Expo Real 2019Real estate investment through Luxembourg Munich, 7 – 9 October 2019
2© 2019 Deloitte Tax & Consulting Public
Contents
1. Real estate investment through Luxembourg 3
2. Investing in Luxembourg real estate 15
3. Tax Update 24
4. Regulatory update 46
5. Your contacts at Expo Real 52
3Public © 2019 Deloitte Tax & Consulting
Real estate investment through Luxembourg
4© 2019 Deloitte Tax & Consulting Public
Real assets – asset class with high growth
Market trends
Real estate investment through Luxembourg
3.1
6.5
9.7
14.0
0
2
4
6
8
10
12
14
16
2008 2013 2018 2023Projection
Projected growth of global alternative assets industry
AuM (in $ tn)
Source: Prequin
• Assets under management in the alternative asset industry increasedmore than three-times over the past 10 years and are expected tocontinue to grow
AuM (in $ tn)
1.02.0 2.3 3.2 4.0 4.8
0.5
0.8 0.8
1.6
3.5
6.1
1.0
2.53.3
4.2
6.4
10.2
2.5
5.36.4
9.0
13.9
21.1
0
5
10
15
20
25
2004 2007 2012 2015 2020base
2025base
28.5%
3.9%
12.0%
9.0%
8.7%
Hedge funds
Private equity
Real assets
• Real assets are expected to grow still significantly in the coming years.
5© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Market trends
Luxembourg RE fund industryInvestors’ top three preferred sector/location
Ten most preferred locations for 2018
• In 2018, the UK, France and Germany remain the top three investmentdestinations in Europe, a clear reflection of the size, maturity andtransparency of these markets.
• The UK is seen as the key target European country by two out of threeinvestors (66.1%). This compares with 62.5% and 60.7% for France andGermany, respectively.
• Office and retail remain the two dominant sectors, followed byindustrial/logistics and residential.
3235
469 1927
2343
2280
3730
4705 7
315
6180
4126
3846
3139
1843
1732
1167
951
993
1475
1504
1512
1415
280
146
369 522 850
1557
3307
8131
14746
14839
17580
20925
24082 2
8743
32685
41801
49597
56187
59171
66152
68427
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000Net asset under management real estate
Part II funds SIFs
Source: CSSF
6© 2019 Deloitte Tax & Consulting Public
Why Luxembourg?
Real estate investment through Luxembourg
Location
• In the heart of Europe
• Important capitals reachable within 2 hours
• Very efficient logistics center
Environment
• Political, economic and social stability
• 7.5/10 overall life satisfaction (Eurostat)
• Legal framework that fosters an environmentally responsible & social approach
• Regional initiatives for environmental protection and sustainable development
Culture
• Multilingual and multicultural
• European Capital of Culture 1995, 2007, 2022
• UNESCO world heritage
• Museums, Philharmonie, Grand Theatre
European institutions
• European Investment Bank
• European Parliament
• European Commission
• European Investment Fund
• European Court of Auditors
• Court of Justice
• European Stability Mechanism
• European Public Prosecutor's Office
Fiscal system
• Customer oriented financial administration
• Easy and clear administrative processes
Infrastructure
• Mobility: international airport, bus network, tram, (international) railway network, free motorways, e-cars, car sharing, cycle paths
• A wide range of data and business continuity centers as well ICT services
• Research centers
Legal environment
• Strict confidentiality policies
• Strict data protection legislation
• Enterprise-friendly legislation
Political environment
• A government that fosters and supports innovation and new technologies
• Extremely competitive economic environment
Workforce
• International education system
• International university
• A highly qualified, multilingual and multicultural workforce
7© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Luxembourg AIF Fund Tool Box
TAX considerations
• Repatriation of profits?
• Exit strategy?
• Tax efficient?
Investment strategy considerations
• Number of assets?
• Countries targeted?
• Portfolio diversification?
LEGAL considerations
• Type/number of investors?
• Location of investors?
• Regulatory constraints?
• Lifetime of the structure?
• Leverage?
Tax implications should be considered:
• Upon financing of the structure
• During lifetime of the structure
• Upon exist of the structure
The choice of vehicles also determines subsequent
governance and reporting requirements
The choice of the structure and the legal form of the
top entity depends on different parameters
Sources: ALFI, CSSF Statistics and RCS RAIF List
Evolution of Luxembourg vehicles
1,869 1,859 1,831 1,792
353 323 295 282
1,639 1,576 1,547 1,495
22 182
575 681
2016 2017 2018 Aug-19
Part I (UCITS law)
Part II (UCITS law)
SIFs (2007 law)
RAIFs
Total # LU investment funds
• Among legal entities, SIFs are gradually replacing Part II funds, while Part I funds remain largely stable
• The emergence of RAIFs (legal entity launched in 2016) is noticeable, with the rise from 22 at end of 2016 to 182 as of 5 October 2017 to 575 as of 15 November 2018 to 681 as of 31 July 2019.
• As at 31 August 2019, Part I funds represented the largest portion of Luxembourg market, with more than 83% of Luxembourg total AuM
3,883 4,044 3,948 4,250
8© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Luxembourg fund vehicles
SecuritizationVehicle
SIF
SICAR
UCI
SoparfiLess regulated
LessFlexible
UCITS
Non regulated
More Regulated
SLP
SLPSLP
RAIF
AIFM
MoreFlexible
9© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
• Investors tax position (opaque vs. transparent) and reporting
• Management fee vs. PPS
• Carry structure (carry via GP or other)
• Tax transparency of the Fund
• VAT exemption / recovery
• Transfer pricing
• Substance & delegation model
• WHT and NRCGT: treaty access
• Beps
Key considerations
Straddling the fence
10© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Reserved Alternative Investment Fund
RAIF
Assets
AIFM
• Unregulated - not subject to theCSSF prior approval and/orsupervision, however, if the AIFMis established in Luxembourg, theCSSF will supervise the AIFM,though indirectly also RAIF itself
• It could be set up as a mutual fund(FCP), a SICAV (SA, SCA, SCS.SCSp, S.à r.l. ScoSA) or under alegal regime that is neither a FCPnor a SICAV
• Possible compartmentalization ofthe assets
• Fixed or variable capital
• Central Administration andDepositary Function should beestablished in Luxembourg
• RAIF will need to appoint anindependent auditor
• Targeted to institutional, professional or sophisticated investors - same eligible investors as a SIF
• Information disclosure to investors and annual report to be in line with AIFM rules, hence RAIF has to be included in reporting
• RAIF has to be managed by an AIFM
• Costs associated to the setting up and running of a RAIF should be lower than a SIF
• No limitations in eligible assets and diversification ratios. If a RAIF restricts its investment policy in its constitutive documents to investment in risk capital, it is not required to operate under the principles of risk spreading
By default:
Full CIT/MBT/NWT exemption or full tax transparency for FIAR FCP/SCS/SCSp
No WHT on any distributions
1bps subscription tax is applicable (with exemptions available similarly to SIFs)
No tax on speculative capital gains for investors
SIF regime
Alternatively, when investing in risk capital assets:
Subject to CIT/MBT but any income from transferable securities and income from temporary investments (<12 months) are exempted; or alternatively full tax transparency for RAIFs set-up as partnerships
No subscription tax
No WHT on any distributions
No tax on speculative capital gains for investors
SICAR regime
No Luxembourg VAT on management of an eligible investment fund including AIF, RAIF SIF or SICAR.
