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Expo Real 2019Real estate investment through Luxembourg Munich, 7 – 9 October 2019

2© 2019 Deloitte Tax & Consulting Public

Contents

1. Real estate investment through Luxembourg 3

2. Investing in Luxembourg real estate 15

3. Tax Update 24

4. Regulatory update 46

5. Your contacts at Expo Real 52

3Public © 2019 Deloitte Tax & Consulting

Real estate investment through Luxembourg


Real assets – asset class with high growth

Market trends


3.1

6.5

9.7

14.0

0

2

4

6

8

10

12

14

16

2008 2013 2018 2023Projection

Projected growth of global alternative assets industry

AuM (in $ tn)

Source: Prequin

• Assets under management in the alternative asset industry increasedmore than three-times over the past 10 years and are expected tocontinue to grow

AuM (in $ tn)

1.02.0 2.3 3.2 4.0 4.8

0.5

0.8 0.8

1.6

3.5

6.1

1.0

2.53.3

4.2

6.4

10.2

2.5

5.36.4

9.0

13.9

21.1

0

5

10

15

20

25

2004 2007 2012 2015 2020base

2025base

28.5%

3.9%

12.0%

9.0%

8.7%

Hedge funds

Private equity

Real assets

• Real assets are expected to grow still significantly in the coming years.



Market trends

Luxembourg RE fund industryInvestors’ top three preferred sector/location

Ten most preferred locations for 2018

• In 2018, the UK, France and Germany remain the top three investmentdestinations in Europe, a clear reflection of the size, maturity andtransparency of these markets.

• The UK is seen as the key target European country by two out of threeinvestors (66.1%). This compares with 62.5% and 60.7% for France andGermany, respectively.

• Office and retail remain the two dominant sectors, followed byindustrial/logistics and residential.

3235

469 1927

2343

2280

3730

4705 7

315

6180

4126

3846

3139

1843

1732

1167

951

993

1475

1504

1512

1415

280

146

369 522 850

1557

3307

8131

14746

14839

17580

20925

24082 2

8743

32685

41801

49597

56187

59171

66152

68427

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000Net asset under management real estate

Part II funds SIFs

Source: CSSF


Why Luxembourg?


Location

• In the heart of Europe

• Important capitals reachable within 2 hours

• Very efficient logistics center

Environment

• Political, economic and social stability

• 7.5/10 overall life satisfaction (Eurostat)

• Legal framework that fosters an environmentally responsible & social approach

• Regional initiatives for environmental protection and sustainable development

Culture

• Multilingual and multicultural

• European Capital of Culture 1995, 2007, 2022

• UNESCO world heritage

• Museums, Philharmonie, Grand Theatre

European institutions

• European Investment Bank

• European Parliament

• European Commission

• European Investment Fund

• European Court of Auditors

• Court of Justice

• European Stability Mechanism

• European Public Prosecutor's Office

Fiscal system

• Customer oriented financial administration

• Easy and clear administrative processes

Infrastructure

• Mobility: international airport, bus network, tram, (international) railway network, free motorways, e-cars, car sharing, cycle paths

• A wide range of data and business continuity centers as well ICT services

• Research centers

Legal environment

• Strict confidentiality policies

• Strict data protection legislation

• Enterprise-friendly legislation

Political environment

• A government that fosters and supports innovation and new technologies

• Extremely competitive economic environment

Workforce

• International education system

• International university

• A highly qualified, multilingual and multicultural workforce



Luxembourg AIF Fund Tool Box

TAX considerations

• Repatriation of profits?

• Exit strategy?

• Tax efficient?

Investment strategy considerations

• Number of assets?

• Countries targeted?

• Portfolio diversification?

LEGAL considerations

• Type/number of investors?

• Location of investors?

• Regulatory constraints?

• Lifetime of the structure?

• Leverage?

Tax implications should be considered:

• Upon financing of the structure

• During lifetime of the structure

• Upon exist of the structure

The choice of vehicles also determines subsequent

governance and reporting requirements

The choice of the structure and the legal form of the

top entity depends on different parameters

Sources: ALFI, CSSF Statistics and RCS RAIF List

Evolution of Luxembourg vehicles

1,869 1,859 1,831 1,792

353 323 295 282

1,639 1,576 1,547 1,495

22 182

575 681

2016 2017 2018 Aug-19

Part I (UCITS law)

Part II (UCITS law)

SIFs (2007 law)

RAIFs

Total # LU investment funds

• Among legal entities, SIFs are gradually replacing Part II funds, while Part I funds remain largely stable

• The emergence of RAIFs (legal entity launched in 2016) is noticeable, with the rise from 22 at end of 2016 to 182 as of 5 October 2017 to 575 as of 15 November 2018 to 681 as of 31 July 2019.

• As at 31 August 2019, Part I funds represented the largest portion of Luxembourg market, with more than 83% of Luxembourg total AuM

3,883 4,044 3,948 4,250



Luxembourg fund vehicles

SecuritizationVehicle

SIF

SICAR

UCI

SoparfiLess regulated

LessFlexible

UCITS

Non regulated

More Regulated

SLP

SLPSLP

RAIF

AIFM

MoreFlexible



• Investors tax position (opaque vs. transparent) and reporting

• Management fee vs. PPS

• Carry structure (carry via GP or other)

• Tax transparency of the Fund

• VAT exemption / recovery

• Transfer pricing

• Substance & delegation model

• WHT and NRCGT: treaty access

• Beps

Key considerations

Straddling the fence



Reserved Alternative Investment Fund

RAIF

Assets

AIFM

• Unregulated - not subject to theCSSF prior approval and/orsupervision, however, if the AIFMis established in Luxembourg, theCSSF will supervise the AIFM,though indirectly also RAIF itself

• It could be set up as a mutual fund(FCP), a SICAV (SA, SCA, SCS.SCSp, S.à r.l. ScoSA) or under alegal regime that is neither a FCPnor a SICAV

