© Allen & Overy LLP 2012 1
Luxembourg, a window over the world
January 2012Nicolas Fermaud (Associate in charge of the Russia-Luxembourg Desk)
© Allen & Overy LLP 2012 2
Contents
I. Why Luxembourg?
II. A&O Luxembourg
III. Investment Funds
IV. Taxation
V. ICM
VI. SPF
VII. IP/IT
© Allen & Overy LLP 2012 3
Founding member of the European Union and the EUR Zone
“Neutrality” given its size Central location in Western
Europe/Access to Europe Political & economic stability Business friendly environment Favourable tax situation/predictable
tax planning Regulatory safety/high standards Competitive operating costs (income
tax and national insurance) Highly skilled multi-lingual workforce
Source: Luxembourg public (August 2011) & Eurostat (April 2011)
Population: 511,840
GDP per capita: EUR 58,792
Public debt: 18.4% of GDP
Unemployment rate: 5.9%
Employment in the financial sector: 42,615
Banks: about 150
Insurance companies: about 100
Investment and other financial sector
professionals: 270
Fund administrators: 70
Management companies: 357
Investment Fund Industry: 2nd in the world
in terms of AuM
Luxembourg
I. Why Luxembourg ?
© Allen & Overy LLP 2012 4
I. Why Luxembourg?Innovative & collaborative approach between
government, regulator & finance industryRapid transposition of EU directivesFully developed infrastructure of financial
services and support functionsMore than 20 years experience in global fund
distributionFlexible legal and tax frameworkPredictability of tax and regulatory planning (tax
ruling practice, grand-fathering)Tradition of customised and pragmatic financial
regulationPlatform and hub for structuring international
investments of corporates, SWFs and PE Funds
EXPERIENCE
INNOVATION
INTEGRITY
STABILITY
SERVICE QUALITY
NEUTRALITY
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Specific regulatory frameworks for:
Alternative investment funds
Venture capital and PE funds
Specialized investment funds for institutional investors
International pension funds
Covered bonds
Securitization vehicles
Vehicles for managing family wealth
I. Why Luxembourg?
© Allen & Overy LLP 2012 6
Only Grand Duchy in the world
Independent since 1839
Constitutional monarchy governed by Minister
Jean-Claude Juncker
Political & economic stability based on a
culture of consensus
Ratings agency Standard & Poors have
confirmed Luxembourg’s long term AAA rating
“Neutrality” given its size
Business friendly environment
I. Why Luxembourg ?
© Allen & Overy LLP 2012 7
Luxembourg and Russia1 2
Major Russian companies with presence in Luxembourg include:
2009 : 1st foreign investor in Russia
3rd in all time investments
SistemaGPBEvrazRenovaAbsolut BankEvrofinance Mosnarbank
3 Major “Russian listings” include:
Vimpel-CommunicationsGazpromThe City of MoscowBank MoskvaThe Russian Federation
I. Why Luxembourg ?
© Allen & Overy LLP 2012 8
Foreign Investors
Sistema
Gazprombank
Evraz
Renova
Absolut Bank
Success Stories - Home to major global players:
ICT sectorAmazonAOLDigital RivereBayiTunesNapsterPayPalSkype
Host country toEuropean Court of AuditorsEuropean Court of First InstanceEuropean Court of JusticeEuropean Investment BankEuropean Investment FundParliament Secretariat of the European
I. Why Luxembourg?
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Contents
I. Why Luxembourg?
II. A&O Luxembourg
III. Investment Funds
IV. Taxation
V. ICM
VI. SPF
VII. IP/IT
© Allen & Overy LLP 2012 10
II. Allen & Overy Luxembourg
0
20
40
60
80
100
120
140
160
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Our Values: Excellence in everyone and everything
Dedication to clients
Working together as one global practice
Respecting and including every individual
Entrepreneurial spirit and energy
Helping our people to achieve their potential
2008NEW PREMISESAVENUE J.F.KENNEDY
1998NEW PREMISESRUE CHARLES MARTEL
2000
1993LOEFF CLAEYS VERBEKE
1990Zeyen Beghin Feider
20102Oth ANNIVERSARY
2011AROUND 95 LAWYERS INCLUDING:11 PARTNERS &14 COUNSELS
HEADCOUNT
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Our Lawyers advise:International corporatesInternational banksAsset managersPrivate equity housesInsurance and reinsurance
companiesPublic entities
II. Allen & Overy Luxembourg
The combination of our international network and sound local knowledge enables us to provide our clients with a first rate service in:BankingCapital MarketsCompetitionCorporateIntellectual PropertyInsurance LawInvestment and Pension FundsLabour LawLitigationReal EstateTax
We deal with all types of domestic and cross-border transactions, from local matters to pivotal international transactions.
