 20:21, which is operated by Germany. It does not apply to connecting legs that are all within Italy (such as Venice-Verona) or the overnight train. Show the passes to the first conductor (Italian) on the train, but you will get both passes activated later, when the German conductor boards. The German Pass Extension covers this exact list of destinations, and you only buy one to match your German pass.

It does not cover Paris, so you must buy separate tickets from the German border to Paris, e.g., from Saarbrucken or the border point that's identified on the train schedule. You can do that at through DB's web site, and the sooner the better to possibly get a discount. See also http://www.ricksteves.com/travel-tips/transportation/trains/buying-tickets.

I have very little experience with German Rail passes. I last bought one in 2000, 10 trips ago, and just broke even vs point-point tickets and regional passes. But, as I remember, the German Rail pass has to be validated to be usable. I'm not sure you can do this outside the country, so you might not be able to start using it in Italy.

However, carefully consider if you need a pass at all. Without knowing your itinerary I can't say, but usually, a combination of Savings Fare tickets and regional passes will cost less than a pass. For instance, with advance purchase from the German Rail website, you can get a ticket on one of the direct ECs from Venice to Munich for as little as 49€/adult.

You can also book Savings Fare tickets from somewhere in Germany to Paris. There is a direct TGV from Munich to Paris leaving Munich at 6:27 in the morning and several connections through Stuttgart or Mannheim ending with a TGV to Paris later in the day. Purchase these ticket real early (up to 92 days) as this is a popular route and the lowest priced tickets sell out quickly. I can see tickets from Munich for as little as 69€/adult or from Mannheim for as little as 49€/adult.

Update: I see Laura posted just before me and said that you can activate the ticket when you start the journey in Italy. See should know as she works in Rick's rail department.