VAT
11© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Consolidated model
12© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Connecting non-EU business
Master Lux HoldCo / FinCo
Lux AIF
Lux SPV(s)
EU Entities
Lux AIFM
Non-EUAIFs
Foreign IM
European Assets
Non-EU InvestorsEU Investors
entities
Non-European Assets
Non-EU SPV(s)
• Increased operational burden due to double decision making process
• Non-EU AIF need to comply with part of AIFMD requirements (e.g. depositary)
• Does not fully justify the European platform set-up
• Double layer of operating costs for European investors
• Difficulty to justify autonomy of decision making by the AIFM
Parallel Fund Structuring
Pros
Master/Feeder Fund Structuring Luxembourg fund-fits-all
Master Lux HoldCo / FinCo
Lux AIF
Lux SPV(s)
EU Entities
Lux AIFM
Foreign IM
European Assets
Non-EU InvestorsEU Investors
entities
Non-European Assets
Non-EU SPV(s)
Non-EUAIFs
Master Lux HoldCo / FinCo
Lux SPV(s)
EU Entities
Lux AIFM
Foreign IM
European Assets
Non-EU InvestorsEU Investors
entities
Non-European Assets
Non-EU SPV(s)
Structure
• No duplication of decision making process
Cons
Occurrence
• High • Low
• Potential unattractiveness for non EU investors
• Operational efficiency due to centralized structure
• None
A CB
Lux AIF
• Non-EU investors do not bear AIFMD compliance related costs
• Ability to structure parallel structures as «copy-paste»
• Ease of justifying the European platform concept
13© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Fund structuring tax and regulatory trends
Regulated institutional investors
Unregulated institutional investors
Non-institutional investors
• AIFMD compliant
fund eligible under certain LP-
specific regulatory ratio (Basel
/ Solvency regulations)
• Ease up fund manager due
diligence work
• Ease up due diligence work
• Increased investor protection
What?
Who?
Why?
• AIFMs being established
primarily in Luxembourg
• Consolidation of AIFM platform
with existing Luxembourg
operational platform
• Oaktree
• Apollo
• Blackstone
• ICG
• EQT
• M&G Investment
• …
• Complying with LP expectations
• Conjunction of AIFMD and
Brexit
• BEPS substance test and
compliance
Trends among LPs Trends among GPs
Strong market trend: Investors and peers are strongly pushing for, or moving towards, full AIFMD compliance out of Luxembourg
Benefits
Main purposes of AIFM
set up:
1. Regulatory compliance
2. Ease of marketing
3. Compliance with LP
requirements
4. Addresses need for
substance
Reasons for AIFM
1
2
3
1
2
3
Actors
Sources: Deloitte Market research and analysis
14© 2019 Deloitte Tax & Consulting Public
Real estate investment through Luxembourg
Benefits of the Luxembourg AIFM license
• AIFM set up is not tax driven
• Supervisory authority ensures compliance with regulatory substance requirements
• Compliance with AIFMD encompass tax substance compliance
There is a convergence between AIFMD (providing for minimum substance criteria, minimum level of activities together with limitations to delegationpossibilities) and the global tax trend (e.g. BEPS)
BEPS and GAAR developments Matching AIFMD Requirements
Motive test
Management and control
Infrastructure and resources
Managed by Luxembourg office
Decision to establish an AIFM driven by regulatory considerations
(obligation to comply to or benefit from the AIFMD Passport)
Leverage of existing staff, platform and infrastructure
Portfolio management performed in/supervised from Luxembourg
Risk Management performed/supervised from Luxembourg
Compulsory oversight framework in relation to delegated
functions
No “letter box” entity
Sufficient infrastructure and support functions in place
Interaction with Luxembourg authorities
Reporting
Certification
BEPS/ AIFMDsubstance convergence
1
2
3
4
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Investing in Luxembourg real estate
16Public © 2019 Deloitte Tax & Consulting
1. Overview
Why investing in Luxembourg real estate?
Diversified, stable and wealthy economy
• Ranked 7th according to the KOF Globalization Index (Economic Dimension)
Strong macroeconomic indicators
• Average GDP growth of +3.5% a year over the last 5 years (vs. 1.7% for the EU-28)
First European fund investment center
• #1 investment fund center in Europe• #2 in the world after the US
Stable and favorable tax environment
• Among the countries with the lowest total tax rate in the world
Your gateway to Europe
• Major European cities reachable within less than 3-hour flight
• Free movement of goods, services and people
Rome0h50
Madrid2h30
London1 h
Paris1 h
Berlin1h30
Stockholm2h45
Lisbon2h45
Amsterdam1 h
Source: Alfi, KOF, Worldbank
EU institutions center
EU
• EU Court of Justice• EU Commission• EU Court of Auditors• EIB• EIF• EU Financial Stability
Facility
• Translation Center• CHAFEA• Secretariat of EU Parliament• EAEC• Publication Office• Eurostat
17Public © 2019 Deloitte Tax & Consulting
364 375 383 390 400 411 425 440 450 466
-
100
200
300
400
500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2. Luxembourg macroeconomic data
Key indicators
613,900 Country population (Jan. 2019)
119,200 Luxembourg city population (Jan. 2019)
5.5% Unemployment rate (July 2019)
465,818 Total employment (July 2019)
197,661 Daily foreign commuters (Q1 2019)
2.4% Real GDP growth expected in 2019
Source: The Economist Intelligence unit, Statec, Eurostat
2123
2423
2528
2223
2522 23 24
30 3031
20162006 2011
Belgium FranceGermany Netherlands Luxembourg
Adjusted gross disposable income of households (EUR ‘000)
Total employment in Luxembourg (people ‘000)
+3%
Compound Annual Growth Rate (CAGR)
18Public © 2019 Deloitte Tax & Consulting
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017 2018 H1
2019
0
50
100
150
200
250
300
Cumulative take-up Prime rent
3. Luxembourg letting office market
Overview
H1 2019 Stock(sqm)
Vacancy(%)
Take-up (sqm)
Prime rent(EUR/sqm/mth)
CBD 840,000 0.3% 9,926 50
Kirchberg 1,170,000 0.9% 8,608 37
Station 415,000 3.0% 9,514 36
Cloche d’Or 450,000 5.7% 2,017 29.5
Inner districts 249,000 6.5% 3,729 33
Decentralized 407,000 6.7% 3,804 28.5
Periphery 509,000 4.9% 4,293 25
Total 4,040,000 3.0% 41,891 50
Source: BNP RE, CBRE, Cushman Wakefield
Source: CBRE, Cushman Wakefield, JLL
1
Esch-Belval
Windhof - Capellen
2
3
4
2
3
4
1
Take-up
(‘000 sqm)