Luxembourg Law Firm of the Year IFLR European Awards 2007, 2009 & 2010
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II. Allen & Overy Luxembourg - Awards Luxembourg Law Firm of the Year
IFLR European Awards 2007, 2009 & 2010 Luxembourg Tax Firm of the Year
ITR European Tax Awards 2010 & 2011 Law Firm of the Year for Benelux
FT Mergermarket Awards 2007, 2008, 2009 & 2010 Intellectual Property Law Firm of the Year in Luxembourg
Corporate Intl Magazine 2010 Legal Award Best brand Legal Services
Luxembourg Marketing and Communication Awards 2009 IP Firm of the Year for Luxembourg
Managing Intellectual Property Global Awards 2009 Prix de la Santé en Entreprise
Luxembourg Health Ministry 2008 & 2010 ICT Law Firm of the Year
Luxembourg IT One Awards 2008 & 2009 Run for Success
Luxembourg Chamber of Commerce 2008 & 2009 Benelux Law Firm of the Year
Chambers Global Awards 2007 Award for “Most Innovative Law Firm”
Financial Times Innovation Awards 2007 Labour Law Firm of the Year
HR One Awards 2006
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Securiti-zation
SIFSICAR
UCIII
SoParFi
Less regulated
More regulated
Law of August 10, 1915
Law of February 13, 2007Law of
June 15, 2004
Less Flexible
More Flexible
Law of December 20, 2002
(Part II UCI)
Law of March 22, 2004
UCITSI
Law of December 20, 2002
(Part I UCITS)
II. Allen & Overy Luxembourg
SPF
Law of May 11, 2007
A vehicle for each investment profile
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Contents
I. Why Luxembourg?
II. A&O Luxembourg
III. Investment Funds
IV. Taxation
V. ICM
VI. SPF
VII. IP/IT
© Allen & Overy LLP 2012 15
Worldwide Investment Fund Assets (Market share in %)
49%
30%
5%
5%
3%3%
3%2%
USAEuropeBrazilAustraliaCanadaJapanChinaOthers
Source: European Fund and Asset Management Association (EFAMA) – December 31, 2010Source: European Fund and Asset Management Association (EFAMA) – December 31, 2010
Luxembourg is the
2nd largest
investment fund
centre in the world
after the USA
III. Investment Funds
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27%
18%
14%
12%
10%
19%
Luxembourg
France
Germany
Ireland
UK
Others
The 5 largest investment fund domiciles in Europe (by AuM)
Source: European Fund and Asset Management Association (EFAMA) – December 31, 2010Source: European Fund and Asset Management Association (EFAMA) – December 31, 2010
Luxembourg is the 1st
place in the European
market in terms of net
sales and market
share
III. Investment Funds
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0
500
1000
1500
2000
2500
3000
3500
4000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Net assets under management - EUR billion Number of investment funds
Source: CSSF/ALFI
Investment funds in Luxembourg - a rapidly growing industry
III. Investment Funds
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Luxembourg has
a competitive
advantage over
off-shore
jurisdictions
Loss of attractiveness of off-shore jurisdictions: Cayman, BVIs, Channel Islands, Mauritius, Cyprus
Upcoming regulatory changes (eg, increasing transparency requirements)
Increasing concern about investor protection
Tax efficiency – no double tax treaties, outside economic blocs, anti-tax haven legislation
A changing world for fund managers
III. Investment Funds
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Re-domiciliation from end 2007 to end 2009
19
Countries of origin
Cayman islands;
50%
BVI; 8%
Guernsey; 8%
Bermuda; 6%
Ireland; 6%
Luxembourg; 6%
Bahamas; 3%
Germany; 3%Jersey; 3%Mauritius; 3%
Netherlands; 3% UK; 50%
Target countries
Cayman islands;
11%
BVI; 3%
Guernsey; 8%
Ireland; 6%
Luxembourg; 31%
Jersey; 6%
Mauritius; 3%Malaysia; 3%
UK; 6%
Hong Kong; 17%
Channel Islands; 3%
France; 3%
Delaware; 3%
Over 30% of re-domiciliations of funds between 2007-2009 were to LuxembourgSource: PWC/Lipper
III. Investment Funds
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Investment Vehicles Comparison: Undeniable success of the UCITS flagship in cross-border distribution
0 10 20 30 40 50 60 70 80 90
Luxembourg
Ireland
UK
France
Belgium 76.2% of all UCITS registered in at least 3 countries are
Luxembourg funds
Source: CSSF/ALFI
III. Investment Funds
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Regulated vehicles
FUNDS SICAR
UCITS Part II UCIs SIF
III. Investment Funds
Initial decisions
A wide range of investment vehicles adapted to your investment strategy
Target investors
Target investment policy
Tax
Regulation
Structures available
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UCITS (2010 Act) Part II UCIs (2010 Act) SICARs (2004 Act) SIFs (2007 Act)
Public distribution (including retail investors)
Public distribution (including retail investors)
Well-informed investors Well-informed investors
UCITS passport No UCITS passport (possibility to benefit from AIFMD passport)
No UCITS passport (possibility to benefit from AIFMD passport)
