Fund News - Issue 103 - May 2013

fund news

financial services / Regulatory and Tax / Issue 103

developments in May 2013 Investment Fund Regulatoryand Tax developments in selected jurisdictions

2 / Fund News / Issue 103 / Developments in May 2013

Regulatory Content

european union 3 EEC consults on European

System of Financial Supervision 3 EC adopts Regulation and Directive

on Credit Rating Agencies (CRA) 5 EC adopts AIFMD implementing

regulations 6 ESMA guidelines on key concepts

of the AIFMD 6 ESMA consultation on reporting obligations

of the AIFMD 7 ESMA promotes global supervisory

co-operation on alternative funds

france 8 AMF extends provisions of AFG Code of Ethics

to asset management companies

Germany 8 BaFin interpretation of credit limit rules

for real-estate funds 9 High-Frequency Trading Act enforced

Luxembourg 9 AIFMD: CSSF signs MoUs with

34 third-countries

switzerland 10 Revision of FINMA Circular “Distribution

of collective investment schemes” 10 SFA Guidelines on transparency of

management fees

International 11 IOSCO Principles for CIS Valuation

Contents

Tax Content

Germany 12 German Cabinet approves treaty with

the US on tax compliance

Luxembourg 13 FATCA: Luxembourg to sign Model I

agreement 13 Aberdeen E-Alerts

uK 14 Update on tax treatment applicable to

management fee rebates 14 UK Reporting Fund regime:

technical amendments

Fund News / Issue 103 / Developments in May 2013 / 3

Regulatory news

european union

The consultation, which is public, is divided into five sections:

• ESAs (effectiveness and efficiency of the ESAs, governance),

• ESRB (mandate and experience with systemic risks, institutional framework and governance of the ESRB, access to data, external relations and communications),

• Cooperation and interaction between the ESAs (micro level) and ESRB (macro level),

• Structure of the ESFS,

• Miscellaneous.

After its review, the Commission will issue a report to the European Parliament and Council who shall examine, based on the report as well as on an opinion to be received from the European Central Bank (ECB) and the ESAs, whether a revision of the mission and organisation of the ESRB is required.

The consultation is open until 19 July 2013. Both the questionnaire and background information can be found via the following web link.

http://ec.europa.eu/internal_market/consultations/2013/esfs/index_en.htm

european Council adopts directive and Regulation with regard to excessive reliance on credit ratings

On 13 May 2013 the European Council adopted

• a Directive amending the UCITS and AIFMD directives in respect of over-reliance on credit ratings.

• a Regulation amending Regulation 1060/2009 on Credit Rating Agencies (CRA).

Both texts had been agreed between Parliament and Council and have been finally signed on 21 May 2013, and await publication in the Official Journal.

The text of the Directive recalls the requirement for management companies of UCITS and managers of AIF to employ an adequate risk-management process, and particularly introduces the requirement to avoid relying solely or mechanistically on credit ratings issued by CRAs for assessing the creditworthiness of their investments. As such, external credit ratings should not be the only parameter when assessing the risk. The Directive further obliges the competent authorities to monitor whether UCITS/AIFs credit assessment process is adequate in terms of the nature, scale and complexity of their activities, to assess whether the use of references to credit ratings in the UCITS/AIF investment policies are appropriate, and – if necessary – encourage mitigation of the impact of such references.

european Commission issues Consultation on the Review of the european system of financial supervision

As from 26 April 2013 the European Commission invites all interested stakeholders to evaluate the effectiveness and efficiency of the European System of Financial Supervision (ESFS) and suggest improvements to the existing structure.

The ESFS was created in 2010 in response to the financial crisis, and encompasses the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), as well as the European Systemic Risk Board (ESRB) and the competent national authorities of the Member States.

The regulations provided for the Commission to perform a review of the ESRB by 17 December 2013 and the ESAs by 2 January 2014.