Prime rent
(EUR/sqm/mth)
EUR 50
42,000 sqm
Office take-up vs prime rent
19Public © 2019 Deloitte Tax & Consulting
3. Luxembourg letting office market
Recent transactions
Date District Asset Tenant Area (sqm)
Q2 2019 Station Impulse Regus 6,450
Q2 2019 CBD Villa Servais SNCD 2,240
Q2 2019 Kirchberg Oksigen Triton International 1,920
Q2 2019 Cloche d'Or Vertigo Polaris Confidential 1,060
Q1 2019 Kirchberg Oksigen Regus 1,925
Q1 2019 Kirchberg The Square The Royal Bank of Scotland 1,330
Q1 2019 CBD Royal 26 Ternium Investments 930
Q1 2019 Kirchberg K2 Forte Fisher Investments 820
Q1 2019 CBD Stargate Crestbridge 755
Q1 2019 CBD Royal 26 San Faustin 730
Q4 2018 Cloche d'Or D.Square Deloitte 31,000
Q4 2018 Cloche d'Or Melius Alter Domus 10,600
Q4 2018 Hamm Green Square Grant Thornton 5,900
Q4 2018 Belair / Merl Moonlight CSSF 5,400
Q4 2018 Belair / Merl Moonlight Ministère des Finances 4,200
Q4 2018 CBD Glacier Wlekin & Meraki 2,400
Q3 2018 Bertrange Beaubourg Telindus 9,000
Q3 2018 Airport EBBC C JP Morgan 2,200
Q3 2018 Cloche d'Or BFF Beiler François Fritsch 1,600
Q3 2018 CBD n/a Ministry of Culture of China 1,527
Q3 2018 Station Fischer 122 Fiduciaire des PME 1,250
Q3 2018 Contern / Sandweiler LTC Sungard AS 1,230
Q3 2018 Kirchberg Gravity Banco Bradeso 1,107
Source: CBRE, Cushman Wakefield, Inowai, JLL
20Public © 2019 Deloitte Tax & Consulting
0
50
100
150
200
250
300
350
Completed Speculative Committed Potential
0%
1%
2%
3%
4%
5%
6%
7%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 H1
2019
Investment volume Prime office yield
4. Luxembourg investment office market
Overview
Source: CBRE, Cushman Wakefield, JLL
Development pipeline: committed vs available
Investment volume by origin of investors
47%
35%
9%
5%
1% 3%
Belgium
Luxembourg
France
USA
Middle-East
Russia
Average
2014-2017
18%
15%
20%18%
10%
11%
2%
1% 5%
Average
2010-2013
Investment volume
(EUR m)
Prime yield
(%)
4.0%
EUR 509m
Investment volume vs. prime yield
More speculative than before
Internationalinvestors’ appetite
18%
Internationalinvestors’ appetite
67%
‘000 sqm
21Public © 2019 Deloitte Tax & Consulting
4. Luxembourg investment office market
Key recent transactions
Date District Asset Seller Buyer Est. Price (EUR m)
Yield (%)(* est.)
Area(sqm)
Q2 2019 Cloche d'Or D.Square Ethias - Intégrale La Française 250 4.05% 31,000
Q2 2019 CBD Nova Immobel Monceau Assurance 45 4.75%* 4,200
Q2 2019 Leudelange Edelek Private Trium Holding 29 6.90% 8,450
Q1 2019 Cloche d'Or Henri Schnadt Baltisse Belair House 25 5.5%* 4,161
Q1 2019 Strassen Etoile Noire Baumeister Haus Private 17.5 5.2%* 1,890
Q1 2019 Kirchberg Kennedy 43 Leasinvest RE Ceetrus (Groupe Auchan) 15.9 5.75%* 2,270
Q4 2018 Station Le Dôme Blackstone AXA IMRA 195 4.90% 21,561
Q4 2018 Cloche d'Or D.Square Extensa - Promobe Ethias - Intégrale 225 4.50% 31,000
Q4 2018 Kirchberg K2 Allegro Banque Havilland Fidelity Investment 125 4% 12,000
Q4 2018 Cloche d'Or Melius Extensa - Promobe Honnover Leasing 85 4.25% 11,700
Q4 2018 Kirchberg Kubik Aberdeen Asset Management Confidential 75 4.60% 7,257
Q4 2018 Esch-Belval Naos Atenor Ethias - Le Foyer 72 5.75% 14,000
Q4 2018 Betrange Beaubourg Soludec Fidelity Investment 70 4.5%* 9,532
Q4 2018 Leudelange Am Bann Atenor Fidentia RE Invest. 65 6.25%* 16,300
Q3 2018 Kirchberg JBBK CommerzReal Ceetrus (Groupe Auchan) 170 8.5%* 37,600
Q3 2018 CBD Portfolio ISP Intesa San Paolo Triuva 85 n/a 4,689
Q3 2018 Belair / Merl Arlon 291 Wafra Private 47 6.15%* 7,694
Note: * estimated yield
Source: CBRE, Cushman Wakefield, Inowai
22Public © 2019 Deloitte Tax & Consulting
5. Summary
Luxembourg office market
2015 2016 2017 2018 H1 2019
Take-up c. 229,000 sqm c. 218,000 sqm c. 211,000 sqm c. 240,134 sqm c. 41,891 sqm
Total stock c. 3,800,000 sqm c. 3,900,000 sqm c. 3,900,000 sqm c. 3,937,000 sqm c. 4,040,000 sqm
Vacancy rate c. 4.1% c. 5.4% c. 4.8% c. 3.48% c. 3.07%
Prime rents CBD EUR 45 /sqm/mth
EUR 45 /sqm/mth
EUR 47 /sqm/mth
EUR 50 /sqm/mth
EUR 50 /sqm/mth
Invested volumes in offices EUR 979 m EUR 1,042 m EUR 1,211 m c. EUR 1,880 m c. EUR 509 m
Prime yields 5.0% 4.5% 4.5% 4.0% 4.0%
2019 Outlook
Take-up Total
stock
Vacancy
rate
Prime rents
CBD
Invested
Volumes
Prime
yields
Source: CBRE, Cushman Wakefield, Inowai, JLL
c. 41,891 sqm c. 4,040,000 sqm c. 3.07% EUR 50/sqm/mth c. EUR 509 m 4.0%
H1 2
019
Fore
cast
23Public © 2019 Deloitte Tax & Consulting
6. Luxembourg Real Estate service offer and contacts
Jean-Pierre Lequeux, MRICS
Partner
Real Estate Advisory & Consulting
Tel/Direct: +352 451 453 598
Mobile: +352 671 671 404
François Guiot
Manager
Real Estate Advisory & Consulting
Tel/Direct: +352 451 453 008
Mobile: +352 661 799 506
Strategy & operations
• Real Estate strategic advisory• (Re)development consultancy, feasibility studies and
financial modeling
Corporate real estate & workplace advisory
• Translation of business strategies in RE strategies• Portfolio, HQ definition, network and footprint optimization• Definition and implementation of new ways of working• Lease advisory and management• Facility management and procurement• Smart Building Systems• PMO: execution of a move, construction follow-up,…
Valuation
• Recurring and one-off portfolio valuations• Underlying value of a (re)development projects• Financial modelling and optimization of developer’s margin• Valuation in support to audit, transaction services and tax
Real Estate Transactions and M&A
• Investment advisory and transaction support• Financial, legal, tax and technical DD• M&A• Debit and equity advisory• Sale and lease back advisory and structuring• Fundraising
Sustainability• Building certification New Construction• Building certification In-Use• Commissioning – Recommissioning• Estimating Energy Consumption
1
2
3
4
5
24Public © 2019 Deloitte Tax & Consulting
Tax Update
25Public © 2019 Deloitte Tax & Consulting
Anti Tax Avoidance Directive (ATAD)
26© 2019 Deloitte Tax & Consulting Public
An overview
ATAD
Hybrid mismatches
Interest limitation rules
Controlled Foreign Companies
Exit taxation rules
ATAD
The objective is to protect against the avoidance taxation through (i) the migration of companies or (ii) the transfer of assets to lower jurisdictions or outside the tax net entirely. The new exit tax rules apply to fiscal years starting on or after 1 January 2020.
