Headline Verdana BoldLink ‘n’ LearnInvestment Fund Tax6 October 2016
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01 Introduction
03 BEPS
Agenda
04 Anti-Tax Avoidance Directive
02 Capital Gains Tax
05 Country by Country reporting
06 FATCA
07 Common Reporting Standard
08 Conclusion
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Introduction
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Overview of Fund products
Traditional
Mutual Funds (USA)Unit Investment Trusts (USA)Common Contractual Fund (Ire)SICAV/SICAF (Lux/France)BEVAK/BEVEK (NL/Belgium)VCIC/ICAV (Ire)Exchange Traded FundOpen Ended Investment CompanyAuthorised Unit TrustInvestment Trust Exchange Traded FundAuthorised Contractual Scheme
Alternative
Hedge FundJersey (/G) Property Unit TrustExchange Traded FundUK Limited PartnershipUnauthorised Unit TrustVenture Capital TrustRAIF (Lux)Real Estate Investment Trust
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Uncertainty on how the UK will exit the EU
The various exit scenarios have different implications
Market access
Access to the Single Market
and passporting preserved
Access to the Single Market will be defined
through bilateral agreements
No Single Market and passporting. Authorisation / via
subsidiary required
The UK will have no formal influence over adoption of EU
regulation, but will have to implement it
The UK will have no formal influence over adoption of EU regulation, it may be able to pick and choose
which rules to implement* to achieve market access
The UK will be able to review existing rules and deviate from the EU legislation.
Deviation may make it more difficult to gain equivalence
Muted effects from Brexit as the UK
would preserve most of the features of the
current regime
Contingency plans to focus on short-term operational implications to
avoid disruptions
Operational and strategic changes will likely include major
decisions and associated costs
PlanningPotential exit model Influence
3. Third country
2. Swiss model EFTA + bilateral
agreements
1. EEA*
* In this scenario, the UK will be able to negotiate provisions of bilateral agreements with the EU, but will have to meet EU standards to be able to benefit from access to the Single Market
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How can passporting be maintained in the event of Brexit?• The UK becomes a member of the EEA or agrees single
market access in bilateral agreements. (Switzerland - a precedent of bilateral agreements)
Equivalence• If the UK enters into a non-EEA relationship, then it will
need to apply for ‘equivalence’ to be able to carry on offering certain services and products into EU Member States. This mechanism - to be deemed equivalent - is not currently available for all products and activities
Several directives underpin UK access to the EU Single Market• Markets in Financial Instruments Directive (MiFID)• Undertakings for Collective Investment in Transferable Securities (UCITS)• Alternative Investment Fund Managers Directive (AIFMD)• Capital Requirements Directive (CRD)• Solvency II Directive• Payment Services Directive (PSD)
UK firms lose the right to passport in the EEA• May need to get authorisation from
regulators EEA member states• Will have to comply with both UK and host
country regulation if they want to carry out regulated activities in EEA Member States
• Cross-border groups may consider a restructure
Brexit and access to the Single Market
The issue of ‘passporting’ and equivalence
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Impact of Brexit
Managing a UCITS
The UCITS passport regime allows:• EU UCITS management companies to manage UCITS funds domiciled in
any Member State; and • EU UCITS funds to be marketed to retail and professional investors in any
Member State.
Rights for EU firms
based on EU membership
Treatment of non-EU
firms
Impact on UK firm doing
business in the EU if the UK
becomes a pure third country
• There are no access rights for non-EU firms. UCITS management companies and UCITS funds must be domiciled in the EU.
• Some Member States may allow non-EU funds to be marketed to retail investors in their country, but national regimes are likely to be restrictive and may not allow this at all.
• UK investment managers marketing UCITS funds to EU retail investors will need to set up a UCITS management company in the EU and UCITS funds in the EU if they do not already have these entities in the EU.
• Portfolio management can be delegated back to a UK entity, provided that the UK entity is subject to prudential supervision and that supervisory cooperation is ensured. The EU management company needs sufficient resources and expertise to oversee the portfolio manager. *
• Each UCITS fund must have a depositary located in the same Member State as the fund. This can either be a registered office or a branch.
*The UK portfolio manager also needs either to be subject to equally effective remuneration requirements to UCITS V
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Capital Gains Tax
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Capital Gains
World map of high risk countries
Example of ‘high tax risk’ countries:
• Bangladesh• China• Czech Republic• India• Indonesia• Mexico• Venezuela• Pakistan• etc.