• Possible compartmentalization ofthe assets

• Fixed or variable capital

• Central Administration andDepositary Function should beestablished in Luxembourg

• RAIF will need to appoint anindependent auditor

• Targeted to institutional, professional or sophisticated investors - same eligible investors as a SIF

• Information disclosure to investors and annual report to be in line with AIFM rules, hence RAIF has to be included in reporting

• RAIF has to be managed by an AIFM

• Costs associated to the setting up and running of a RAIF should be lower than a SIF

• No limitations in eligible assets and diversification ratios. If a RAIF restricts its investment policy in its constitutive documents to investment in risk capital, it is not required to operate under the principles of risk spreading

By default:

Full CIT/MBT/NWT exemption or full tax transparency for FIAR FCP/SCS/SCSp

No WHT on any distributions

1bps subscription tax is applicable (with exemptions available similarly to SIFs)

No tax on speculative capital gains for investors

SIF regime

Alternatively, when investing in risk capital assets:

Subject to CIT/MBT but any income from transferable securities and income from temporary investments (<12 months) are exempted; or alternatively full tax transparency for RAIFs set-up as partnerships

No subscription tax

No WHT on any distributions

No tax on speculative capital gains for investors

SICAR regime

No Luxembourg VAT on management of an eligible investment fund including AIF, RAIF SIF or SICAR.

VAT



Consolidated model



Connecting non-EU business

Master Lux HoldCo / FinCo

Lux AIF

Lux SPV(s)

EU Entities

Lux AIFM

Non-EUAIFs

Foreign IM

European Assets

Non-EU InvestorsEU Investors

entities

Non-European Assets

Non-EU SPV(s)

• Increased operational burden due to double decision making process

• Non-EU AIF need to comply with part of AIFMD requirements (e.g. depositary)

• Does not fully justify the European platform set-up

• Double layer of operating costs for European investors

• Difficulty to justify autonomy of decision making by the AIFM

Parallel Fund Structuring

Pros

Master/Feeder Fund Structuring Luxembourg fund-fits-all


Lux AIF

Lux SPV(s)

EU Entities

Lux AIFM

Foreign IM

European Assets


entities

Non-European Assets

Non-EU SPV(s)

Non-EUAIFs


Lux SPV(s)

EU Entities

Lux AIFM

Foreign IM

European Assets


entities

Non-European Assets

Non-EU SPV(s)

Structure

• No duplication of decision making process

Cons

Occurrence

• High • Low

• Potential unattractiveness for non EU investors

• Operational efficiency due to centralized structure

• None

A CB

Lux AIF

• Non-EU investors do not bear AIFMD compliance related costs

• Ability to structure parallel structures as «copy-paste»

• Ease of justifying the European platform concept



Fund structuring tax and regulatory trends

Regulated institutional investors

Unregulated institutional investors

Non-institutional investors

• AIFMD compliant

fund eligible under certain LP-

specific regulatory ratio (Basel

/ Solvency regulations)

• Ease up fund manager due

diligence work

• Ease up due diligence work

• Increased investor protection

What?

Who?

Why?

• AIFMs being established

primarily in Luxembourg

• Consolidation of AIFM platform

with existing Luxembourg

operational platform

• Oaktree

• Apollo

• Blackstone

• ICG

• EQT

• M&G Investment

• …

• Complying with LP expectations

• Conjunction of AIFMD and

Brexit

• BEPS substance test and

compliance

Trends among LPs Trends among GPs

Strong market trend: Investors and peers are strongly pushing for, or moving towards, full AIFMD compliance out of Luxembourg

Benefits

Main purposes of AIFM

set up:

1. Regulatory compliance

2. Ease of marketing

3. Compliance with LP

requirements

4. Addresses need for

substance

Reasons for AIFM

1

2

3

1

2

3

Actors

Sources: Deloitte Market research and analysis



Benefits of the Luxembourg AIFM license

• AIFM set up is not tax driven

• Supervisory authority ensures compliance with regulatory substance requirements

• Compliance with AIFMD encompass tax substance compliance

There is a convergence between AIFMD (providing for minimum substance criteria, minimum level of activities together with limitations to delegationpossibilities) and the global tax trend (e.g. BEPS)

BEPS and GAAR developments Matching AIFMD Requirements

Motive test

Management and control

Infrastructure and resources

Managed by Luxembourg office

Decision to establish an AIFM driven by regulatory considerations

(obligation to comply to or benefit from the AIFMD Passport)

Leverage of existing staff, platform and infrastructure

Portfolio management performed in/supervised from Luxembourg

Risk Management performed/supervised from Luxembourg

Compulsory oversight framework in relation to delegated

functions

No “letter box” entity

Sufficient infrastructure and support functions in place

Interaction with Luxembourg authorities

Reporting

Certification

BEPS/ AIFMDsubstance convergence

1

2

3

4


Investing in Luxembourg real estate


1. Overview

Why investing in Luxembourg real estate?

Diversified, stable and wealthy economy

• Ranked 7th according to the KOF Globalization Index (Economic Dimension)

Strong macroeconomic indicators

• Average GDP growth of +3.5% a year over the last 5 years (vs. 1.7% for the EU-28)

First European fund investment center

• #1 investment fund center in Europe• #2 in the world after the US

Stable and favorable tax environment

• Among the countries with the lowest total tax rate in the world

Your gateway to Europe

• Major European cities reachable within less than 3-hour flight

• Free movement of goods, services and people

Rome0h50

Madrid2h30

London1 h

Paris1 h

Berlin1h30

Stockholm2h45

Lisbon2h45

Amsterdam1 h

Source: Alfi, KOF, Worldbank

EU institutions center

EU

• EU Court of Justice• EU Commission• EU Court of Auditors• EIB• EIF• EU Financial Stability