The objective is to tackle abusive tax practices that have not yet been dealt with through specifically targeted provisions, acting as a catch-all mechanism to protect a country’s tax base from abusive tax planning. Applies to fiscal years starting on or after 1 January 2019.
The objective of the CFC rules is to tax companies and other entities resident in low-tax jurisdictions when controlled by EU resident taxpayer (where profits are generated). Apply to fiscal years starting on or after 1 January 2019.
The objective is to discourage group companies from artificially shifting their profit to Member States with more generous tax rules and therefore, reducing their global tax liability through excessive interest payments. Applies to fiscal years starting on or after 1 January 2019.
The objective of the provision regarding hybrid mismatches is to neutralize the tax effects of hybrid arrangements, exploiting differences in the tax treatment of an entity or instrument under the laws of two or more EU Member States to achieve a deduction in both States. Applies to fiscal years starting on or after 1 January 2019.
General Anti-Abuse Rule
Conversion of a loan into shares: If capital gain arising from this transaction,no longer tax-neutral under the domestic regime
Permanent establishment: Domestic definition: independent and representing a participation in the general economic life in the foreign state
27© 2019 Deloitte Tax & Consulting Public
ATAD
ATAD II Draft Law
The Luxembourg government published a draft law on 8 August 2019 that would implement the hybrid mismatch measures in the 2017/952 EU Anti-Tax Avoidance Directive (ATAD 2) into domestic law. The ATAD 2 is largely inspired by action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements) of the OECD’s base erosion and profit shifting project.
The ATAD 2 extends the anti-hybrid provisions of the 2016/1164 EU Anti-Tax Avoidance Directive (ATAD 1) (which apply only to mismatches between EU member states) to hybrid mismatches with non-EU countries, and brings additional types of hybrid mismatches within the scope of the measures. The draft law would cover hybrid mismatches not yet covered by the current Luxembourg anti-hybrid provisions, such as imported mismatches, hybrid transfers, tax residence mismatches and reverse hybrid mismatches.
31.12.2018Deadline for the implementation of the ATAD I into domestic laws.
01.01.2024Maximum delay for interest limitation rules for Member States having already national targeted rules preventing base erosion except if the end of the first full fiscal year following the date of publication of the agreement between OECD Members on a minimum standard with regards to BEPS action 4 occurs before.
08.08.2019Luxembourg Draft Law for implementation of ATAD II is published
01.01.2019Entry into force of ATAD I.
25.10.2016Draft proposal made by the EU Commission regarding hybrid mismatches with third countries.
01.01.2020Entry into force of ATAD II.
31.12.2021Possible delay for reverse hybrid mismatch rule.
29.05.2017Adoption of the amended directive on hybrid mismatches (ATAD II).
07.06.2017Signature of the Multilateral instrument.
28© 2019 Deloitte Tax & Consulting Public
ATAD II - Highlights
ATAD
In order to better mitigate the aspects not covered by the ATAD I, on the 21 February 2017, the Council of the EU has agreed on anextension of the scope of the Anti-Tax Avoidance Directive (“ATAD II”) in order to neutralize hybrid mismatch structures involvingthird countries. While ATAD I contains rules to combat certain hybrid entity mismatches between Member States of the EU, ATAD IIwill effectively extend the Directive’s scope to cover a variety of other mismatches between Member States on the one hand, andbetween Member States and third countries on the other hand.
Apart from addressing the situations where hybrid mismatch structures exist, ATAD II is also tackling the situations where the use ofhybrid instruments could arise between Member States and also third countries.
Additionally, ATAD II provides further clarifications in relation to the application of the conditions of the “associated enterprise” (i.e. ataxpayer holds directly or indirectly at least 25% or 50% (where the structure includes a hybrid entity) participation in an entity).When it comes to the analysis of the 25% or 50% threshold, reference is made to the concept of “acting together” whereby if bothequity interest and financial instruments are held directly or indirectly by the same entity, the partners might be treated as relatedparties for the hybrid rules purposes, irrespective of their individual shareholdings.
29© 2019 Deloitte Tax & Consulting Public
ATAD II - Extended scope of application
ATAD
Recital 8 of ATAD II
• Given that Directive (EU) 2016/1164 includes rules onhybrid mismatches between Member States, it isappropriate to include rules on hybrid mismatches withthird countries in that Directive where at least one of theparties involved is a corporate taxpayer or, in the caseof reverse hybrids, an entity in a Member State as wellas imported mismatches.
• Consequently, the rules should apply to all taxpayersthat are subject to corporate tax in a MemberState including permanent establishments (orarrangements treated as permanentestablishments) of entities resident in thirdcountries.
• Reverse hybrid mismatches: specific rules should applyto all entities that are treated as transparent for taxpurposes by a Member State.
Article 1 (2) (a) of ATAD II - Amendment todefinition of “associated enterprises” for the purposeof hybrid mismatches
• An associated enterprise also means an entity that ispart of the same consolidated group for financialaccounting purposes as the taxpayer, an enterprise inwhich the taxpayer has a significant influence in themanagement or an enterprise that has a significantinfluence in the management of the taxpayer."
• Newly introduced “acting together” concept: a personwho acts together with another person in respect of thevoting rights or capital ownership of an entity shall betreated as holding a participation in all of the votingrights or capital ownership of that entity that are held bythe other person.
• Hybrid mismatches that result frompayments under a financialinstrument;
• Hybrid mismatches that are theconsequences of differences inthe allocation of payments madeto a hybrid entity or permanentestablishment (including as a resultof payments to a disregardedpermanent establishment);
• Hybrid mismatches that result frompayment made by a hybrid entityto its owner or deemed paymentsbetween the head office andpermanent establishment orbetween two or more permanentestablishments;
• Double deduction outcomesresulting from payment made by ahybrid entity or permanentestablishment.
Hybrid mismatches
Permanent establishment mismatches
Hybrid transfers
Imported mismatches
Dual resident mismatches
Deduction without inclusion
Treatment of the mismatch
• First rule: Denial of the deduction of the payment,
expense or loss in the payer jurisdiction
• Secondary rule: Inclusion of the payment in payee
jurisdiction
Double deduction
Treatment of the mismatch
First rule: Denial of the deduction of the payment, expense or
loss in the investor jurisdiction
Secondary rule: Denial of the deduction of the payment,
expense or loss in the payer jurisdiction
A ‘hybrid mismatch’ address mismatch situations which result from double deductions, the conflict in the
characterization of financial instruments, payments and entities, or in the allocation of payments.