CHINA:• Highly complex tax system• Great uncertainty despite
recent publication of tax circulars
INDIA / PAKISTAN:• Highly complex tax system• Local Tax Agent required• Tax assessment• Aggressive position of local
tax authorities
VENEZUELA:• Local Tax Agent
required• Repatriation issues
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Capital Gains
Current trends and services
AWARENESS OF LOCAL CAPITAL GAINS TAX RISK
PROVISION FOR UNREALIZED
CAPITAL GAINS
DELOITTE’S ASSISTANCE
Description
• Management Companies are increasing their awareness of the risk for funds to be taxed oncapital gains in the countries of investment
• Notwithstanding the above, the majority of Management companies do not monitorsystematically the local taxation (and eventual changes) in the countries of investment andthe risk exposure of their funds
• We assist funds in assessing the high risk countries providing them with a sanity checkreview, where we:
Review the countries of investments to identify in which high risk countries the fund isinvesting (if any)
Check the compliance of the fund with the local tax requirements on capital gain taxation
Coordinate with our local offices to ensure the local tax compliance of the fund
• Funds investing in high risk countries book provisions for unrealized capital gains onlyoccasionally
• The computation of the provision to be booked usually requires specific local expertise
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Base Erosion Profit Shifting (“BEPS”)
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BEPS
Where are we now?
November 2012G20 leaders meet
January/ July 2015Reports on all actions finalised
February 2013 “Addressing Base Erosion and Profit Shifting” published
November 2015First meeting to negotiate multilateral instrument (Action 15)
October 2015Reports presented to G20 Finance Ministers and published
July 2013Action Plan delivered to G20 Finance Ministers
Late 2013Early 2014 Discussion drafts, public comments, public consultations on 2014 deliverables
January/ December 2016 Specific issues worked on (including pricing aspects of financial transactions)
December 2016Sign multilateral instrument
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BEPS
Main relevant BEPS actions
#7
BEPS
TransferPricingdocumentation
Disclosure ofAggressivetax planning
BEPS data collection Permanent establishment
status
TransferPricing –Intangibles
TransferPricing –Risk capital
HybridsCFCs
Interestdeductions
Disputeresolution
HarmfulTax practices
Fiscal
Compliance
Operatingmodels
Financing
#6
#15
#5
#11
#12
#13
#14
#4 #2#3
#10
#8
#9
#1
Prevent treaty abuse
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Digital economy
TransferPricing – HighRisk trans-actions
Multilateral instrument
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BEPS
TransferPricingdocumentation
Disclosure ofAggressivetax planning
BEPS data collection
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BEPS
Critical Actions for the Investment Management Industry
Action 6: Anti-Treaty Abuse
Action 8,9,10 & 13: Transfer Pricing
Action 7: Permanent Establishment
Action 5: Harmful Tax
• Aligning transfer pricing outcomes with value creation• Key areas: intangibles, aligning activities with contractual allocation of
risk and actual returns• Transfer pricing documentation, country-by-country reporting• Impact on substance and profit allocations – very relevant for
management companies, investment managers and fund administrators
• Brokers removed from the exemption for independent agents• Independence assumed where at least 10% of sales are to unrelated
parties• New test of “closely connected”• Broadening of dependent agent rules• Undisclosed agency arrangements to be subject to a new test to determine
which party “habitually plays the principal role”• Guidance regarding attribution of profits to PEs expected during 2016 –
potential impact on sub-advisory, marketing and distribution arrangements
• Recognition of OECD 2010 report and the specific issues for funds• Limitation on Benefits (LOB) Clause to be included in the OECD Model
Tax Convention subject to review• Member States can choose to implement (a) LOB and Principal
Purpose Test (PPT) or (b) PPT alone or (c) LOB and anti conduit rule• Treaty entitlement of non-CIV funds and pension funds – public
consultation process recently concluded
• Scope: Income taxation of geographically mobile activities• One Gateway Criterion: No / Low effective tax rate• Three Key Factors
• Ring-fenced from domestic economy• Lack of transparency• No effective exchange of information with respect to the regime
• Substantial Activity Requirement• Improving Transparency in relation to Rulings
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Anti-Tax Avoidance Directive (“ATAD”)
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Anti-Tax Avoidance Package
Reminder
EU Anti-Tax Avoidance Package
ATA Directive DAC 4 Tax TreatiesRecommendationExternal Strategy for
Effective Taxation
Legislative initiatives Non-Legislative initiatives
• CFC rules• Exit taxation• Interest
limitation• Hybrids• General Anti-
Avoidance Rule (GAAR)
Details
Timing
Country-by-country reporting between tax authorities on key tax related information on MNEs
Advises EU Member States how to reinforce their tax treaties against abuse by aggressive tax plannings in EU Law compliant way
Sets out a coordinated EU approach against external risks of tax avoidance and promote international tax good governance
EU Directive adopted
on 12 July 2016
EU Directive adopted on
25 May 2016
Create a solid framework for EU Member States to deliver on their BEPS commitments in a coordinated way