Facility

• Translation Center• CHAFEA• Secretariat of EU Parliament• EAEC• Publication Office• Eurostat


364 375 383 390 400 411 425 440 450 466

-

100

200

300

400

500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2. Luxembourg macroeconomic data

Key indicators

613,900 Country population (Jan. 2019)

119,200 Luxembourg city population (Jan. 2019)

5.5% Unemployment rate (July 2019)

465,818 Total employment (July 2019)

197,661 Daily foreign commuters (Q1 2019)

2.4% Real GDP growth expected in 2019

Source: The Economist Intelligence unit, Statec, Eurostat

2123

2423

2528

2223

2522 23 24

30 3031

20162006 2011

Belgium FranceGermany Netherlands Luxembourg

Adjusted gross disposable income of households (EUR ‘000)

Total employment in Luxembourg (people ‘000)

+3%

Compound Annual Growth Rate (CAGR)


0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016 2017 2018 H1

2019

0

50

100

150

200

250

300

Cumulative take-up Prime rent

3. Luxembourg letting office market

Overview

H1 2019 Stock(sqm)

Vacancy(%)

Take-up (sqm)

Prime rent(EUR/sqm/mth)

CBD 840,000 0.3% 9,926 50

Kirchberg 1,170,000 0.9% 8,608 37

Station 415,000 3.0% 9,514 36

Cloche d’Or 450,000 5.7% 2,017 29.5

Inner districts 249,000 6.5% 3,729 33

Decentralized 407,000 6.7% 3,804 28.5

Periphery 509,000 4.9% 4,293 25

Total 4,040,000 3.0% 41,891 50

Source: BNP RE, CBRE, Cushman Wakefield

Source: CBRE, Cushman Wakefield, JLL

1

Esch-Belval

Windhof - Capellen

2

3

4

2

3

4

1

Take-up

(‘000 sqm)

Prime rent

(EUR/sqm/mth)

EUR 50

42,000 sqm

Office take-up vs prime rent


3. Luxembourg letting office market

Recent transactions

Date District Asset Tenant Area (sqm)

Q2 2019 Station Impulse Regus 6,450

Q2 2019 CBD Villa Servais SNCD 2,240

Q2 2019 Kirchberg Oksigen Triton International 1,920

Q2 2019 Cloche d'Or Vertigo Polaris Confidential 1,060

Q1 2019 Kirchberg Oksigen Regus 1,925

Q1 2019 Kirchberg The Square The Royal Bank of Scotland 1,330

Q1 2019 CBD Royal 26 Ternium Investments 930

Q1 2019 Kirchberg K2 Forte Fisher Investments 820

Q1 2019 CBD Stargate Crestbridge 755

Q1 2019 CBD Royal 26 San Faustin 730

Q4 2018 Cloche d'Or D.Square Deloitte 31,000

Q4 2018 Cloche d'Or Melius Alter Domus 10,600

Q4 2018 Hamm Green Square Grant Thornton 5,900

Q4 2018 Belair / Merl Moonlight CSSF 5,400

Q4 2018 Belair / Merl Moonlight Ministère des Finances 4,200

Q4 2018 CBD Glacier Wlekin & Meraki 2,400

Q3 2018 Bertrange Beaubourg Telindus 9,000

Q3 2018 Airport EBBC C JP Morgan 2,200

Q3 2018 Cloche d'Or BFF Beiler François Fritsch 1,600

Q3 2018 CBD n/a Ministry of Culture of China 1,527

Q3 2018 Station Fischer 122 Fiduciaire des PME 1,250

Q3 2018 Contern / Sandweiler LTC Sungard AS 1,230

Q3 2018 Kirchberg Gravity Banco Bradeso 1,107

Source: CBRE, Cushman Wakefield, Inowai, JLL


0

50

100

150

200

250

300

350

Completed Speculative Committed Potential

0%

1%

2%

3%

4%

5%

6%

7%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 H1

2019

Investment volume Prime office yield

4. Luxembourg investment office market

Overview

Source: CBRE, Cushman Wakefield, JLL

Development pipeline: committed vs available

Investment volume by origin of investors

47%

35%

9%

5%

1% 3%

Belgium

Luxembourg

France

USA

Middle-East

Russia

Average

2014-2017

18%

15%

20%18%

10%

11%

2%

1% 5%

Average

2010-2013

Investment volume

(EUR m)

Prime yield

(%)

4.0%

EUR 509m

Investment volume vs. prime yield

More speculative than before

Internationalinvestors’ appetite

18%

Internationalinvestors’ appetite

67%

‘000 sqm


4. Luxembourg investment office market

Key recent transactions

Date District Asset Seller Buyer Est. Price (EUR m)

Yield (%)(* est.)

Area(sqm)

Q2 2019 Cloche d'Or D.Square Ethias - Intégrale La Française 250 4.05% 31,000

Q2 2019 CBD Nova Immobel Monceau Assurance 45 4.75%* 4,200

Q2 2019 Leudelange Edelek Private Trium Holding 29 6.90% 8,450

Q1 2019 Cloche d'Or Henri Schnadt Baltisse Belair House 25 5.5%* 4,161

Q1 2019 Strassen Etoile Noire Baumeister Haus Private 17.5 5.2%* 1,890

Q1 2019 Kirchberg Kennedy 43 Leasinvest RE Ceetrus (Groupe Auchan) 15.9 5.75%* 2,270

Q4 2018 Station Le Dôme Blackstone AXA IMRA 195 4.90% 21,561

Q4 2018 Cloche d'Or D.Square Extensa - Promobe Ethias - Intégrale 225 4.50% 31,000