No UCITS passport (possibility to benefit from AIFMD passport)
Open-ended Closed-ended or open-ended
Closed-ended or open-ended
Closed-ended or open-ended
Supervision by CSSF
Structuring flexibility
First decision - Target investors
III. Investment Funds
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Second decision – Target investment policy
UCITS (2010 Act) Part II UCIs (2010 Act) SICARs (2004 Act) SIFs (2007 Act)
Investment in transferable securities, money market instruments, bank deposits, funds and derivatives
Unrestricted range of assets
Risk capital onlyPrivate equity / venture capital only
Unrestricted range of assets
High level diversification requirement
Medium level diversification requirement
No diversification requirement
Low level diversification requirement
Supervision by CSSF
Structuring flexibility
III. Investment Funds
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2010 Act – Part I (UCITS) 2010 Act – Part II UCIs 2007 Act (SIFs) 2004 Act (SICARs)
Investment in transferable securities, money market instruments, bank deposits, funds and derivatives
Unrestricted range of assets
Unrestricted range of assets
Risk capital onlyPrivate equity / venture capital only
Second decision – Target investment policy (contd)UCITS (2010 Act) Part II UCIs (2010 Act) SICARs (2004 Act) SIFs (2007 Act)
Stringent risk diversification requirements-100% in TS/MMIs / max 10% with the same body(5/10/40 rule)- 100% in deposits / max 20% with the same body- 100% in UCITS / max 20% with the same body- Max 30% in other UCIs (investing in eligible assets) / max 20% with the same body-Derivatives: look through principle, counterparty risk and exposure limit
Borrowings limited to 10% of the NAV (not for investment purposes)
20% maximum concentration ratio
No risk diversification requirement
30% maximum concentration ratio
III. Investment Funds
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2010 Act – Part I (UCITS) 2010 Act – Part II UCIs 2007 Act (SIFs) 2004 Act (SICARs)
Investment in transferable securities, money market instruments, bank deposits, funds and derivatives
Unrestricted range of assets
Unrestricted range of assets
Risk capital onlyPrivate equity / venture capital only
Third decision – Tax
UCITS (2010 Act) Part II UCIs (2010 Act) SICARs (2004 Act) SIFs (2007 Act)
No corporate taxation or wealth tax
Annual subscription tax: 0.05% of NAV which could be reduced to 0.01%-Monetary funds-ETFs-Certain funds of funds
Taxation similar to UCITS
Fully taxable entity, but
•exemption of income and capital gains from investment in securities
•exempt from wealth tax
•in principle, can claim treaty protection
No corporate taxation or wealth tax
Annual subscription tax: 0.01% of NAV
No WHT on distributions to investors
No WHT on distributions to investors
No WHT on distributions to investors
III. Investment Funds
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2010 Act – Part I (UCITS) 2010 Act – Part II UCIs 2007 Act (SIFs) 2004 Act (SICARs)
Investment in transferable securities, money market instruments, bank deposits, funds and derivatives
Unrestricted range of assets
Unrestricted range of assets
Risk capital onlyPrivate equity / venture capital only
Fourth decision – Regulation
UCITS (2010 Act) Part II UCIs (2010 Act) SICARs (2004 Act) SIFs (2007 Act)
Substance requirements
• Appointment of a management company OR• Self-managed
EU passport for management companies
High level substance requirement will be introduced by AIFMD
High level substance requirement will be introduced by AIFMD
High level substance requirement will be introduced by AIFMD
Promotorship requirement
Promotorship requirement
No promotorship requirement
No promotorship requirement
III. Investment Funds
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Multiple compartments (umbrella funds)
Set up and service providers
FCP / SICAV structure
Key structuring aspects you should consider
Setting up an Investment VehicleIII. Investment Funds
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Multiple ring-fenced compartments• Compartments are fully segregated (i.e. no risk of cross-contamination)• Each compartment may display specific features
Initial decisions – umbrella funds
Target A Target B
Umbrella fund
Compartment A(closed-ended)
Compartment B(open-ended)
Investment manager A
Investors A Investors
B2
Class B2 shares
Investors B1
Class B1 shares
Setting up an Investment VehicleIII. Investment Funds
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FCP SICAV
•No legal personality
•Managed by a regulated management company
•Tax transparent from a Luxembourg perspective
•Not subject to Luxembourg company law
•No decision making power to unitholders
•Legal personality
•Managed by a board of director
(or separate general partner)
•Fiscally opaque
•Derogations to Luxembourg company law (e.g., variable capital, no restrictions on dividend distributions, redemption of shares, etc.)