Promote tax good governance globally - including implementation of BEPS in third countries
CCCTB
EoI of tax rulings
Under discussion measures
COM(2016) 26 FINAL COM(2016) 25 FINAL C(2016) 271 FINAL COM(2016) 24 FINAL
FISC 124
Issued by the EU Commission on
28 January 2016
Issued by the EU Commission on
28 January 2016
• Set up a single set of rules that companies operating within the EU could use to calculate their taxable profits
• Optional vs. compulsory?• CCCTB vs. CCTB?• Proposal expected by end 2016
Others
Initiative
Common Consolidated Corporate Tax Base (CCCTB) Ensuring effective taxation where profits are
generated Additional measures for a better tax environment for
business Further progress on tax transparency EU tools for coordination
EC Communication - A Fair and Efficient Corporate Tax System in the EU
5 Key Areas for Action
17 June 2015
Interest & Royalties
EU Directive
Revised PSD
COUNCIL DIRECTIVE 2011/96/EU
28 Jan 2016
4 Main Objectives
Re-establishing the link between taxation and where economic activity takes place Ensuring that EU Member States can correctly value corporate activity in their
jurisdiction Creating a competitive and growth-friendly corporate tax environment for the EU Protecting the Single Market and securing a strong EU approach to external
corporate tax issues to deal with non-cooperative tax jurisdictions and to increase tax transparency
• No withholding tax exemption if there is no effective taxation elsewhere in the EU
• EU Directive implementing the exchange of information in relation to cross-border tax rulings and APAs
• Applicable from 2017
• Anti-hybrid rules• General Anti-
Avoidance Rule• Applicable from
2016
COM(2015) 302 FINAL
https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/1-2016-26-EN-F1-1.PDFhttp://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.02/DOC_1&format=PDFhttp://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/anti_tax_avoidance/c_2016_271_en.pdfhttp://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1454056581340&uri=COM:2016:24:FINhttp://data.consilium.europa.eu/doc/document/ST-12802-2015-INIT/en/pdfhttp://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02011L0096-20150217&qid=1454486274290&from=ENhttps://ec.europa.eu/priorities/sites/beta-political/files/com_2015_302_en.pdf
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Anti-Tax Avoidance Directive
Key dates
21 June 2016Political agreement on ATAD at ECOFIN Council (silence procedure)
31 December 2018Deadline for the implementation of the ATAD into domestic laws
01 January 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
12 July 2016Approval of the final ATADtext without any debate
31 December 2019Possible delay for exit taxation rules
01 January 2019Entry into force of the ATAD
October 2016Draft proposal to be made by the EU Commission regarding hybrid mismatches with third countries
31 December 2016Expected date of approval ofthe new draft proposal onhybrid mismatches
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Anti-Tax Avoidance Package
What is in – what is out
OECD BEPS Action plan implementation
Other measures which are not deriving from BEPS
Measure initially foreseen and finally deleted
• Hybrid mismatches (Action 2)• Interest limitation rules (Action 4); and• Controlled Foreign Companies, “CFCs” (Action 3)
• General Anti-Abuse Rule; and• Exit taxation rules.
• Switch-over clause that treat some income/gains as taxable instead of granting an exemption
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Country By Country ReportingLatest Developments
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Country by Country Reporting
• 30+ countries have signed a multilateral agreement providing for the automatic exchange of “country by country” (CbC) reports with other participating jurisdictions if the multinational group that has submitted the CbC report has operations in that jurisdiction.
• In addition, on 28 January 2016, the European Commission proposed further amendments to the Directive on Administrative Cooperation (DAC) providing for the automatic exchange of country by country reports between Member States.
• Under the proposed amendments, EU Member States would be required to exchange reports received with other EU Member States if the multinational group that has submitted the CbC report has operations in that jurisdiction. It is intended that the amendment to DAC will be implemented by Member States by 31 December 2016.
• CbC reporting applies to multi-national groups with annual consolidated group revenue of €750m or more in the preceding fiscal year;
• Entities that will report to tax authorities may be required to complete a notification procedure before the end of the first accounting period to which the CbC reporting rules apply (could be as early as 31 December 2016);
• CbC reports will be required to be made in XML format in accordance with a prescribed schema. The information to be provided includes details of revenue, profits, income taxes, capital, accumulated earnings, employees and tangible assets in each jurisdiction in which the multi-national group operates.
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Country by Country Reporting
Scenario 1 – Investor consolidates fund holding
Fund may be required to file an “equivalent” report if:
• the foreign investor is not in scope for CbC reporting in its resident country; or
• the investor’s country of residence has not concluded an agreement with Ireland to exchange CbC reporting information; and
• no other entity in the consolidated group acts as surrogate parent; and
• €750m group revenue threshold exceeded.