Q4 2018 Kirchberg K2 Allegro Banque Havilland Fidelity Investment 125 4% 12,000

Q4 2018 Cloche d'Or Melius Extensa - Promobe Honnover Leasing 85 4.25% 11,700

Q4 2018 Kirchberg Kubik Aberdeen Asset Management Confidential 75 4.60% 7,257

Q4 2018 Esch-Belval Naos Atenor Ethias - Le Foyer 72 5.75% 14,000

Q4 2018 Betrange Beaubourg Soludec Fidelity Investment 70 4.5%* 9,532

Q4 2018 Leudelange Am Bann Atenor Fidentia RE Invest. 65 6.25%* 16,300

Q3 2018 Kirchberg JBBK CommerzReal Ceetrus (Groupe Auchan) 170 8.5%* 37,600

Q3 2018 CBD Portfolio ISP Intesa San Paolo Triuva 85 n/a 4,689

Q3 2018 Belair / Merl Arlon 291 Wafra Private 47 6.15%* 7,694

Note: * estimated yield

Source: CBRE, Cushman Wakefield, Inowai


5. Summary

Luxembourg office market

2015 2016 2017 2018 H1 2019

Take-up c. 229,000 sqm c. 218,000 sqm c. 211,000 sqm c. 240,134 sqm c. 41,891 sqm

Total stock c. 3,800,000 sqm c. 3,900,000 sqm c. 3,900,000 sqm c. 3,937,000 sqm c. 4,040,000 sqm

Vacancy rate c. 4.1% c. 5.4% c. 4.8% c. 3.48% c. 3.07%

Prime rents CBD EUR 45 /sqm/mth

EUR 45 /sqm/mth

EUR 47 /sqm/mth

EUR 50 /sqm/mth

EUR 50 /sqm/mth

Invested volumes in offices EUR 979 m EUR 1,042 m EUR 1,211 m c. EUR 1,880 m c. EUR 509 m

Prime yields 5.0% 4.5% 4.5% 4.0% 4.0%

2019 Outlook

Take-up Total

stock

Vacancy

rate

Prime rents

CBD

Invested

Volumes

Prime

yields

Source: CBRE, Cushman Wakefield, Inowai, JLL

c. 41,891 sqm c. 4,040,000 sqm c. 3.07% EUR 50/sqm/mth c. EUR 509 m 4.0%

H1 2

019

Fore

cast


6. Luxembourg Real Estate service offer and contacts

Jean-Pierre Lequeux, MRICS

Partner

Real Estate Advisory & Consulting

Tel/Direct: +352 451 453 598

Mobile: +352 671 671 404

[email protected]

François Guiot

Manager

Real Estate Advisory & Consulting

Tel/Direct: +352 451 453 008

Mobile: +352 661 799 506

[email protected]

Strategy & operations

• Real Estate strategic advisory• (Re)development consultancy, feasibility studies and

financial modeling

Corporate real estate & workplace advisory

• Translation of business strategies in RE strategies• Portfolio, HQ definition, network and footprint optimization• Definition and implementation of new ways of working• Lease advisory and management• Facility management and procurement• Smart Building Systems• PMO: execution of a move, construction follow-up,…

Valuation

• Recurring and one-off portfolio valuations• Underlying value of a (re)development projects• Financial modelling and optimization of developer’s margin• Valuation in support to audit, transaction services and tax

Real Estate Transactions and M&A

• Investment advisory and transaction support• Financial, legal, tax and technical DD• M&A• Debit and equity advisory• Sale and lease back advisory and structuring• Fundraising

Sustainability• Building certification New Construction• Building certification In-Use• Commissioning – Recommissioning• Estimating Energy Consumption

1

2

3

4

5


Tax Update


Anti Tax Avoidance Directive (ATAD)


An overview

ATAD

Hybrid mismatches

Interest limitation rules

Controlled Foreign Companies

Exit taxation rules

ATAD

The objective is to protect against the avoidance taxation through (i) the migration of companies or (ii) the transfer of assets to lower jurisdictions or outside the tax net entirely. The new exit tax rules apply to fiscal years starting on or after 1 January 2020.

The objective is to tackle abusive tax practices that have not yet been dealt with through specifically targeted provisions, acting as a catch-all mechanism to protect a country’s tax base from abusive tax planning. Applies to fiscal years starting on or after 1 January 2019.

The objective of the CFC rules is to tax companies and other entities resident in low-tax jurisdictions when controlled by EU resident taxpayer (where profits are generated). Apply to fiscal years starting on or after 1 January 2019.

The objective is to discourage group companies from artificially shifting their profit to Member States with more generous tax rules and therefore, reducing their global tax liability through excessive interest payments. Applies to fiscal years starting on or after 1 January 2019.

The objective of the provision regarding hybrid mismatches is to neutralize the tax effects of hybrid arrangements, exploiting differences in the tax treatment of an entity or instrument under the laws of two or more EU Member States to achieve a deduction in both States. Applies to fiscal years starting on or after 1 January 2019.

General Anti-Abuse Rule

Conversion of a loan into shares: If capital gain arising from this transaction,no longer tax-neutral under the domestic regime

Permanent establishment: Domestic definition: independent and representing a participation in the general economic life in the foreign state


ATAD

ATAD II Draft Law

The Luxembourg government published a draft law on 8 August 2019 that would implement the hybrid mismatch measures in the 2017/952 EU Anti-Tax Avoidance Directive (ATAD 2) into domestic law. The ATAD 2 is largely inspired by action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements) of the OECD’s base erosion and profit shifting project.

The ATAD 2 extends the anti-hybrid provisions of the 2016/1164 EU Anti-Tax Avoidance Directive (ATAD 1) (which apply only to mismatches between EU member states) to hybrid mismatches with non-EU countries, and brings additional types of hybrid mismatches within the scope of the measures. The draft law would cover hybrid mismatches not yet covered by the current Luxembourg anti-hybrid provisions, such as imported mismatches, hybrid transfers, tax residence mismatches and reverse hybrid mismatches.

31.12.2018Deadline for the implementation of the ATAD I into domestic laws.