•Shareholders have the right to vote
Contractual fund (FCP) vs. Investment company (SICAV)
Setting up an Investment VehicleIII. Investment Funds
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Management company
CustodianSICAV
Board of directors
Administration Investment management
Distribution
FCP
Distribution Investment management
Administration
Administrative agent
Distributor
LUXEMBOURG
ABROADInvestment
Manager/Adviser
Contractual fund (FCP) vs. Investment company (SICAV)
Setting up an Investment VehicleIII. Investment Funds
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AIFMDAlternative Investment Fund Managers Directive
III. Investment Funds
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Key objectives of the AIFMDIII. Investment Funds
► Extend appropriate regulation and oversight to all actors and activities that embed systemic risks
► Improve financial stability ► Ensure that the Alternative Investment Fund Managers (AIFMs) are
subject to a regulatory framework ► Increase transparency towards regulators and investors, and public
accountability for the actions of AIFMs► Enhance investor protection ► Develop the EU internal market in the area of alternative
investment, i.e., passports enabling AIFMs to offer their management services and market their AIF throughout the EU
► Direct regulation of AIFMs► Indirect regulation of AIFs► Creation of a European market for alternative investments via
passports for management and marketing activities
Key objectives
What does the AIFMD regulate?
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Key definitionsIII. Investment Funds
An Alternative Investment Fund (AIF) is any collective investment undertaking:
• which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors
• that does not require authorisation under UCITS
An Alternative Investment Fund Manager (AIFM) is any legal person whose regular business is managing one or more AIF
• Where the AIF is internally managed and does not appoint an external AIFM, the AIF is the AIFM
• ‘Managing’ means always at a minimum Portfolio Management and Risk Management, but may in addition also include e.g. administration
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AIFMD scopeIII. Investment Funds
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III. Investment Funds
4
3
2
1
Scenario
• Full directive applies , except depositary requirement
• Cooperation arrangements must be in place
• The non EU country may not be listed by the FATF
NPPR2013 - 2018
2015
2013
2013
2013
Date
• Full directive applies, except depositary and annual report requirements
• Cooperation arrangements must be in place
NoneYESNon EUNon EUEU
YES
YES
YES
In Scope
Possible access to passport
None
Passport
Marketing EU
AIFM AIF Investors Requirements
EU EU EU Full directive applies
EU EU Non EU Full directive applies
EU Non EU EU
• Full directive applies • Cooperation arrangements must
be in place• A tax agreement must be signed• The non EU country may not be
listed by the FATF
AIFMD scope matrix
© Allen & Overy LLP 2012 36
III. Investment Funds
• NoneNoneNONon EUNon EU
Non EU4
• Same requirements as for Scenario 2 above
Possible access to passport
2015
• Same requirements as for Scenario 2 aboveNPPR2013 -
2018YESEUNon
EUNon EU3
2
1
Scenario
• Obligation to comply only with transparency and controlling interests provisions