Regulatory news

Although the main aim of the Directive is the avoidance of exclusive reliance on external credit ratings, the text provides for some flexibility in the way to achieve that objective, since it does not legally oblige the management company / manager to implement own rating units, i.e. to conduct their own assessment of the creditworthiness of issuers. As both UCITS and AIFs are already required to have sound risk management procedures in place, the main work to be done will focus on the integration of the principle to not solely or automatically rely on external credit ratings.

With regard to transposition, Member States are required to implement the Directive within 18 months after its entry into force.

The Credit Rating Agencies Regulation addresses issues that have not been sufficiently covered in earlier regulation, relating inter alia to the risk of overreliance on credit ratings by market participants; the high concentration in the rating market; conflicts of interest inherent in so-called “issuer-pays models”; CRA shareholder structure; and civil liability of CRAs towards investors and issuers.

The main provisions of the Regulation refer to the following:

• To reduce over-reliance on external ratings and gradually eliminate automatic effects deriving from these, financial institutions shall put in place procedures their own credit risk assessment. They should not solely or mechanistically rely on external ratings and should use further parameters to assess the creditworthiness of investments.

• CRAs shall have in place an effective internal control structure to prevent and manage possible conflicts of interest. Unless CRAs belong to the same group, ownership of 5% or more of capital or voting rights in more than one CRA is prohibited. In the case where a shareholder owning 5% or more of capital or voting rights holds 5% or more of a rated entity, this has to be disclosed publicly.

• Issuers of re-securitization products who pay CRAs for their ratings (“issuer-pays model”) will have to replace the CRA at least every four years. This requirement shall however not apply to small CRAs, or where at least four CRAs each rate more than 10% of the total number of outstanding rated re-securitizations. From expiry of the contract, a “cooling-off period” is foreseen, equal to the duration of the expired contract but not exceeding four years. The mandatory rotation might be extended to further instruments in the future (review clause).

• Issuers of structured finance products are required to engage at least two different, independent CRAs.

• Where an issuer mandates at least two CRAs, he shall consider the possibility to mandate at least one CRA having less than 10% of total market share.

• For sovereign debt ratings, a review is foreseen at least every six months. When ratings or outlooks are issued, the CRA shall publish them after close of business hours of regulated markets and at least one hour before their opening. As at the end of December each year, CRAs should publish a calendar setting the dates for the publication of sovereign ratings or outlooks within the next 12 months. Unless accompanied by individual country reports, a statement announcing revision of a group of countries shall be prohibited.

• If investors or issuers suffer a loss due to an infringement committed by the CRA intentionally or with gross negligence, they will be able to claim damages from the CRA (civil liability). They will nevertheless have to present accurate and detailed information indicating such infringement.

Contrary to a Directive, the Regulation will be directly applicable in all Member States.

By 1 January 2016, the Commission shall review the situation in the credit rating market and issue a report, accompanied by a legislative proposal, if appropriate.


Regulatory news

The text of the Directive is available via the following web link (Document “PE 69/12”).

http://register.consilium.europa.eu/servlet/driver?page=Result&lang=EN&typ=Advanced&cmsid=639&ff_COTE_DOCUMENT=&ff_COTE_DOSSIER_ INST=2011%2F0360%28COD%29&ff_TITRE=&ff_FT_TEXT=&ff_SOUS_COTE_MATIERE=&dd_DATE_DOCUMENT=&document_date_single_comparator=&document_date_single_date=&document_date_from_date=&document_date_to_date=&dd_DATE_REUNION=&meeting_date_single_comparator=&meeting_date_single_date=&meeting_date_from_date=&meeting_date_to_date=&fc=REGAISEN&srm=25&md=100&ssf=DATE_DOCUMENT+DESC

The text of the Regulation is available via the following web link (Document “PE 70/12”).

http://register.consilium.europa.eu/servlet/driver?page=Result&lang=EN&typ=Advanced&cmsid=639&ff_COTE_DOCUMENT=&ff_COTE_DOSSIER_INST=2011%2F0361%28COD%29&ff_TITRE=&ff_FT_TEXT=&ff_SOUS_COTE_MATIERE=&dd_DATE_DOCUMENT=&document_date_single_comparator=&document_date_single_date=&document_date_from_date=&document_date_to_date=&dd_DATE_REUNION=&meeting_date_single_comparator=&meeting_date_single_date=&meeting_date_from_date=&meeting_date_to_date=&fc=REGAISEN&srm=25&md=100&ssf=DATE_DOCUMENT+DESC

european Commission adopts AIfMd implementing measures on procedures for opt-in and determination of Member state of reference

On 16 May 2013, the European Commission published two Implementing Regulations relating to the Alternative Investment Fund Managers Directive (AIFMD) in the Official Journal of the European Union.