01.01.2024Maximum delay for interest limitation rules for Member States having already national targeted rules preventing base erosion except if the end of the first full fiscal year following the date of publication of the agreement between OECD Members on a minimum standard with regards to BEPS action 4 occurs before.

08.08.2019Luxembourg Draft Law for implementation of ATAD II is published

01.01.2019Entry into force of ATAD I.

25.10.2016Draft proposal made by the EU Commission regarding hybrid mismatches with third countries.

01.01.2020Entry into force of ATAD II.

31.12.2021Possible delay for reverse hybrid mismatch rule.

29.05.2017Adoption of the amended directive on hybrid mismatches (ATAD II).

07.06.2017Signature of the Multilateral instrument.

http://data.consilium.europa.eu/doc/document/ST-6661-2017-INIT/en/pdf

http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/neutralising-the-effects-of-hybrid-mismatch-arrangements-action-2-2015-final-report_9789264241138-en

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016L1164&from=EN


ATAD II - Highlights

ATAD

In order to better mitigate the aspects not covered by the ATAD I, on the 21 February 2017, the Council of the EU has agreed on anextension of the scope of the Anti-Tax Avoidance Directive (“ATAD II”) in order to neutralize hybrid mismatch structures involvingthird countries. While ATAD I contains rules to combat certain hybrid entity mismatches between Member States of the EU, ATAD IIwill effectively extend the Directive’s scope to cover a variety of other mismatches between Member States on the one hand, andbetween Member States and third countries on the other hand.

Apart from addressing the situations where hybrid mismatch structures exist, ATAD II is also tackling the situations where the use ofhybrid instruments could arise between Member States and also third countries.

Additionally, ATAD II provides further clarifications in relation to the application of the conditions of the “associated enterprise” (i.e. ataxpayer holds directly or indirectly at least 25% or 50% (where the structure includes a hybrid entity) participation in an entity).When it comes to the analysis of the 25% or 50% threshold, reference is made to the concept of “acting together” whereby if bothequity interest and financial instruments are held directly or indirectly by the same entity, the partners might be treated as relatedparties for the hybrid rules purposes, irrespective of their individual shareholdings.


ATAD II - Extended scope of application

ATAD

Recital 8 of ATAD II

• Given that Directive (EU) 2016/1164 includes rules onhybrid mismatches between Member States, it isappropriate to include rules on hybrid mismatches withthird countries in that Directive where at least one of theparties involved is a corporate taxpayer or, in the caseof reverse hybrids, an entity in a Member State as wellas imported mismatches.

• Consequently, the rules should apply to all taxpayersthat are subject to corporate tax in a MemberState including permanent establishments (orarrangements treated as permanentestablishments) of entities resident in thirdcountries.

• Reverse hybrid mismatches: specific rules should applyto all entities that are treated as transparent for taxpurposes by a Member State.

Article 1 (2) (a) of ATAD II - Amendment todefinition of “associated enterprises” for the purposeof hybrid mismatches

• An associated enterprise also means an entity that ispart of the same consolidated group for financialaccounting purposes as the taxpayer, an enterprise inwhich the taxpayer has a significant influence in themanagement or an enterprise that has a significantinfluence in the management of the taxpayer."

• Newly introduced “acting together” concept: a personwho acts together with another person in respect of thevoting rights or capital ownership of an entity shall betreated as holding a participation in all of the votingrights or capital ownership of that entity that are held bythe other person.

• Hybrid mismatches that result frompayments under a financialinstrument;

• Hybrid mismatches that are theconsequences of differences inthe allocation of payments madeto a hybrid entity or permanentestablishment (including as a resultof payments to a disregardedpermanent establishment);

• Hybrid mismatches that result frompayment made by a hybrid entityto its owner or deemed paymentsbetween the head office andpermanent establishment orbetween two or more permanentestablishments;

• Double deduction outcomesresulting from payment made by ahybrid entity or permanentestablishment.

Hybrid mismatches

Permanent establishment mismatches

Hybrid transfers

Imported mismatches

Dual resident mismatches

Deduction without inclusion

Treatment of the mismatch

• First rule: Denial of the deduction of the payment,

expense or loss in the payer jurisdiction

• Secondary rule: Inclusion of the payment in payee

jurisdiction

Double deduction

Treatment of the mismatch

First rule: Denial of the deduction of the payment, expense or

loss in the investor jurisdiction

Secondary rule: Denial of the deduction of the payment,

expense or loss in the payer jurisdiction

A ‘hybrid mismatch’ address mismatch situations which result from double deductions, the conflict in the

characterization of financial instruments, payments and entities, or in the allocation of payments.


Multilateral Instrument (MLI)


An overview

Multilateral Instrument

• The objective of the MLI is to update over 1,400 tax treaties in a consistent manner and in a reasonable timeframe

• The update covers modifications from the following BEPS actions:

- Action 2 – hybrid mismatches

- Action 6 – treaty abuse

- Action 7 – permanent establishment

- Action 14 – mutual agreement procedure

• The MLI does not replace the existing double tax treaties, but comes in addition to current treaties

7 June 2017MLI signed

14 February 2019Law ratifying the MLI in Luxembourg voted

14 March 2019Law of 7 March 2019published in the Mémorial A N°153 of 14 March 2019

1 February 2020

1 January 2020

9 April 2019Ratification instrument deposited to OECD

1 August 2019

Entry into force

Entry into effect – Mutual

Agreement Procedure

and Arbitration – applicable to cases

introduced on or after the last entry

into force date for the specified CTA

Entry into effect – all other taxes where divergent fiscal year –applicable for taxes levied for the period beginning on or after 1 February 2020

Entry into effect for WHT on amounts paid or credited to non-residents– where the event giving rise to tax occurs on or after the first day of the calendar year that begins on or after the last entry into force date for the DTT specified

2021

Entry into effect– all other taxeswhere fiscal yearfollows calendar year

Attention!