30Public © 2019 Deloitte Tax & Consulting
Multilateral Instrument (MLI)
31© 2019 Deloitte Tax & Consulting Public
An overview
Multilateral Instrument
• The objective of the MLI is to update over 1,400 tax treaties in a consistent manner and in a reasonable timeframe
• The update covers modifications from the following BEPS actions:
- Action 2 – hybrid mismatches
- Action 6 – treaty abuse
- Action 7 – permanent establishment
- Action 14 – mutual agreement procedure
• The MLI does not replace the existing double tax treaties, but comes in addition to current treaties
7 June 2017MLI signed
14 February 2019Law ratifying the MLI in Luxembourg voted
14 March 2019Law of 7 March 2019published in the Mémorial A N°153 of 14 March 2019
1 February 2020
1 January 2020
9 April 2019Ratification instrument deposited to OECD
1 August 2019
Entry into force
Entry into effect – Mutual
Agreement Procedure
and Arbitration – applicable to cases
introduced on or after the last entry
into force date for the specified CTA
Entry into effect – all other taxes where divergent fiscal year –applicable for taxes levied for the period beginning on or after 1 February 2020
Entry into effect for WHT on amounts paid or credited to non-residents– where the event giving rise to tax occurs on or after the first day of the calendar year that begins on or after the last entry into force date for the DTT specified
2021
Entry into effect– all other taxeswhere fiscal yearfollows calendar year
Attention!
Possibly different effective application
dates for a particular CTA
32© 2019 Deloitte Tax & Consulting Public
General Considerations
Multilateral Instrument
Most impacting measure: Principal Purpose Test (“PPT”) - potential denial of treaty relief
Real Estate structures
Fund
Foreign Sub
LuxCo
State A
State B
DividendCapital Gain
Main impacts applying the PPT:
Capital Gain: High impact in jurisdictions of
Foreign sub applying non resident-capital gain tax:
Austria (25%); Czech Republic (19%); Germany
(0.79%); Italy (11.93%); Poland (19%).
Dividend: High impact in jurisdictions applying
WHT on dividends paid by Foreign Sub: Italy
(26%), Sweden (30%), Norway (25%),
Netherlands (15%), Ireland (20%), Germany
(15.825%)
Applying the new PPT provision, LuxCo may be
denied to claim for relief under DTT, which may:
• allocate exclusive taxation rights to the
jurisdictions where alienator is tax resident
(Luxembourg), where capital gains may be
exempt under participation exemption regime);
• provide reduced WHT rates on dividend
distributions to the extent LuxCo qualifies as
Beneficial Owner of dividend payments
Main impacts applying the PPT:
Interest: High Impact where jurisdiction of foreign
borrowers levy WHT on interest: Belgium (30%),
Denmark (22%), Ireland (20%), Italy (26%), United
Kingdom (20%), Poland (20%)
Under new PPT provision LuxCo may be denied
to access the DTT’s relief which provides
reduced WHT rates to the extent LuxCo
qualifies as Beneficial Owner of interest
payments
Regional Investment Platform:
Points of attention: Allocation of employees, time sharing, investment decisions
Observation: reliance on non-CIV example
Observation: adjust the functions
Observation: reliance on non-CIV Example
Securitization companyPoints of attention: • LuxCo cannot actively manage the loans portfolio;
• LuxCo cannot act as loan originator;• Beneficial Ownership status of LuxCo can be impaired.
RE
Funds
Lux AIFM
Master LuxCo
(Soparfi)
Foreign Sub Foreign Sub Foreign Sub
Lux
AIF
Lux SPVs Lux SPVsLux SPVs
33© 2019 Deloitte Tax & Consulting Public
Investment platform: towards a new model
Multilateral Instrument
Convergence between AIFMD and the global tax trend (BEPS included) in minimum substance criteria, minimum level of activities together withlimitations to delegation possibilities.
Having the AIF and the Master LuxCo (pooling all the investments) in the same jurisdiction provides an opportunity to align regulatory and taxsubstance demonstrating genuine business purpose for setting up in Luxembourg an active investment platform.
RE
Funds
Lux SPVsLux SPVsLux SPVs
Foreign Sub Foreign Sub
Service
company
Foreign Sub
Old model (example)
Employees of the service company managing Lux SPVs (Accounting, tax Filling, CbCr, CRS, FATCA…) under services agreement / GEC.
Presence of Luxembourg AIFM:
• Management activities and AIFM functions consolidated in one jurisdiction.
• Functions (including the oversight of delegation) required under the AIFMD fit the level of substance in the meaning of tax law/practice.
Luxembourg investment platform:
• Pooling regional investments in one platform is one of the non-CIV examples meeting the definitions of PPT.
• Personnel employed by Master LuxCo may help strengthen beneficial ownership requirements for certain jurisdictions –e.g., presence of c. EUR 100k of labour costs in NL
Impact of the MLI to be investigated on a source country by source country basis:• Interpretation of PPT;• Specific Beneficial Ownership requirements;• BEPS development on the definition of PE to
be monitored (action #7);• LOB clauses.
New model
RE
Funds
Lux AIFM
Master LuxCo
(Soparfi)
Foreign Sub Foreign Sub Foreign Sub
Lux
AIF
Lux SPVs Lux SPVsLux SPVs
34Public © 2019 Deloitte Tax & Consulting
EU directive on administrative cooperation (DAC 6)
35© 2019 Deloitte Tax & Consulting Public
New EU transparency rules for intermediaries
DAC 6
What does the directive cover?
• All types of direct tax - corporate, personal, capital gains and inheritance tax
• Requires mandatory reporting and the automatic exchange of information by the tax authorities of member States for certain cross-border arrangements:
An obligation on intermediaries and relevant taxpayers to inform tax authorities on certain cross-border arrangements
Following the disclosure to the national tax authorities, information share automatically between members States
• A “Reportable cross-border arrangement“ is one that contains at least one of the designated “hallmarks”
• Requires intermediaries, such as tax advisors, accountants, banks, who design, market, organizes… a reportable cross- border arrangement, to report to the tax authorities in the country in which the client is resident
• Shift of the obligation to report to the tax authorities on the taxpayer(s) if the intermediaries are covered by local obligations regarding legal professional privilege or if there is no tax intermediary (i.e. either in-house schemes or all involved intermediaries are based outside EU)
• EU member State then shares the information with all other member States on a quarterly basis
On 8 August 2019, the draft law that would transpose EU directive 2018/822, commonly referred to as DAC 6 (or the “tax intermediaries directive”),into Luxembourg law was introduced in parliament.DAC 6 is part of the EU’s efforts to tackle tax abuse and ensure fairer taxation, and broadly reflects the elements of action 12 (Mandatory Disclosure Rules) of the OECD’s base erosion and profit shifting (BEPS) project on the mandatory disclosure of potentially aggressive tax planning, is the fifth amendment to the 2011/16/EU directive on administrative cooperation in the field of taxation.
36© 2019 Deloitte Tax & Consulting Public
Background to the measures and timeline
DAC 6
What does the directive cover?