The first Regulation (Implementing Regulation 447/2013) establishes a procedure for alternative investment fund managers (AIFMs) who decide to opt-in under the AIFMD. It applies to all sub-threshold AIFMs (so called “small AIFMs”) that choose to authorisation under the AIFMD and requires that they follow the same procedure as for AIFMs that are obliged to seek authorisation under the AIFMD. Competent authorities may exempt an AIFM from submitting information and documents that have already been submitted to them for registration purposes or as part of the UCITS authorisation procedure provided that such information and documents are still up to date and the AIFM confirms this in writing. The European Commission also clarifies that an authorised AIFM whose assets under management subsequently fall below the thresholds set out in the Directive remains authorised and subject to full compliance until the authorisation is revoked. The revocation will not be triggered automatically by fall of the assets below the relevant threshold, but only at the request of the AIFM.

The second Regulation (Implementing Regulation 448/2013) establishes a procedure for the determination of the Member State of Reference (MSR) for a non-EU AIFM. The non-EU AIFM needs to submit a request for determination of its MSR to all possible MSR. The request needs to be in writing and shall include a list of all possible MSR as well as all information and necessary documentation. The regulation sets out several lists specifying the exact information and documentation that needs to be provided to the regulators. AIFMs will have to provide, inter alia, detailed information on where the AIFs have been established, their assets under management and where the AIFM intends to market its funds in the EU.

The competent authorities approached are jointly responsible for the determination and shall decide within one month at the latest. Where additional information is requested, this time limit shall be extended. ESMA shall assist the competent authorities and if necessary facilitate the determination. If the non-EU AIFM is not informed in writing within seven days of the determination, or the relevant competent authorities have not determined the MSR within the aforementioned time limit, the non-EU AIFM may choose itself its MSR in accordance with the criteria set out in the AIFMD and shall immediately inform in writing the competent authorities it had originally addressed.

Both regulations are automatically binding in all EU Member States and will therefore not need any transposition into national law. They will enter into force on 5 June 2013 and will apply from 22 July 2013.


Regulatory news

• Reporting frequencies and periods based on the calendar year: AIFMs subject to semi-annual reporting obligations will have to report twice a year as of the last business day of June and December, whilst AIFMs reporting on a quarterly basis will have to report on the last business day of March, June, September, and December.

• Procedure for changes in reporting frequency: The guidelines include procedures for AIFMs that become subject to new reporting obligations due to a change from registered AIFM to authorised AIFM, or a shift in reporting frequency, including the information to be reported depending on when the change occurs.

• Reporting of specific types of AIF: The guidelines specify that AIFMs will need to treat feeder AIFs of the same master AIF individually and will not be able to aggregate all the information in a single report. AIFMs that manage non-EU master AIFs would have to report information on the master AIF if one of the feeder- AIF is marketed in the EU or is an EU AIF. For umbrella funds, AIF specific information should be reported at the level of the sub-funds.

• Identification of the AIFM, Principal markets/instruments and AuM calculation: Guidance is given on the identifiers to be used for the AIFM; on how to determine principal markets or trading venues; on the sub-assets types for reporting of principal instruments; and on the calculation of the total value of Assets under Management which is in line with the Delegated Regulation methodology.

Implementing Regulation 447/2013 is available via the following web link.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:132:0001:0002:EN:PDF

Implementing Regulation 448/2013 is available via the following web link.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:132:0003:0005:EN:PDF

esMA publishes guidelines on key concepts of the AIfMd

On 24 May 2013, the European Securities and Markets Authority (ESMA) published its final report on guidelines on key concepts of the AIFMD. The purpose of the guidelines is to ensure a common, uniform and consistent application of the “AIF” definition set out in the Directive by clarifying each of the concepts of this definition.