Possibly different effective application

dates for a particular CTA


General Considerations


Most impacting measure: Principal Purpose Test (“PPT”) - potential denial of treaty relief

Real Estate structures

Fund

Foreign Sub

LuxCo

State A

State B

DividendCapital Gain

Main impacts applying the PPT:

Capital Gain: High impact in jurisdictions of

Foreign sub applying non resident-capital gain tax:

Austria (25%); Czech Republic (19%); Germany

(0.79%); Italy (11.93%); Poland (19%).

Dividend: High impact in jurisdictions applying

WHT on dividends paid by Foreign Sub: Italy

(26%), Sweden (30%), Norway (25%),

Netherlands (15%), Ireland (20%), Germany

(15.825%)

Applying the new PPT provision, LuxCo may be

denied to claim for relief under DTT, which may:

• allocate exclusive taxation rights to the

jurisdictions where alienator is tax resident

(Luxembourg), where capital gains may be

exempt under participation exemption regime);

• provide reduced WHT rates on dividend

distributions to the extent LuxCo qualifies as

Beneficial Owner of dividend payments

Main impacts applying the PPT:

Interest: High Impact where jurisdiction of foreign

borrowers levy WHT on interest: Belgium (30%),

Denmark (22%), Ireland (20%), Italy (26%), United

Kingdom (20%), Poland (20%)

Under new PPT provision LuxCo may be denied

to access the DTT’s relief which provides

reduced WHT rates to the extent LuxCo

qualifies as Beneficial Owner of interest

payments

Regional Investment Platform:

Points of attention: Allocation of employees, time sharing, investment decisions

Observation: reliance on non-CIV example

Observation: adjust the functions

Observation: reliance on non-CIV Example

Securitization companyPoints of attention: • LuxCo cannot actively manage the loans portfolio;

• LuxCo cannot act as loan originator;• Beneficial Ownership status of LuxCo can be impaired.

RE

Funds

Lux AIFM

Master LuxCo

(Soparfi)

Foreign Sub Foreign Sub Foreign Sub

Lux

AIF

Lux SPVs Lux SPVsLux SPVs


Investment platform: towards a new model


Convergence between AIFMD and the global tax trend (BEPS included) in minimum substance criteria, minimum level of activities together withlimitations to delegation possibilities.

Having the AIF and the Master LuxCo (pooling all the investments) in the same jurisdiction provides an opportunity to align regulatory and taxsubstance demonstrating genuine business purpose for setting up in Luxembourg an active investment platform.

RE

Funds

Lux SPVsLux SPVsLux SPVs

Foreign Sub Foreign Sub

Service

company

Foreign Sub

Old model (example)

Employees of the service company managing Lux SPVs (Accounting, tax Filling, CbCr, CRS, FATCA…) under services agreement / GEC.

Presence of Luxembourg AIFM:

• Management activities and AIFM functions consolidated in one jurisdiction.

• Functions (including the oversight of delegation) required under the AIFMD fit the level of substance in the meaning of tax law/practice.

Luxembourg investment platform:

• Pooling regional investments in one platform is one of the non-CIV examples meeting the definitions of PPT.

• Personnel employed by Master LuxCo may help strengthen beneficial ownership requirements for certain jurisdictions –e.g., presence of c. EUR 100k of labour costs in NL

Impact of the MLI to be investigated on a source country by source country basis:• Interpretation of PPT;• Specific Beneficial Ownership requirements;• BEPS development on the definition of PE to

be monitored (action #7);• LOB clauses.

New model

RE

Funds

Lux AIFM

Master LuxCo

(Soparfi)

Foreign Sub Foreign Sub Foreign Sub

Lux

AIF

Lux SPVs Lux SPVsLux SPVs


EU directive on administrative cooperation (DAC 6)


New EU transparency rules for intermediaries

DAC 6

What does the directive cover?

• All types of direct tax - corporate, personal, capital gains and inheritance tax

• Requires mandatory reporting and the automatic exchange of information by the tax authorities of member States for certain cross-border arrangements:

An obligation on intermediaries and relevant taxpayers to inform tax authorities on certain cross-border arrangements

Following the disclosure to the national tax authorities, information share automatically between members States

• A “Reportable cross-border arrangement“ is one that contains at least one of the designated “hallmarks”

• Requires intermediaries, such as tax advisors, accountants, banks, who design, market, organizes… a reportable cross- border arrangement, to report to the tax authorities in the country in which the client is resident

• Shift of the obligation to report to the tax authorities on the taxpayer(s) if the intermediaries are covered by local obligations regarding legal professional privilege or if there is no tax intermediary (i.e. either in-house schemes or all involved intermediaries are based outside EU)

• EU member State then shares the information with all other member States on a quarterly basis

On 8 August 2019, the draft law that would transpose EU directive 2018/822, commonly referred to as DAC 6 (or the “tax intermediaries directive”),into Luxembourg law was introduced in parliament.DAC 6 is part of the EU’s efforts to tackle tax abuse and ensure fairer taxation, and broadly reflects the elements of action 12 (Mandatory Disclosure Rules) of the OECD’s base erosion and profit shifting (BEPS) project on the mandatory disclosure of potentially aggressive tax planning, is the fifth amendment to the 2011/16/EU directive on administrative cooperation in the field of taxation.

https://eur-lex.europa.eu/eli/dir/2018/822/oj

https://read.oecd-ilibrary.org/taxation/mandatory-disclosure-rules-action-12-2015-final-report_9789264241442-en#page1

https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1565746915804&uri=CELEX:32011L0016


Background to the measures and timeline

DAC 6

What does the directive cover?