• All types of direct tax - corporate, personal, capital gains and inheritance tax
• Requires mandatory reporting and the automatic exchange of information by the tax authorities of member States for certain cross-border arrangements:
An obligation on intermediaries and relevant taxpayers to inform tax authorities on certain cross-border arrangements
Following the disclosure to the national tax authorities, information share automatically between members States
• A “Reportable cross-border arrangement“ is one that contains at least one of the designated “hallmarks”
• Requires intermediaries, such as tax advisors, accountants, banks, who design, market, organizes… a reportable cross- border arrangement, to report to the tax authorities in the country in which the client is resident
• Shift of the obligation to report to the tax authorities on the taxpayer(s) if the intermediaries are covered by local obligations regarding legal professional privilege or if there is no tax intermediary (i.e. either in-house schemes or all involved intermediaries are based outside EU)
• EU member State then shares the information with all other member States on a quarterly basis
In March 2018, political agreement on the tax intermediaries directive.
The directive was formally adopted during the ECOFIN meeting on 25 May 2018.
The directive is officially published in the JOEU (Journal of the European Union) on 5 June 2018
(practical effects from 25 June 2018)
As from 1 July 2020 (general application date), reporting from intermediaries and relevant taxpayers to tax authorities within 30 days after arrangement is made available for implementation…
Information to be exchanged between Member States within one month from the end of the quarter in which the information was filed. First reporting will be communicated by 31 October 2020
5 June
2018
1 July
2020
‹
‹31 August
2020
‹
Reporting by intermediaries and relevant taxpayers of reportable cross-border arrangements the first step of
which was implemented between 25 June 2018 till 1 July 2020
37Public © 2019 Deloitte Tax & Consulting
Substance and case laws
38© 2019 Deloitte Tax & Consulting Public
Recent doctrine and case-law …
Substance and case-law
Non-CIV paper issued by the OECD in 2016
A long list of valid business reasons which could be interpreted widely…
Credibility/reputation of the jurisdiction, political stability; regulatory framework; investors familiarity; etc.
Pooling investors/assets; EU fund distribution; banking; access to common market/currency; etc.
Facilitate debt financing and management of assets; protect the fund from potential claims; logistics for management, access to qualified personnel, administrate/ease DTT WHT relief claims, etc.
… to the extent the derivate test is met (?)
2016
2017
2018
2019
Timeline
Consistent recent case law (2017/18) providing guidance as to how PPT should be applied within the EU
Eqiom, Sept. 2017: general presumption of fraud of the French GAAR could not automatically be justified by non-EU resident status of the controlling shareholder of the recipient.
Diester/Juhler, Dec. 2017: the fact that parent company’s activities consist in the management of its subsidiaries’ assets or that the income of the parent company results only from such management cannot per se indicate the existence of a wholly artificial arrangement without economic reality.
Is the German tax administrative circular dated April 2018 a signal of change in perspective?
Asset management activities constitute a genuine commercial activity to the extent it exercises its rights as shareholder in the subs.
No need for the recipient to have its own staff on its payroll at any time.
A recipient can rely on the corporate group in order to define its business reasons and assess the level of substance (not anymore on a stand-alone basis).
It does neither apply to DTT nor to the EU interest & royalties Directive.
39© 2019 Deloitte Tax & Consulting Public
… leading to a consolidated platform
Substance and case-law
ECJ decision on 26 February 2019 re. the meaning of BO for interest and the div. WHT exemption:
BO for the EUIRD means an entity which benefits economically from the payment.
The EUPSD and EUIRD cannot be relied on to further abusive or fraudulent ends. The following circumstances may be indicative of an abuse:
No economic reality (i.e. structure set-up with objective of getting a tax advantage such as 0% WHT).
Div./interest are paid-on to non-eligible shareholders/creditors shortly after receipt.
EU recipient is a conduit if its sole activity is the receipt of div./interest which are paid-on to the BO.
To confirm whether a recipient has an actual economic activity, all of the relevant facts should be considered: management of the company, balance sheet, costs incurred, staff employed, premises and equipment used. The wider structure should also be considered.
The fact that the ultimate BO are located in a 3rd country which has concluded a DTT is immaterial in assessing a potential abuse unless it can be argued that the payment would also have been exempt from WHT (sort of derivative test).
A tax authority is not required to identify who it thinks is the BO of div./interest to sustain an abuse of rights. It just needs to sustain that the recipient of the income is a conduit.
2019
Strengthen Luxembourg substance following guidelines of OECD / ECJ case laws.
Ensure proper documentation of the Board’s meetings to evidence substance.
Management activities (AIFM), fund (AIF) and the SPVs are consolidated in one place.
There is a min. level of substance and functions (incl. the oversight) required by the AIFMD.
Convergence between tax and AIFMD.
Luxembourg consolidated platform
Austrian Supreme Administrative Court decision on 27 March 2019 re. div. WHT exemption:
Economic reason exists if a structure is set-up to guarantee that an economic purpose is realized in a better and safer manner.
In the case at hand, the Luxembourg holding company performed professional management of long-term holding structures with several qualified employees.
The Supreme Court overturned the decision of the Austrian Federal Fiscal Court and decided in favour of the taxpayer (WHT exemption under the EUPSD).
40Public © 2019 Deloitte Tax & Consulting
Value added tax
41© 2019 Deloitte Tax & Consulting Public
VAT group
Application in real estate industry
Lux VAT group
BidCo(Luxembourg)
PropCo(Luxembourg)
Investors(“LP”)
Fund
Fully opted UK buildings
Financing
PropCo(Luxembourg)
Points of attention
• Intragroup transactions are disregarded for VAT purposes• VAT deduction right computed on the basis of VAT group
output transactions • VAT group considered as a single taxpayer for VAT
compliance purposes• VAT group needs to remain for 2 years• Joint liability of BidCo and Propcos
Objectives of VAT group
• The main objective of the VAT group regime is to re-group several legally independent entities into one single VAT taxpayer, with the primary consequence that all supplies of services and goods between members of a VAT group become internal transactions not subject to VAT.
• The Luxembourg VAT regime also allows the inclusion of non taxable persons, such as holding companies in the VAT group, and provides that the input VAT deduction right group is generally determined on a consolidated basis, based on outgoing supplies.
• In such cases, the VAT recovery profile of the VAT group as a whole could be improved compared to the situation where all the companies would be considered on a stand alone basis.
• A VAT group may help creating synergies and increasing operational and compliance efficiencies as well as eliminating VAT costs on supplies between group members and potentially increasing the overall VAT recovery position in certain cases
Example of a possible VAT group structure
• Due to their activities, holding companies involved in Real Estate and more generally in alternative asset management structures are unable to recover VAT on their costs, or only partly.
• This can be an issue for running costs although the amounts at stake may not be material, but it becomes critical when talking about intra-group services or transaction costs for which the amounts may be much more significant.
• The Luxembourg VAT grouping regime may in certain cases provide an opportunity to create efficiencies and mitigate certain costs.