The ESMA paper provides guidelines on the following elements of the AIF definition:

a. Collective investment undertaking (including investment compartments thereof)

b. Raising capital c. Number of investorsd. Defined investment policy

The guidelines will now be translated into the official languages of the EU, and the final texts will be published on the ESMA website. The guidelines will become applicable two months after the publication of the translations.

The ESMA guidelines are available via the following web link.

http://www.esma.europa.eu/news/ESMA-publishes-Guidelines-key-concepts-AIFMD?t=326&o=home

esMA consults on reporting obligations of the AIfMd

On 24 May 2013 ESMA also published a new Consultation Paper (CP) (Ref: ESMA/2013/592) containing draft guidelines on AIFMD reporting obligations under Article 3 and Article 24 of the AIFMD.

ESMA considers that the provisions in the Delegated Regulation (231/2013) need to be supplemented with further guidelines on the type of information that AIFMs need to report to their national authorities, the timing of reporting and reporting periods, and the procedures to be followed when AIFMs move from one reporting obligation to another.

Key provisions of the guidelines include:

• Transitional arrangements: All existing AIFMs as of 23 July 2013 and any AIFMs authorised or registered after this date shall report the information required to the NCAs for the first time by 31 January 2014, or by 15 February 2014 in the case of Fund of Funds. The first reporting shall cover the period from 23 July 2013 to 31 December 2013.


Regulatory news

• AIF data reporting Art. 3(3)d and 24(1): There are guidelines on the AIF identifiers; examples on the breakdown of investment strategies; and guidance on principal exposures and most important concentration (e.g. main instruments, geographical focus, principal exposures by sub-asset type, instruments traded), liquidity profile and on reporting of measures of market and counterparty risk.

• IT guidance for XML filing: Detailed IT guidance is provided in Annex VI of the CP.

The consultation is open until the 1 July 2013.

The full text of the consultation paper can be found via the following web link.

http://www.esma.europa.eu/news/ESMA-launches-consultation-guidelines-AIFMD-reporting-obligations?t=326&o=home

esMA promotes global supervisory co-operation on alternative funds

On 30 May 2013 ESMA published a press release (ESMA/2013/629) announcing that it has approved co-operation agreements (so-called “Memoranda of Understanding”, “MoUs”) on behalf of the 27 EU Member State securities regulators as well as regulators from Croatia, Iceland, Liechtenstein and Norway, with 34 non-EU regulators, including jurisdictions such as Australia, Brazil, Canada, Hong Kong, India, Singapore, Switzerland and the US. These MoUs, being applicable as from 22 July 2013,

will support authorities in fulfilling their responsibility for the supervision of Alternative Investment Funds Managers (AIFMs) within the EU and outside, their delegates and the depositaries, by facilitating mutual assistance in the enforcements of supervisory laws, including the exchange of information and cross-border visits. They are particularly relevant for non-EU AIF managers managing or marketing AIF in the EU, or EU AIF managers managing or marketing AIF in third-countries.

Nevertheless, although being negotiated on a global basis by ESMA, the MoUs now have to be signed bilaterally between each EU authority and non-EU authority, leaving it at the discretion of each EU regulator to decide with which non-EU regulator it will sign an MoU.

To meet the deadline of 22 July 2013, ESMA is continuing to negotiate MoUs with additional third country authorities.

The press release is available via the following web link.

http://www.esma.europa.eu/news/Press-release%E2%80%94ESMA-promotes-global-supervisory-co-operation-alternative-funds?t=326&o=home


Bafin issues interpretation of credit limit rules for real-estate funds

On 22 April 2013 the BaFin issued an interpretation of §80a para 1 of the “Investmentgesetz” (InvG) which foresees a limit for long-term borrowings for real-estate funds of 30% as from 8 April 2011 (before: 50%). For real-estate funds having existed before 8 April 2011, the management company (“Kapitalanlagegesellschaft”) has to reduce the exposure to long-term borrowings to 30% of the market value of the properties belonging to a fund until 31 December 2014. For newly created real-estate funds, any long-term borrowings up to 50% are considered as a breach, unless adherence to the 30% limit is ensured by 1 January 2015.