• All types of direct tax - corporate, personal, capital gains and inheritance tax

• Requires mandatory reporting and the automatic exchange of information by the tax authorities of member States for certain cross-border arrangements:

An obligation on intermediaries and relevant taxpayers to inform tax authorities on certain cross-border arrangements

Following the disclosure to the national tax authorities, information share automatically between members States

• A “Reportable cross-border arrangement“ is one that contains at least one of the designated “hallmarks”

• Requires intermediaries, such as tax advisors, accountants, banks, who design, market, organizes… a reportable cross- border arrangement, to report to the tax authorities in the country in which the client is resident

• Shift of the obligation to report to the tax authorities on the taxpayer(s) if the intermediaries are covered by local obligations regarding legal professional privilege or if there is no tax intermediary (i.e. either in-house schemes or all involved intermediaries are based outside EU)

• EU member State then shares the information with all other member States on a quarterly basis

In March 2018, political agreement on the tax intermediaries directive.

The directive was formally adopted during the ECOFIN meeting on 25 May 2018.

The directive is officially published in the JOEU (Journal of the European Union) on 5 June 2018

(practical effects from 25 June 2018)

As from 1 July 2020 (general application date), reporting from intermediaries and relevant taxpayers to tax authorities within 30 days after arrangement is made available for implementation…

Information to be exchanged between Member States within one month from the end of the quarter in which the information was filed. First reporting will be communicated by 31 October 2020

5 June

2018

1 July

2020

‹

‹31 August

2020

‹

Reporting by intermediaries and relevant taxpayers of reportable cross-border arrangements the first step of

which was implemented between 25 June 2018 till 1 July 2020


Substance and case laws


Recent doctrine and case-law …

Substance and case-law

Non-CIV paper issued by the OECD in 2016

A long list of valid business reasons which could be interpreted widely…

Credibility/reputation of the jurisdiction, political stability; regulatory framework; investors familiarity; etc.

Pooling investors/assets; EU fund distribution; banking; access to common market/currency; etc.

Facilitate debt financing and management of assets; protect the fund from potential claims; logistics for management, access to qualified personnel, administrate/ease DTT WHT relief claims, etc.

… to the extent the derivate test is met (?)

2016

2017

2018

2019

Timeline

Consistent recent case law (2017/18) providing guidance as to how PPT should be applied within the EU

Eqiom, Sept. 2017: general presumption of fraud of the French GAAR could not automatically be justified by non-EU resident status of the controlling shareholder of the recipient.

Diester/Juhler, Dec. 2017: the fact that parent company’s activities consist in the management of its subsidiaries’ assets or that the income of the parent company results only from such management cannot per se indicate the existence of a wholly artificial arrangement without economic reality.

Is the German tax administrative circular dated April 2018 a signal of change in perspective?

Asset management activities constitute a genuine commercial activity to the extent it exercises its rights as shareholder in the subs.

No need for the recipient to have its own staff on its payroll at any time.

A recipient can rely on the corporate group in order to define its business reasons and assess the level of substance (not anymore on a stand-alone basis).

It does neither apply to DTT nor to the EU interest & royalties Directive.


… leading to a consolidated platform

Substance and case-law

ECJ decision on 26 February 2019 re. the meaning of BO for interest and the div. WHT exemption:

BO for the EUIRD means an entity which benefits economically from the payment.

The EUPSD and EUIRD cannot be relied on to further abusive or fraudulent ends. The following circumstances may be indicative of an abuse:

No economic reality (i.e. structure set-up with objective of getting a tax advantage such as 0% WHT).

Div./interest are paid-on to non-eligible shareholders/creditors shortly after receipt.

EU recipient is a conduit if its sole activity is the receipt of div./interest which are paid-on to the BO.

To confirm whether a recipient has an actual economic activity, all of the relevant facts should be considered: management of the company, balance sheet, costs incurred, staff employed, premises and equipment used. The wider structure should also be considered.

The fact that the ultimate BO are located in a 3rd country which has concluded a DTT is immaterial in assessing a potential abuse unless it can be argued that the payment would also have been exempt from WHT (sort of derivative test).

A tax authority is not required to identify who it thinks is the BO of div./interest to sustain an abuse of rights. It just needs to sustain that the recipient of the income is a conduit.

2019

Strengthen Luxembourg substance following guidelines of OECD / ECJ case laws.

Ensure proper documentation of the Board’s meetings to evidence substance.

Management activities (AIFM), fund (AIF) and the SPVs are consolidated in one place.

There is a min. level of substance and functions (incl. the oversight) required by the AIFMD.

Convergence between tax and AIFMD.

Luxembourg consolidated platform

Austrian Supreme Administrative Court decision on 27 March 2019 re. div. WHT exemption:

Economic reason exists if a structure is set-up to guarantee that an economic purpose is realized in a better and safer manner.

In the case at hand, the Luxembourg holding company performed professional management of long-term holding structures with several qualified employees.

The Supreme Court overturned the decision of the Austrian Federal Fiscal Court and decided in favour of the taxpayer (WHT exemption under the EUPSD).


Value added tax


VAT group

Application in real estate industry

Lux VAT group

BidCo(Luxembourg)

PropCo(Luxembourg)

Investors(“LP”)

Fund

Fully opted UK buildings

Financing

PropCo(Luxembourg)

Points of attention

• Intragroup transactions are disregarded for VAT purposes• VAT deduction right computed on the basis of VAT group

output transactions • VAT group considered as a single taxpayer for VAT

compliance purposes• VAT group needs to remain for 2 years• Joint liability of BidCo and Propcos

Objectives of VAT group

• The main objective of the VAT group regime is to re-group several legally independent entities into one single VAT taxpayer, with the primary consequence that all supplies of services and goods between members of a VAT group become internal transactions not subject to VAT.

• The Luxembourg VAT regime also allows the inclusion of non taxable persons, such as holding companies in the VAT group, and provides that the input VAT deduction right group is generally determined on a consolidated basis, based on outgoing supplies.

• In such cases, the VAT recovery profile of the VAT group as a whole could be improved compared to the situation where all the companies would be considered on a stand alone basis.