42© 2019 Deloitte Tax & Consulting Public
Upgraded Luxembourg platform
Focus on VAT and transaction costs
In Luxembourg services qualifying as Management of investment funds (including AIFs) can benefit from a VAT exemption. Therefore:
• Investment management / advisory services rendered to the Lux AIFM by the foreign investment manager for the benefit of the AIF should be VAT exempt
• AIFM services (portfolio, risk and administrative management) rendered to the AIF by the AIFM should benefit from a VAT exemption
• Custody and central admin rendered for the benefit of the AIF should be VAT exempt
• 3rd Party costs (Tax / legal / transaction services) are generally taxable and when charged by the third party to the AIFM or directly to the AIF will create a VAT cost in Luxembourg
• In case 3rd party costs (in particular transaction costs), instead of being charged to the AIF, could be incurred at the level of the Foreign investment manager, as costs directly necessary for and connected to the provision of the investment management services, and when they can be incorporated in the investment management / advisory fee or added as ancillary expenses, they could share the VAT treatment of the main services and benefit from the VAT exemption
Points of attention
• Proof of taxable person status of Lux AIFM (Lux VAT number)
• Proper documentation supporting the nature of the services as management of investment fund
• Clear description of Lux AIF as beneficiary of services • No reporting of the advisory/management services in the UK
EC Sales List• No entitlement to VAT deduction (but VATable costs should
be limited)
Foreign Investment Manager/
Adviser (UK/US)
Lux AIFM
Lux AIF
Transaction services (including dead deal costs)
Custody and central administration
Transaction services (including dead deal costs)
Investm
ent
managem
ent
/advis
ory
serv
ices
Tax, legal accounting etc.
AIF
M s
erv
ices
3rd party service providers
43© 2019 Deloitte Tax & Consulting Public
Rent free period
Luxembourg case-law
Next steps
• The current outcome is rather positive for Luxembourg real estate businesses
• The Luxembourg VAT authorities will, however, appeal the decision of the Tribunal and the question will thus be referred to the Court of Appeal
• As part of the court proceedings, the question might be referred to the CJEU
VAT treatment of leasing in Luxembourg
• Under the Luxembourg VAT rules the lease or letting of immovable property is exempt from VAT and not entitling to input tax deduction
• An option to tax can be applied if the following conditions are met:
− The lessor and lessee qualify as taxablepersons
− The immovable property is used by the lesseefor purposes predominantly entitling to inputtax deduction (>50%).
• If there is a valid option to tax accepted by the Luxembourg VAT authorities, the lessor is entitled to recover input tax on related costs
Luxembourg cases on rent-free periods
• Two cases were brought to the Luxembourg Tribunal to consider whether in case there is a valid option to tax, but a rent-free period of more than 6 months was agreed between the lessor and lessee
• Since during the rent-free period, the lessor didn’t apply Luxembourg VAT, the Luxembourg VAT authorities challenged the input VAT deduction right claimed during that period.
• They specifically argued that there two distinct supplies. The rent-free period is to be regarded as a non-economic activity without any right to deduct input tax whereas the period when VAT is applied on the rent should entitle to input tax deduction.
• Luxembourg Tribunal rejected the above arguments using the following arguments:
− Such rental is to be regarded as one singleglobal activity that cannot be split intoeconomic and non-economic activities;
− Input tax deduction right exists as soon asthere is a clear intention to render activitiesentitling to input tax deduction
− The CJEU has considered in one of its casesan input tax deduction right in relation tooffices spaces that were not occupied.
44© 2019 Deloitte Tax & Consulting Public
Luxembourg VAT implications
Brexit
Leaving without a deal (or withdrawal agreement) means the UK would immediately exit the
customs union and single market
**
*
The default position is that the UK will leave the EU on 31 October at 23:00 GMT.
Even if the prime minister requests an extension there is no guarantee that the other EU countries
would agree.
1UK leaves
without a deal
2UK would be
treated as non-EU country for
VAT
3Main impact on
financial services
provided to UK persons
Certain financial services are exempt from VAT including:
• Granting and negotiation of loans
• Sale of shares and securities and their negotiation
• Transactions concerning deposits and current accounts, payments, transfers, debts
a.
b.
If Lux entity provides to EU based persons, it doesn’t have an input tax deduction right – input VAT a final cost
If Lux entity provides to non-EU based persons, it has an input tax deduction right – input VAT not a final cost
Main Lux VAT impact
• Potential input tax deduction right if financial services provided to UK
• Impact on VAT compliance obligations of Luxembourg companies - change of VAT registration regime from simplified to standard (with related increase of the complexity of VAT filings) or registration for VAT under the standard regime
Other VAT aspects
• Change in VAT refund procedures where Lux companies claim for refund of UK VAT
• Check of the validity of UK VAT Nrs through VIES
45© 2019 Deloitte Tax & Consulting Public
SAF-T / FAIA
• The Luxembourg FAIA obligation
FAIA (Fichier d’Audit Informatisé de l’Administration) is a requirement from the Luxembourg VAT Authorities to be provided with a standard file, structured as an XML file and containing specific information and data that will be used to perform VAT Audits.
This is therefore a mandatory file to provide, but only when requested in case of an audit and that requires to be anticipated by taxpayers
• Content of the file
The content of the file and information to be provided depends on the level of integration of the systems used:
• Full FAIA file: requested for fully integrated system or ERP meaning that the following elements and information are all in the same system: • Accounting• Invoicing• Fixed assets• Stock management
• Reduced FAIA file A : requested for partially integrated system where only accounting and invoicing are the same systems
• Reduced FAIA file B: requested for non integrated system where accounting and invoicing are in different systems
Your challenge
• Are you immediately concerned by Phase 1 or will you only be concerned by Phase 2?
• Are you able to provide a FAIA file upon request of the VAT Authorities ?
• Is your FAIA file (VAT) technically compliant ?
• Will you send your data to the VAT Authorities without a pre-test ?