§80a para 1 InvG aims at reducing the risks resulting from borrowings and refers to the total volume of amounts owed and not only to the adherence of limits at the time of borrowing. The analysis of the limit has to be performed on a fund by fund basis. It is however not forbidden to fully finance single properties within a real-estate fund via borrowings, as long as the limit of 30% is not exceeded in total for all properties in the fund.

The full text (only in German) is available via the following web link.

http://www.bafin.de/EN/Homepage/homepage_node.html;jsessionid=B0652474CD62A5DDA15B3E05CCA18540.1_cid372

AMf extends the provisions of the AfG Code of ethics to all asset management companies

During its session of 16 April 2013 the AMF Board extended to all asset management companies the provisions of the Code of Ethics specifically applying to Employee Savings Scheme Management Firms prepared by the Asset Management Association (AFG) as a set of professional standards and approved by the AMF in December 2012.

This Code of Ethics covers the prevention of conflicts of interest, business organisation and continuity, exercise of shareholder rights, relations with intermediaries and custody account keepers, relations with investors, employee conduct and oversight of personal dealings.

The Code will complement the provisions contained in the Code of Ethics for Collective Investment Schemes and Individual Investment Management Mandates approved in 2009.

The document can be found using this link.

http://www.amf-france.org/documents/general/10830_1.pdf

france Germany


otherwise functioning in a way that may create or contribute to a disorderly market. It shall also have in place effective systems and risk controls to ensure the trading systems cannot be used for any purpose that is contrary to European and national regulations against market abuse or to the rules of a trading venue to which it is connected. The investment services enterprise further shall have in place effective business continuity arrangements to deal with any unforeseen failure of its trading systems and shall ensure its systems are fully tested and properly monitored. It shall ensure that every modification of a computer algorithm applied for trading is documented.

These requirements have to be complied with after a transitional period of six months after promulgation of the Act, i.e. 14 November 2013.

The text of the final law (only in German) can be accessed via the following web link.

http://www.bvi.de/regulierung/positionen/hochfrequenzhandel/

The BaFin also recently issued a FAQ document dealing inter alia with the authorisation requirement, follow-up requirements and the European passport.

The FAQ document can be found via this web link.

http://www.bafin.de/EN/DataDocuments/FAQ/HFT-Gesetz/hft-gesetz_node.html

High-frequency Trading Act enforced

The final Act on the Prevention of Risks and Abuse in High-Frequency Trading (“HFT Act”, “Hochfrequenzhandels-gesetz”) dated 7 May 2013 has been published in the “Bundesgesetzblatt” on 14 May 2013 and came into effect on 15 May 2013. Certain transitional provisions are foreseen until 14 November 2013.

The HFT Act had been carried out in anticipation of and in close coordination with the requirements of Article 17 of the proposed MiFID II Directive. The main provisions of the HFT act relate to the introduction of an authorisation requirement for concerned trading participants that will be supervised by the BaFin afterwards, as well as organisational requirements.

The Act also introduces specific organisational requirements for investment firms, asset management companies (“Kapitalanlage-gesellschaften”) and self-managed investment stock corporations (“Investmentaktiengesellschaften”) applying algorithmic trading strategies, by amending §9a para 1 of the “Investmentgesetz” (InvG) which will refer to the newly introduced §33 para 1a of the “Wertpapierhandelsgesetz” (WpHG).

According to §33 para 1a WpHG, an investment services enterprise engaging in algorithmic trading shall have in place effective systems and risk controls to ensure that its trading systems are resilient and have sufficient capacity, are subject to appropriate trading thresholds and limits and prevent the sending of erroneous orders or the system

Regulatory news

AIfMd: Cssf signs Mous with 34 third-countries

On 31 May 2013 the Commission de Surveillance du Secteur Financier (CSSF) issued Press Release 13/23 announcing that it has signed a Memorandum of Understanding (MoU) with each of the 34 non-EU authorities with whom ESMA had approved co-operation agreements on 30 May 2013 (please refer to our article “ESMA promotes global supervisory co-operation on alternative funds” on page 5).