• Cooperation arrangements must be in place
• The non EU country may not be listed by the FATF
NPPR2013 - 2018
2015
2015
Date
YES
YES
In Scope
Possible access to passport
None
Marketing EUAIFM AIF Investors Requirements
Non EU EU Non EU
• Full directive applies• Appointment of a Member State of
Reference and of a legal representative • Cooperation arrangements must be in
place• A tax agreement must be signed• The non EU country may not be listed by
the FATF
Non EU EU EU
• Full directive applies • Appointment of a Member State of
Reference and of a legal representative• Cooperation arrangements must be in
place • A tax agreement must be signed• The non EU country may not be listed by
the FATF
© Allen & Overy LLP 2012 37
Contents
I. Why Luxembourg?
II. A&O Luxembourg
III. Investment Funds
IV. Taxation
V. ICM
VI. SPF
VII. IP/IT
© Allen & Overy LLP 2012 38
64 DTT in force today22 DTT in negotiation
Source: Luxembourg For Finance - Septembre 2011
IV. TaxationA. Double Tax Treaties network
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What is a SOPARFI
Taxation Corporate taxation at 28.80% (Lux-City)
Wealth tax at 0.5% on net value of assets
15% WHT on dividend distributions
Interest vs debt financing Interest payments are tax deductible
In principle no WHT on interest payments
Dividend distributions subject to 15% WHT (subject to treaty protection and domestic participation exemption)
Dividend distributions are in general not tax deductible
Basics of Luxembourg tax lawIV. Taxation
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Corporations
Thin capitalisation 15% equity / 85% debt (arm’s lenght ratio applied by tax administration)
If not respected, excessive interest payments may be requalified as dividends (15% WHT) and are not deductible
Basics of Luxembourg tax lawIV. Taxation
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Participation exemption
Conditions Subsidiary / investor and Lux HoldCo must be fully
taxable companies
Subsidiary / investor must be a Luxco, a company falling under the scope of the Parent-Subsidiary directive, or be established in a country which has entered into a DTC with Luxembourg
Investor / Lux HoldCo must hold at least 10% (or acquisition value of EUR 1.2 Mio) during at least 12 months
Lux HoldCo
Dividend
EU / treaty company
No taxation of dividend income
EU / treaty company
DividendNo WHT
10%12 months
10%12 months
Basics of Luxembourg tax lawIV. Taxation
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Participation exemption
Tax treatment No WHT on dividend distributions from subsidiary if
subsidiary is a Luxco or an EU company falling within scope of Parent-Subsidiary Directive
No taxation of dividend income at level of Lux HoldCo if subsidiary is EU company or established in a treaty country
No WHT on dividend distributions to the investor if Luxco or EU company falling with scope of EU Parent-Subsidiary Directive
New: No WHT to investor if company established in a treaty country
Lux HoldCo
Dividend
EU / treaty company
No taxation of dividend income
EU / treaty company
DividendNo WHT
10%12 months
10%12 months
Basics of Luxembourg tax lawIV. Taxation
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Capital gains exemption No taxation of capital gains if transfer of participation in
subsidiary
Conditions Subsidiary must be a fully taxable company
Subsidiary must be a Luxco, a company falling under the scope of the Parent-Subsidiary directive, or be established in a treaty country
Lux HoldCo must hold at least 10% (or acquisition value of EUR 6 Mio) during at least 12 months
Recapture of acquisition value adjustments and costs if deducted in previous years
Lux HoldCo
EU / treaty company
10%12 months
Purchaser
Transfer
No taxation on capital gains
taxation
Basics of Luxembourg tax lawIV. Taxation
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Financing company Back-to-back financing
Loan flows from investor to Subsidiary (flow through loan)
Lux HoldCo needs to retain adequate spread (arm’s length principle)
Spread is taxable
No thin capitalisation rules apply
Lux HoldCo
Subsidiary
Investor
FTL
Loan
Interest
Interest
TaxableSpread
Basics of Luxembourg tax lawIV. Taxation
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85/15 structure
Adapted to Luxembourg thin cap requirements
85% interest bearing loans
15% equity / interest free loans
No WHT on interest payments
15% WHT on dividends (may be reduced under applicable DTC)
Suitable when low annual returns
Lux HoldCo
Investor
Target
15%Equity & IFL
85% IBL
Dividends Interest
Basic holding structuresIV. Taxation
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Financing 1% equity
99% flow through loans (FTL) / profit participating loans (PPL) or profit participating preferred equity certificates (PECs)
Similar to back-to-back loan
Loans are limited recourse
PECs may be considered as equity in certain jurisdictions, whereas as debt instrument in Luxembourg (i.e., hybrid structure!)
Lux HoldCo
Lux SubHoldCo
Investor
1% equity
1% equity
99% FTL
99% PPL
The double holding structureIV. Taxation
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Profit extraction
At the level of SubHoldCo99% via PPL (no WHT / tax deductible)
Remaining 1% = taxable (at 28.80%)
And distributed via dividends (no WHT)
At the level of HoldCo
100% via FTL (no WHT / tax deductible)
Minus annual taxable spread (at 28.80%)
Rest via Dividends (15% WHT)
Lux HoldCo
Lux SubHoldCo
Investor
DividendsInterest100% of the profits minus annual spread
DividendsInterest99% of the profits
The double holding structureIV. Taxation
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Scalable Unlimited investors via multiple share classes
and tracking loans
Unlimited targets: simply add new SubHoldCo
Increase / decrease of investment
Lux HoldCo
Lux SubHoldCo
Investor
Target 1
Investor
Lux SubHoldCo
Target 1
Class Ashares
Class Bshares
The double holding structureIV. Taxation
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Exit Target and SubHoldCo will be liquidated