46Public © 2019 Deloitte Tax & Consulting
Regulatory Update
47© 2019 Deloitte Tax & Consulting Public
CSSF Circular 18/698
Regulation Update
UCITS management companies and AIFMs, as well as management companies subject to chapters 16 and 17 of the 2010 Law (together referred to as “GFI”)
Luxembourgish entities acting as transfer agent for investment funds
CSSF Circular 04/155 and IML Circular 98/143 no longer applicable to GFIs (both circulars included into 18/698)
Repeals CSSF Circular 12/546, as amended
Amends CSSF Circulars 11/512 and 17/671
Comprehensive list of definitions;
Delegation and Oversight; Governance; AML/CFT …
Please see following slides With immediate effect
CSSF Circular18/698 on the authorization and
organization of Lux investment management companies;
Specific provisions on AML/CFT for GFIs and entities carrying out the function of registrar agent
Scope of Application
Revised Rules
Entry into Force
Mostsalienttopics
48© 2019 Deloitte Tax & Consulting Public
CSSF Circular 18/698 - Highlights of most salient topics
Regulation Update
Applicable to all delegated functions (Central Administration, Portfolio Management, Marketing, Valuation)
Formalisation of due diligence (i.e. via a report)
Detailed content of the due diligence documents (i.e. due diligence questionnaire and report)
Focus on delegation and oversight aspects
Alignment of the delays within which the annual reports / recurring information have to be transmitted to the CSSF: five months after the business year-end of the GFIReporting to the
CSSF
Availability of board members / Fit & Proper Dashboard
Defined thresholds on the time spent and number of mandates for board members: maximum 1,920 hours per annum and 20 mandates;
Introduction of a “fit and proper” dashboard for board members and conducting officers
Other regulations EMIR, MMFR and MiFID
Specific sections on the application of the European Market Infrastructure Regulation (EMIR), Money Market Fund Regulation (MMFR) and Markets in Financial Instruments Directive (MiFID)
Internal Governance Risk Management
Different scenarios and rules in respect of AML / CFT
New annual reporting requirements in the area of AML / CFT to be transmitted to the CSSFFocus on AML /
CFT
Own funds requirements for GFI with an extended license (i.e. offering discretionary portfolio management and other investment management services)Own fund
requirements for extended license
Definition of the three-lines-of-defence model to be applied by GFI
Alignment of the risk management requirements for AIFs and UCITS
Relationship with Depositary
Exchange of information between the GFI and the depositary for oversight purposes (CSSF circulars 16/644 and 18/697)
49© 2019 Deloitte Tax & Consulting Public
GovernanceSupport
functions3)
Non-core
functions2)
Internal Control
framework
Remuneration
Core Functions1)
Delegation
• Degree of delegation (based on objective reasons)
• Sound Due Diligence on all delegates
• Ongoing monitoring
• Sufficient expertise within AIFM to challenge the work of delegates
(applicable to all asset classes administered by the AIFM)
Governance
Staffing
Internal control
Framework
Key component and guiding principles
Remuneration
• Implementation of policies and procedures to grant final decision
making power to Conducting Officers of AIFM
• Separation of critical functions to avoid conflicts of interest
• Sound policies and procedures on internal governance, conflict of
interest and code of conduct
• Sufficient resources and expertise to diligently select and monitor all
delegated functions on an ongoing basis
• Senior management functions should be available to meet the CSSF
on a short term notice
• Three organizational levels : Board, Senior management and staff
• Reality and staffing of functions located in Luxembourg
• Actual oversight and control performed on delegated functions
• Documentation of function-related processes
• Sound policies and procedures based on funds and assets classes of
the AIFM
• Desk-based and on-site controls on an ongoing basis
• Ex ante and ex post controls
• Remuneration policy should promote sound and effective risk
management and transparency
• Existence of, and governance around, support functions
• Documentation of function-related processes
• Decision making power in Lux
• Separation and autonomy
functions and reporting lines
• Documentation of decisions and
internal/external reporting flows
Notes1) Risk Management, Portfolio Management2) Valuation, Reporting & Disclosure, Marketing & Distribution, Investor Compliance, Investment Compliance, Internal Audit, TA, FA, Corp. Sec.3) Legal, IT, Tax
• Overall weight of delegation
• Actual decision, oversight and control performed on delegated functions
• Reality and staffing of functions located in Luxembourg
• Level of remuneration of the AIFM vs Portfolio manager / investment advisor
• Remuneration of professionals
Tax Governance in an AIFM context
Regulation Update
50© 2019 Deloitte Tax & Consulting Public
Tax
governance
AIFM
AIF
• Function and responsibility
• Policy
• Tasks
• One of the CO to cover tax governance and relation with group
function
• Risk approach towards tax responsibility, reporting and topics covered
• What is checked and where?
• VAT structuring
• Direct tax
• Transfer Pricing
• VAT structuring
• Direct tax structuring
• Transfer Pricing
• VAT filing
• Direct tax filing
• Transfer Pricing periodic review and implementation
• VAT filing
• Direct tax filing
• Transfer Pricing periodic review and implementation
• Tax governance within
an AIFM requires the
establishment of a tax
(support) function and
the design of a tax
policy
• The tax function is
responsible for the
implementation and
adherence to this tax
framework at AIFM
and AIF level
Level Considerations Tax Compliance
1
2
3
Comment
Regulation Update
Tax Governance in an AIFM context
51© 2019 Deloitte Tax & Consulting Public
Tax Governance in an AIFM context
Regulation Update
Governance
Increased focus by regulators on tax as part of corporate governance
function (indicator of proper management)
Tax audits
Scrutiny by local tax authorities on transfer
pricing
Transparency
Increased focus on transfer pricing documentation
Industry
Move to regulatedstructures under
AIFM regime
Models & policies
Appropriateness and defensibility of
existing TP models and policies
Transfer pricing policies and approaches
• BEPS impact on the appropriateness of existing TP policies and approaches specific to the asset management sector
• Remuneration (for tax purposes) for the unique role of captive ManCos depending on delegation model vs. unregulated structures
• Defensibility of one-sided approaches, i.e. where captive ManCo under delegation model retains residual profits
• Cost plus arrangements (e.g. for advisory related activities)
• Permanent establishment thresholds
• Approaches to support split of management fees for the remuneration of
• Capital raising (incl. marketing and LP services)
• Investment management (incl. advisory)
• Fund production (principal function of ManCo) and
• Fund administration, back-office services and other support functions
• Revisiting Luxembourg-specific legacy tax arrangements
• Rulings with goodwill deductions, investment grants or cost plus arrangements
• Restructurings and transfer of activities
• Brexit-related on-shoring of activities in Luxembourg
Substance
Overlapping discussion on organizational and economic substance
from a tax and regulatoryperspective
1
2
3
4
Politicalenvironment
BEPS, Brexit,and EU state aid
52Public © 2019 Deloitte Tax & Consulting
Your contacts at Expo Real
Deloitte Luxembourg
53© 2019 Deloitte Tax & Consulting Public
Your contacts at Expo Real
Deloitte Luxembourg
Audit
Philipp StorkSenior Manager
Audit
Phone : +352 45145 4211
Mobile : +352 661 452 165
Languages: English, German, Spanish
Lize GriffithsPartner
Audit
Phone : +352 45145 2693
Mobile : +352 621 505 576
Languages: Afrikaans, English
Harald ThulDirector
Audit
Phone : +352 45145 3467
Mobile : +352 621412697
Languages: English, German
Sigo Risy, MRICSDirector
Audit
Phone : +352 45145 2188
Mobile : +352 621 378 381
Languages: English, German, Italian
Andreas MeierPartner
Audit
Phone : +352 45145 2320
Mobile : +352 661 451 669
Languages: English, German
54© 2019 Deloitte Tax & Consulting Public
Your contacts at Expo Real
Deloitte Luxembourg
Advisory & Consulting
Frank LichtenthälerPartner
Advisory & Consulting
Phone : +352 45145 4387
Mobile : +352 621 777 486
Languages: English, German
Jean Pierre LequeuxPartner
Advisory & Consulting
Phone : +352 45145 3598
Mobile : +352 671 671 404
Languages: English, French, Spanish
François GuiotManager
Advisory & Consulting
Phone : +352 45145 3008
Mobile : +352 661 799 506
Languages: English, French, Spanish
Accounting
Björn HerbergerDirector
CBT-CORPACC
Phone : +352 45145 5864
Mobile : +352 621 964 703
Languages: English, French, German
Alexandre Prost-Gargoz Partner
CBT-CORPACC
Phone : +352 45145 4407
Mobile : +352 661 452 057
Languages: English, French, German,
Spanish
55© 2019 Deloitte Tax & Consulting Public
Your contacts at Expo Real
Deloitte Luxembourg
Tax
Christian BednarczykPartner
CBT-M&A
Phone : +352 45145 4467
Mobile : +352 661 452 018
Languages: English, German
Paul PotockiSenior Manager
CBT-M&A
Phone : +352 45145 3928
Mobile : +352 621 821 915
Languages: English, French, German, Polish
Yves KnelPartner
CBT-M&A
Phone : +352 45145 2260
Mobile : +352 621 251 016
Languages: English, French
Denis BossertManager
CBT-M&A
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