The co-operation agreements negotiated by ESMA enable the cross-border management and marketing of AIF to professional investors and are applicable as from 22 July 2013.

The text of the Press Release can be found via the following web link.

http://www.cssf.lu/fileadmin/files/Publications/Communiques/Communiques_2013/CP_1323_34_MOUS_EN.pdf

Luxembourg


Regulatory news

switzerland

Revision of fInMA Circular “distribution of collective investment schemes”

The revision of the Federal Act on Collective Investment Schemes (CISA) and of the Ordinance on Collective Investment Schemes (CISO) – which both came into effect on 1 March 2013 – abolished the term “public advertising” and introduced the term “distribution” instead. Due to this system change, the Swiss Financial Market Supervisory Authority FINMA is fully revising FINMA Circular 2008/8 on “Public advertising – collective investment schemes” (Circular) and will enact a new Circular. In the process of the revision of the circular, FINMA has opened a public consultation. This consultation will end on 3 June 2013. Once in effect, the new Circular will replace FINMA Circular 2008/8 and will in particular define the term “distribution” and explain the activities qualifying as distribution, as well as setting out the legal consequences entailed.

One of the main consequences of the revised “distribution regime”, which will also be addressed in the new FINMA circular, is the new regulatory regime regarding the distribution of foreign collective investment schemes to qualified investors.

While the distribution of foreign collective investment schemes targeted at retail investors remains subject to approval by FINMA (art. 120 para. 1 CISA), foreign collective investment schemes exclusively targeted at qualified investors do not need a product license according to art. 120 para. 1 and 4 CISA. However, for shares of foreign collective investment schemes distributed in Switzerland, both a representative and a paying agent must be appointed (art. 120 para. 4 in connection with para. 2 lit. d CISA) and an appropriate supervision must be in place either in Switzerland or in the country of domicile (art. 19 para. 1bis CISA). In the latter case, such supervision requirement is met if the financial intermediary concerned is licensed for the distribution of collective investment schemes in the country of domicile (art. 30a CISO).

According to previous law, both a representative and a paying agent were required only in the case of distribution activities aimed at retail investors (“public advertising”). It may thus be concluded that the revision brought about a clearly more stringent distribution regime with regard to the distribution of foreign collective investment schemes to qualified investors.

The new Circular regarding the distribution of collective investment schemes will provide useful guidance in dealing with all kinds of questions related to the distribution of collective investment schemes in and from Switzerland. Moreover, it will also help foreign financial intermediaries in gaining a better understanding of the revised Swiss distribution regime.

sfA Guidelines on transparency with regard to management fees

Following the entry into force on 1 March 2013 of revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO), and recent jurisprudence of Federal Court about retrocession, Swiss Fund Association (SFA) Guidelines on transparency with regard to management fees has become obsolete and is therefore not anymore recognized by FINMA as a minimum standard under the FINMA Circular 2008/10 “Self-regulation as a minimum standard”. The Guidelines are currently under revision and should be submitted to FINMA for recognition as minimal standard before end of May 2013.


Regulatory news

International

IOsCO publishes Principles for CIs Valuation

On 3 May 2013 IOSCO published its final report on “Principles for the Valuation of Collective Investment Schemes”. IOSCO considered a revision of its previous Principles for CIS Valuation developed in 1999 as necessary, integrating further the IOSCO Principles for the Valuation of Hedge Fund Portfolios issued 2007, as well as other recently worked out principles for investment managers and comments received during the consultation process. In particular the fact that more assets are nowadays eligible than have been in the past (e.g. OTC derivatives, structured products) and that these assets might be complex and hard to value, has triggered the enhancement. These assets might require reliance on a mark-to-model valuation implying certain assumptions and judgment instead of a mark-to-market valuation based on quoted prices, as such increasing regulatory risks because of the difficulty and subjectivity inherent in these internal techniques. The valuation might also present conflicts of interest between those who value the asset and the investors.