Liquidation bonus exempt from WHT
Reimbursement of PPL at level of HoldCo
Share buy-back at level of HoldCo
HoldCo still operational for other investments
Lux HoldCo
Lux SubHoldCo
Investor
Target 1
Investor
Lux SubHoldCo
Target 1
LiquidationBonus
LiquidationBonus
PPL reimbursement+ share buy-back
The double holding structureIV. Taxation
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Contents
I. Why Luxembourg?
II. A&O Luxembourg
III. Investment Funds
IV. Taxation
V. ICM
VI. SPF
VII. IP/IT
© Allen & Overy LLP 2012 51
Luxembourg Stock Exchange
V. ICM
© Allen & Overy LLP 2012 52
V. ICM (International Capital Market)
Luxembourg Stock Exchange - an international listing centre
3,500 issuers from 105 countries
45,000 securities listed
64 sovereign states and
11 supranational institutions
More than 750 new
quotation lines/month on average
Approximately 90% of issues are EMTN programmes
Listing in 54 different currencies
61.26%61.26%
0.36%0.36%
9.30%9.30%
0.77%0.77%15.81%15.81%
12.50%12.50%
Issuers by region
© Allen & Overy LLP 2012 53
Quotation lines (as at 30 Sept 2010)
Bonds 29,764
Warrants 7,332
Shares/GDRs 324Domestic 34Foreign 290
Investment Funds 7,254Domestic 7,101Foreign 153
Total 44,674
V. ICM
Strong listing activity
Luxembourg Stock Exchange41.79%
Irish StockExchange24.03%
DeutscheBörse
17.48%
London Stock Exchange
8.57%
Euronext4.95%
Others3.19%
Leader in the listing of international bonds
Luxembourg Stock Exchange
© Allen & Overy LLP 2012 54
Markets operated:
A. European regulated market “BdL Market”
since May 1929
B. Exchange regulated market “EURO MTF”
since July 2005
Luxembourg Stock Exchange Markets
V. ICMLuxembourg Stock Exchange
© Allen & Overy LLP 2012 55
A. The main regulated market named ‘Bourse de Luxembourg’On the EU list of regulated markets held by the European CommissionEligible for investment according to EU rules and for Eurosystem collateral requirementsEasy procedure for cross offers of securities (simple notification in accordance with the provisions of the Prospectus Directive)The CSSF (Financial sector supervisor) is in charge of the approval of prospectuses.The Exchange deals with the listing applicationCombination of a listing fee plus a maintenance fee (annual fee)The fees cover three elements: the official listing, the admission to trading and the access to the trading system.
V. ICMLuxembourg Stock Exchange
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It is a Multilateral Trading facility (MTF) as defined in Article 4 (15) of the MiFID Directive and is not a regulated market on the list of EU regulated markets. Its name is a direct reference to this new category of market recognised in EU legislation
The Luxembourg Stock Exchange is responsible for the approval of prospectuses prior a listing of securities on the ‘Euro MTF’ market (Art 61 of the Luxembourg Law on prospectuses).
Contents of the prospectus defined by reference to the repealed 80/390/EEC Directive (Listing Particulars Directive). See Part II and the annexes of the rules and regulation of the LuxSE. Aternatively, the use of the schedules contained in the European Commission Regulation 809/2004 is possible.
Prohibition of market abuse (insider dealing and market manipulation) contained in the Luxembourg Law on Market Abuse
Out of scope of the Transparency Directive
B. The Euro MTF Market
V. ICMLuxembourg Stock Exchange
© Allen & Overy LLP 2012 57
Less stringent requirements for financial reporting and auditing in the case of non EU issuers (Prospectus and Transparency Directive requirements, 8th company law Directive)
No obligation to determine a home competent authority for debt securities with individual denomination of less than 1 000 Euros (non EU Issuers)
Lack of financial statements for SPV
One stop shop for the listing and the approval of the documentation
Eurobond tax exemption agreed by UK tax authorities
Eligibility to the Eurosystem operation (ECB)
Eligible market for investments done by UCITS
B. The Euro MTF Market – Main advantages
V. ICMLuxembourg Stock Exchange
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Condition: Prospectus Directive compliant prospectusProspectus must be approved by the Competent Authority of the country
where the securities will be listed In Luxembourg:
• CSSF – competent for the prospectus approval• language regime generally in English. Luxembourg accepts 4 languages• Luxembourg Stock Exchange competent for the admission to trading• The application for admission must be signed and filed by the applicant or
by any other person duly authorised to intervene for this purpose by the applicant (Issuer, listing agent, law firm, lead manager,...)
Admission to Regulated Markets in Europe
V. ICMLuxembourg Stock Exchange
© Allen & Overy LLP 2012 59
Investment Structuring
V. ICM
© Allen & Overy LLP 2012 6060
Repackaging of Equity - Holding model
Group Parent
Company
Group Company
LuxCo
LuxSeCo (in principle not appropriate)
Group Company
100% equity100% equity
100% equity
V. ICMInvestment structuring (Debt / Equity)
© Allen & Overy LLP 2012 6161
LuxCo
LuxSeCo (in principle possible)
Fund/Company(as, for example, German KG,
UCIT, LP, REIT, etc.)