Note: it may be difficult for the Fund to confirm whether the above conditions apply. As such, it may choose to file a CbC report containing the information within its possession as a prudent approach to safeguard against potential penalties.
Country A
Investor
Equity holding
Country B Fund
Accounting Consolidation
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Country by Country Reporting
Scenario 2 – Fund consolidates equity holding
Fund may be required to file a CbC report as an “ultimate parent entity” where:
• it consolidates a foreign entity (e.g. an entity in which it holds a significant equity interest) into its financial statements; and
• €750m group revenue threshold exceeded.
Investor
Country C equity holding
Country B Fund
Accounting Consolidation
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FATCA Latest Developments
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FATCA
Latest Developments
• Most FATCA returns filed have been nil returns
• Many countries’ guidance notes expected to be updated on a rolling basis
• Draft version of proposed new schema issued by the IRS in August 2016.
• Local tax authorities will be updating their FATCA validation to take account of these changes.
• Nil FATCA reporting FY16 – inconsistent approach across participating countries - tick the box, no report required etc. Expected to continue for foreseeable future
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OECD Common Reporting Standard (CRS)New Exchange of Information Provisions
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OECD Common Reporting Standard
What information has been released?
CRS
Common Reporting Standard
OECD Schemaupdated
EU DAC
CRS Commentary & FAQ’s
CRS Implementation
Handbook
CRS Regulations
Multilateral Competent Authority
Agreement
A practical guide to assist in understanding and
implementing the Standard
Sets out details including who needs to report and what detailed information must be collected for exchange in addition to common due diligence
procedures are to be followed
Council Directive amending EU laws to
allow for CRS implementation in EU
Member States
Standard for transmitting info electronically. Intended
to overcome practical issues
Detailed guidance on the application of CRS
Including useful examples
Still in draft form. Period for initial
commentary is now closed
Rules on the exchange of information. Equivalent to main body of a FATCA IGA.
Signed on 29 October 2014 – 61 Member States
signed up
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OECD Common Reporting Standard
CRS Classifications
• Financial Institution
• Custodial Institution
• Depository Institution
• Investment Entity *
• Specified Insurance Company *
* Specific definitions under FATCA & CRS slightly differ
• Reporting Financial Institution
• A Financial Institution which is not a Non Reporting Financial Institution
• Non Reporting Financial Institution
• Government Entities, Central Bank, Certain Retirement Funds
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OECD Common Reporting Standard
Increased Reporting on a Greater Number of Account Holders
Current FATCA Reporting Requirements
Future CRS (& FATCA) Reporting Requirements
Tax Authority
Reporting Financial Institution
US account holder
German account holder
Reports information on
US account holder only
Onward reports
information
Tax Authority
Reporting Financial Institution
US account holder
German account holder
Reports information on US & German account
holder
Onward reports
information
German Tax Authorities
IRS
IRS
Onward reports
information
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OECD Common Reporting Standard
Other Key Differences between CRS & FATCA
• There is no withholding tax obligation where CRS rules are not complied with which was not the case for FATCA
• Identifying which accounts holders are reportable under CRS is a residence based test as opposed to a citizenship based test as was the case for FATCA
• Certain categories of Non Reporting Financial Institutions have also been removed from CRS meaning a greater number of entities will have CRS registration and reporting requirements
• The exemption for Listed Regularly traded Financial Accounts which existed for FATCA, has not been included under CRS
• The thresholds for reporting pre-existing individual and entity accounts have either been lowered or completely removed
• Format of self certification for CRS
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OECD Common Reporting Standard
What you need to have done by now
Identify your entity classification for CRS purposes to determine if you have an obligation to report. If so;
• Establish project teams and resources for impact assessment & the collection of data for reporting – identify outside service providers as required
• Establish CRS governance and develop strategic plan
• Identify in scope Financial Accounts
• Confirm compliant account holder due diligence approach including form of self certification
• Consider how to track implementation across multiple jurisdictions & changes
• Assess impact of potential changes required to internal policies and procedures
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Conclusion/Q&A
Headline Verdana BoldAgenda Overview of Fund productsUncertainty on how the UK will exit the EUBrexit and access to the Single MarketImpact of Brexit Capital GainsCapital Gains BEPSBEPSBEPS Anti-Tax Avoidance PackageAnti-Tax Avoidance Directive Anti-Tax Avoidance Package Country by Country ReportingCountry by Country ReportingCountry by Country Reporting FATCA OECD Common Reporting Standard OECD Common Reporting Standard OECD Common Reporting Standard OECD Common Reporting Standard OECD Common Reporting Standard