Since the implementation of comprehensive policies and procedures for CIS valuation is considered a core and fundamental maxim in investment management, the current report lists a set of principles by means of which both market participants and regulators may evaluate the quality of regulation and industry practices for CIS valuation.

The 11 principles identified refer to the following:

• Establishment of comprehensive, documented policies and procedures to govern the valuation of a CIS’ assets,

• Identification of methodologies that will be used for valuing each type of asset,

• Addressing conflicts of interest,

• Consistent valuation in line with policies and procedures,

• Establishment of policies and procedures to detect, prevent and correct pricing errors, with pricing errors resulting in a material harm to investors being promptly addressed and investors fully compensated,

• Periodic review of valuation policies and procedures to ensure their continued appropriateness and effective implementation, including a third-party review of the valuation process at least annually,

• Performance of initial and periodic due diligence on third parties providing valuation services,

• Appropriate disclosure of the valuation of the CIS’ assets to investors in the offering documents, or made otherwise transparent to investors,

• No execution of purchases and redemptions of a CIS at historic NAV,

• Valuation of a CIS’ portfolio on any day that CIS units are purchased or redeemed, and

• Availability of a CIS’ NAV to investors at no fee.

The principles should be regarded as a common approach and practical guide. Depending on local conditions and circumstances, their implementation may vary between jurisdictions.

The full report is available via the following web link.

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD413.pdf


German Cabinet approves treaty with the us enhancing tax compliance

On 29 May 2013 the German Federal Cabinet (“Bundeskabinett”) approved the ratification of the Treaty with the US enhancing compliance in international tax issues. The treaty, which can be linked to the US FATCA framework, has then been signed on 31 May 2013.

It foresees the collection and exchange of information from financial entities from 2014 onwards (Model I), and especially aims at eliminating the possibility to evade taxes by way of artificially structured foreign financial entities or service providers. It has been based on the model convention agreed and published by Germany, France, the UK, Italy and Spain on 26 July 2012.

Tax news

Germany

The Treaty fits into the current international G20 efforts to enhance transparency and tax compliance, and to combat tax evasion. The previous OECD standard of exchanging financial information only upon request shall be replaced by an automatic exchange of information, and the OECD has been asked to submit corresponding proposals.

With the treaty signed, German financial institutions will not be required to retain the 30% withholding tax as it is foreseen in FATCA on US sourced income, in particular capital gains.

The full text of the press release (only in German) is available via the following web link.

http://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2013/05/2013-05-29-PM37.html

The final text of the treaty is expected to be published in the near future.


Tax news

Luxembourg

fATCA: Luxembourg to sign Model I agreement

In the context of its FATCA negotiations with the US, Luxembourg’s Finance Minister announced on 21 May 2013 that the country will sign a Model I intergovernmental agreement (IGA) to allow for an automatic exchange of information between Luxembourg and US fiscal authorities on bank accounts held in Luxembourg by citizens and residents of the US, pursuant to the US legislation known as FATCA (Financial Account Tax Compliance Act).

The decision reflects the declaration made on 10 April 2013 by which Luxembourg announced that it will introduce – on 1 January 2015 and within the scope of the 2003 EU Savings Directive – provisions for the

automatic exchange of information within the European Union.

The announcement can be found via the following web link.

http://www.mf.public.lu/actualites/ 2013/05/facta_210513/index.html

Aberdeen e-Alerts

The Aberdeen E-Alert (tax newsletter focusing of withholding tax reclaims based on the Aberdeen case law) latest issues are available via the following web link:

http://www.kpmg.com/LU/en/IssuesAndInsights/Articlespublications/Pages/Aberdeen-e-Alerts.aspx

• Alert 2013-05 Finland ready to refund withholding tax to Luxembourg FCPs.

• Alert 2013-06 France abolishes time limitation period extension.