InvestorInvestor
equity/debtequity/debt
equity
Repackaging of Equity - Investment model
V. ICMInvestment structuring (Debt / Equity)
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Group Parent
Company
Group Company
LuxCo
LuxSeCo (in principle not appropriate)
Group Company
loan
equity/debt
loan
Intragroup financing - Standard model
V. ICMInvestment structuring (Debt / Equity)
© Allen & Overy LLP 2012 6363
Group Parent
Company
Group Company Group CompanyLuxCo
LuxSeCo
Investor (restrictions if LuxSeCo used)
•LuxCo/LuxSeCo issues securities + .•LuxCo/LuxSeCo uses issue proceeds to acquire loan (portfolio of loans) from Group Company + .•After acquisition, LuxCo/LuxSeCo is lender under the loan.•Payments received under loans will be used to make the payments due under the equity/debt securities issued by LuxCo or LuxSeCo.
equity equityequity
equity/debt securities
loan
€€
€€
€1
1 2
23
3
4
4
Intragroup financing - Repackaging of loans
V. ICMInvestment structuring (Debt / Equity)
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Financial institutionsbalance sheet cleaning
BankLuxCo
LuxSeCo
Investor
Swap
Counterparty
•LuxCo/LuxSeCo issues bonds .•LuxCo/LuxSeCo uses issue proceeds to acquire a pool of + .•Payments received under pool of assets are paid to the Swap Counterparty(which may be the Bank) under a swap entered into by LuxCo/LuxSeCo to hedge its payment obligations under the bonds + .•Swap Counterparty pays to LuxCo/LuxSeCo the sums that LuxCo/LuxSeComust pay under the Bonds .•In the case of a default by the Swap Counterparty, the swap is terminated and payments under the pool of assets are paid by LuxCo/LuxSeCo to Investor rather than to Swap Counterparty).•At maturity, pool of assets realised (at pre-agreed price under swap or at market value) and sale proceeds used to redeem the bonds.
pool of assets
swap payment (payments underpool of assets)
swap payment (payments dueunder bonds)
€
€ vs bonds
1
1
2
2 3
4 5
3
6
4swap
6
5
V. ICMInvestment structuring (Debt / Equity)
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Structured note issuance
65
LuxCo
LuxSeCo
Swap
Counterparty
Investor
INDEXCollateral (for swap)
• LuxCo/LuxSeCo issues index linked bonds • LuxCo/LuxSeCo enters into swap that provides LuxCo/LuxSeCo with monies payable under the bonds (amount payable under the bonds is determined by performance of index) + .• Issue proceeds will be invested in collateral. The cash flows under the Collateral and realisation proceeds will be paid under the swap to Swap Counterparty. In case of default of Swap Counterparty, swap is terminated and cash flow under Collateral and realisation proceeds of Collateral will be paid directly to Investor (rather than the Swap Counterparty).This considerably reduces credit risk that investors are taking on Swap Counterparty.
€ vs bonds(index linked)
swap
1
1
32
3 4
2
4
V. ICMInvestment structuring (Debt / Equity)
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Securitisation
V. ICM
© Allen & Overy LLP 2012 67
V. ICMIssue vehicles – Securitisation Act 2004
ecuritisation Act 2004 expressly recognises:Limited recourseSubordinationNon-petitionCompartmentalisation
V is a fully taxable company but all commitments are deductible expenses (→ tax neutrality); no subscription tax; in principle no withholding tax; SV qualifies as taxable person for VAT
S
S
uxembourg securitisation vehicles (SV) are governed by Securitisation Act 2004
L
© Allen & Overy LLP 2012 68
No restriction as to eligible investors for an SV
Any type of risks or assets may be securitised by an SV (→ no risk diversification requirement)
SV may issue all types of securities (equity, notes, certificates, etc); financing by way of loans possible in certain circumstances
Rating agencies are comfortable with the Securitisation Act 2004 regime
Issue vehicles – Large FlexibilityV. ICM
© Allen & Overy LLP 2012 69
SV is subject to the supervision of the CSSF only if it issues securities to the public on ongoing basis (→ light regulation)
Luxembourg custodian only needed if SV is regulated
Accounts are reviewed by a statutory auditor (réviseur d’entreprises agréé)
SV is not required to publish a prospectus unless Prospectus Act 2005 applies (public offers; listings)
Issue vehicles - SupervisionV. ICM
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SV may attract a broad range of investors
1 SV is a suitable vehicle for simple and
complex transactions
2Securitisation is important feature to procure
financing to corporates and banks3
Issue vehicles - ConclusionV. ICM
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bankruptcy remoteness
true sale
compartments (segregation of assets and ring fencing)
limited recourse (by operation of law)
subordination
no seizure of assets
no petition
To that effect, the Securitisation Act 2004 contains, and recognises the enforceability of, provisions on
V. ICMSecuritisation vehicles
© Allen & Overy LLP 2012 7272
The Luxembourg act dated 22 March 2004 relating to securitisation, as amended (the Securitisation Act 2004)
covers all types of securitisation transactions
covers all types of assets
aims at isolating the securitised assets within a specific estate (patrimoine) and shifting the risks relating to these assets to the investors and creditors
Securitisation vehicles - Legal frameworkV. ICM
© Allen & Overy LLP 2012 7373
Securitisation vehicles - what can be securitised ?
any risks relating to (i) receivables, (ii) moveable or immoveable assets or (iii) obligations assumed by third parties or inherent to all or part of the activities carried out by third parties
by way of illustration (any assets which produce a regular and predictable flow of funds)
residential and commercial mortgage loans, corporate loans, credit card receivables or trade receivables
V. ICM
© Allen & Overy LLP 2012 7474
debt securities and equity securities (→constraints)
rights and claims relating to financial contracts (such as rights under derivative agreements; rights in respect of synthetic transactions where there is no transfer of assets but where
risks are transferred under, e.g., a credit default swap)
rights and claims relating to operating businesses (such as airports, private hospitals, water utilities, pubs or forests → whole or partial business securitisations)
risks relating to insurance policies (→ impact of Directive 2005/68/EC relating to reinsurance)
V. ICMSecuritisation vehicles - what can be securitised ?
© Allen & Overy LLP 2012 7575
through the issue of securities (valeurs mobilières) the value or return of which depends on the securitised assets
securities means any kind of (i) debt securities and (ii) equity securities including shares (→ constraints) and beneficiary shares
V. ICMSecuritisation vehicles - how are securitisations financed?
© Allen & Overy LLP 2012 76
Securitisation vehicles - who can securitize assets?
76
choice between a securitisation company and a securitisation fund managed by a management company
securitisation undertakings must be located in Luxembourg:
for a securitisation company, the registered office must be situated in Luxembourg
for a securitisation fund, the registered office of the management company of the fund must be situated in Luxembourg
possibility to use a two-tier structure comprising an issuing vehicle and an acquisition vehicle
V. ICM
© Allen & Overy LLP 2012 7777
public limitedliability company
(société anonyme)
private limited liability company
(société à responsabilitélimitée (→ constraints))
partnership limited by shares
(société en commandite par actions)
co-operative societyorganised as a
société anonyme
A securitisation company may take the form of a:
V. ICMSecuritisation vehicles
© Allen & Overy LLP 2012 7878
Securitisation undertakings will be regulated and must obtain an authorisation (agrément) from the CSSF if they issue securities to the public on a continuous basis (→ if these two conditions are not met cumulatively, the securitisation undertaking will be unregulated and the CSSF will not be competent)
Regulated securitisation undertakings
V. ICMSecuritisation vehicles
© Allen & Overy LLP 2012 7979
This implies:
Securities issued to the public
absence of legal definition
different notion as that used under the Prospectus Directive
CSSF guidance → two (rebuttable) presumptions:
- professional investors (→ MiFID)
- minimum denomination of EUR125,000
V. ICMSecuritisation vehicles
© Allen & Overy LLP 2012 8080
Securities issued on a continuous basis
absence of legal definition
CSSF guidance → more than three issues to the public per calendar year
V. ICMSecuritisation vehicles
© Allen & Overy LLP 2012 8181
Unregulated securitisation undertakings
license requirement does not exist where the securitisation undertaking does not issue securities to the public on an ongoing basis
benefit from all the provisions of the Securitisation Act 2004
must appoint one or more external auditors
V. ICMSecuritisation vehicles
© Allen & Overy LLP 2012 8282
Securitisation transactions that are subject to the Securitisation Act 2004 do not constitute contracts of insurance (→ safe harbour provisions, among other things, for credit derivative transactions and for the assumption of risks relating to insurance policies)
Safe harbour - no insurance contract
V. ICMSecuritisation vehicles
Securitisation of financial assets, intellectual property, private equity, real estate, ....
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Contents
I. Why Luxembourg?
II. A&O Luxembourg
III. Investment Funds
IV. Taxation
V. ICM
VI. SPF
VII. IP/IT
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Few FactsPrivate investors or entity acting exclusively on behalf
of private patrimony or intermediaries acting on a fiduciary basis on behalf of the private investors
SPF will take the form of a stock corporationNo regulation. Activity and investment restrictions (non
involvement in the business of the subsidiaries, no intra-group financing activity, no public issue of securities, no flotation on a stock market, no direct holding in real estate)
TaxationGeneral tax exemption from CIT / MBT / NWTAnnual subscription tax of 0.25% (min EUR 100 / max
EUR 125.000) Tax-free dividend distributions to investors
VI. SPFTrading platform
Tax efficient repatriation
SPF
Any Stock exchange
listed company
Nasdaqlisted
companies
RTSlisted
companies
Beneficiary
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Contents
I. Why Luxembourg?
II. A&O Luxembourg
III. Investment Funds
IV. Taxation
V. ICM
VI. SPF
VII. IP/IT
© Allen & Overy LLP 2012 86
80% exemption on net income and capital gains deriving from certain IP rights
Exemption from wealth tax
Eligible IP rights: patents, trademarks, designs, models, domain names and software copyrights
2009 IP Legislation offers:
VII. IP/IT
Infrastructure support in IP management, seed funding, logistics and industry collaborations
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Nicolas FermaudAssociate – in charge of the Russia-Luxembourg DeskAllen & Overy+ 7 495 662 [email protected]
These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources.
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