• Alert 2013-07 Positive decision from the Spanish Administrative Court regarding a Luxembourg UCITS / Luxembourg FCP entitled to refund in Finland

• Alert 2013-08 Swedish Supreme Administrative Court confirms the discriminatory tax treatment of Luxembourg SICAVs.


update on the tax treatment applicable to management fee rebates

Following the recent ministerial statement on 21 May 2013 (available via the following web link), there will no longer be an obligation to withhold 20% tax from the payments of fee rebates to investors who are not UK resident for tax purposes; and HM Revenue & Customs (“HMRC”) have issued draft Regulations to implement this announcement.

http://www.parliament.uk/documents/commons-vote-office/May-2013/21-05-13/2-Chancellor-HMRCBrief.pdf

The draft Regulations provide that a management fee rebate to a fund investor is not a qualifying annual payment (and accordingly not subject to withholding of basic rate income tax) where the manager has reasonable grounds for believing that the investor is not UK tax resident.

The Regulations will take retrospective effect for investors in non-UK funds

and prospective effect for investors in UK funds from when those Regulations come into force.

It is important to recognize that the above amendments do not apply to management fee rebates in respect of Property Authorized Investment Funds (“PAIFs”), which will continue to some extent to subject non-residents to withholding tax.

The deadline for responses to the consultation on the draft Regulations is 25 June 2013 and the Government has committed to putting the Regulations into place as soon as possible following the end of the consultation.

The announcement by the Minister and these proposed Regulations are welcome news and reflect the Government’s intent of enhancing the UK as a competitive domicile for funds and fund management. However, given the variety of rebate arrangements and potential recipients, it remains the case that managers, platforms, insurance companies and other intermediaries should review all cases carefully in

uK

light of existing and the proposed exemptions.

The draft Regulations and a Tax Information and Impact Note (“TIIN”) (three pages) are available at the end of HMRC’s explanatory note, available at this web link.

http://www.hmrc.gov.uk/drafts/fund-management.htm

uK Reporting fund regime: technical amendments

On 13 May 2013, originally announced as part of the 2013 Budget, HM Revenue & Customs (“HMRC”) published draft amendments to address certain technical issues in the operation 2009.

Change 1: Reportable income over multiple computation periods

• Where a reporting fund has multiple “computation periods” (that is distribution and/or accumulation periods) within

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a reporting period, separate calculations are required for each computation period. The proposed amendments to the regulations will permit a reportable loss in one computation period to be offset against the reportable income of another computation period to ensure the calculations for such funds are consistent with funds that only have one computation period. This offset was not previously permitted.

Change 2: Calculation of excess reportable income over distributions per unit

• Under the current regulations excess reported income can be either overstated or understated in the report to investors due to fact that number of units in issue on the date of a distribution and the number of units applied to calculate the reportable income per unit amount can vary. In some circumstances this can result in an amount of excess reportable income over distributions per unit

being reported to investors despite the fact that the fund has fully distributed all its reportable income.

• The proposed changes require a reporting fund to calculate any excess reportable income at the fund level (i.e. total reportable income less total distributions) before calculating the excess amount per unit to include in the report to investors.

Change 3: Offset of full equalisation adjustments

• Where a fund operates “full equalisation” it is required to provide full equalisation adjustments (either on a weighted average or investor specific basis) to those investors who acquired units during the reporting period. Under the current regulations, this full equalisation adjustment is required to be offset against any excess reportable income over distributions first and then, if equalisation remains, against any

actual distributions made to the investor in respect of the period.

• The proposed amendment is to change the order of the offset so that the full equalisation adjustment is instead made first against any actual distributions and then against any excess reportable income.

The proposed amendments are mainly the result of requests made to HMRC by fund providers and wealth managers and represent positive enhancements to the regime. These changes should not place an additional burden on fund managers but function to ensure investors receive more accurate information. However, given the complexity of the topic, coping with the detail could prove challenging.

The draft regulations, an explanatory memorandum (three pages), and a Tax Information and Impact Note (“TIIN”) (three pages) are available via this web link.

http://www.hmrc.gov.uk/drafts/offshore-funds-may13.htm

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2013 KPMG Holding AG/SA, a Swiss corporation, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Printed in Switzerland. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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