• A VAT group may help creating synergies and increasing operational and compliance efficiencies as well as eliminating VAT costs on supplies between group members and potentially increasing the overall VAT recovery position in certain cases

Example of a possible VAT group structure

• Due to their activities, holding companies involved in Real Estate and more generally in alternative asset management structures are unable to recover VAT on their costs, or only partly.

• This can be an issue for running costs although the amounts at stake may not be material, but it becomes critical when talking about intra-group services or transaction costs for which the amounts may be much more significant.

• The Luxembourg VAT grouping regime may in certain cases provide an opportunity to create efficiencies and mitigate certain costs.


Upgraded Luxembourg platform

Focus on VAT and transaction costs

In Luxembourg services qualifying as Management of investment funds (including AIFs) can benefit from a VAT exemption. Therefore:

• Investment management / advisory services rendered to the Lux AIFM by the foreign investment manager for the benefit of the AIF should be VAT exempt

• AIFM services (portfolio, risk and administrative management) rendered to the AIF by the AIFM should benefit from a VAT exemption

• Custody and central admin rendered for the benefit of the AIF should be VAT exempt

• 3rd Party costs (Tax / legal / transaction services) are generally taxable and when charged by the third party to the AIFM or directly to the AIF will create a VAT cost in Luxembourg

• In case 3rd party costs (in particular transaction costs), instead of being charged to the AIF, could be incurred at the level of the Foreign investment manager, as costs directly necessary for and connected to the provision of the investment management services, and when they can be incorporated in the investment management / advisory fee or added as ancillary expenses, they could share the VAT treatment of the main services and benefit from the VAT exemption

Points of attention

• Proof of taxable person status of Lux AIFM (Lux VAT number)

• Proper documentation supporting the nature of the services as management of investment fund

• Clear description of Lux AIF as beneficiary of services • No reporting of the advisory/management services in the UK

EC Sales List• No entitlement to VAT deduction (but VATable costs should

be limited)

Foreign Investment Manager/

Adviser (UK/US)

Lux AIFM

Lux AIF

Transaction services (including dead deal costs)

Custody and central administration

Transaction services (including dead deal costs)

Investm

ent

managem

ent

/advis

ory

serv

ices

Tax, legal accounting etc.

AIF

M s

erv

ices

3rd party service providers


Rent free period

Luxembourg case-law

Next steps

• The current outcome is rather positive for Luxembourg real estate businesses

• The Luxembourg VAT authorities will, however, appeal the decision of the Tribunal and the question will thus be referred to the Court of Appeal

• As part of the court proceedings, the question might be referred to the CJEU

VAT treatment of leasing in Luxembourg

• Under the Luxembourg VAT rules the lease or letting of immovable property is exempt from VAT and not entitling to input tax deduction

• An option to tax can be applied if the following conditions are met:

− The lessor and lessee qualify as taxablepersons

− The immovable property is used by the lesseefor purposes predominantly entitling to inputtax deduction (>50%).

• If there is a valid option to tax accepted by the Luxembourg VAT authorities, the lessor is entitled to recover input tax on related costs

Luxembourg cases on rent-free periods

• Two cases were brought to the Luxembourg Tribunal to consider whether in case there is a valid option to tax, but a rent-free period of more than 6 months was agreed between the lessor and lessee

• Since during the rent-free period, the lessor didn’t apply Luxembourg VAT, the Luxembourg VAT authorities challenged the input VAT deduction right claimed during that period.

• They specifically argued that there two distinct supplies. The rent-free period is to be regarded as a non-economic activity without any right to deduct input tax whereas the period when VAT is applied on the rent should entitle to input tax deduction.

• Luxembourg Tribunal rejected the above arguments using the following arguments:

− Such rental is to be regarded as one singleglobal activity that cannot be split intoeconomic and non-economic activities;

− Input tax deduction right exists as soon asthere is a clear intention to render activitiesentitling to input tax deduction

− The CJEU has considered in one of its casesan input tax deduction right in relation tooffices spaces that were not occupied.


Luxembourg VAT implications

Brexit

Leaving without a deal (or withdrawal agreement) means the UK would immediately exit the

customs union and single market

**

*

The default position is that the UK will leave the EU on 31 October at 23:00 GMT.

Even if the prime minister requests an extension there is no guarantee that the other EU countries

would agree.

1UK leaves

without a deal

2UK would be

treated as non-EU country for

VAT

3Main impact on

financial services

provided to UK persons

Certain financial services are exempt from VAT including:

• Granting and negotiation of loans

• Sale of shares and securities and their negotiation

• Transactions concerning deposits and current accounts, payments, transfers, debts

a.

b.

If Lux entity provides to EU based persons, it doesn’t have an input tax deduction right – input VAT a final cost

If Lux entity provides to non-EU based persons, it has an input tax deduction right – input VAT not a final cost

Main Lux VAT impact

• Potential input tax deduction right if financial services provided to UK

• Impact on VAT compliance obligations of Luxembourg companies - change of VAT registration regime from simplified to standard (with related increase of the complexity of VAT filings) or registration for VAT under the standard regime

Other VAT aspects

• Change in VAT refund procedures where Lux companies claim for refund of UK VAT

• Check of the validity of UK VAT Nrs through VIES


SAF-T / FAIA

• The Luxembourg FAIA obligation

FAIA (Fichier d’Audit Informatisé de l’Administration) is a requirement from the Luxembourg VAT Authorities to be provided with a standard file, structured as an XML file and containing specific information and data that will be used to perform VAT Audits.

This is therefore a mandatory file to provide, but only when requested in case of an audit and that requires to be anticipated by taxpayers

• Content of the file

The content of the file and information to be provided depends on the level of integration of the systems used:

• Full FAIA file: requested for fully integrated system or ERP meaning that the following elements and information are all in the same system: • Accounting• Invoicing• Fixed assets• Stock management

• Reduced FAIA file A : requested for partially integrated system where only accounting and invoicing are the same systems

• Reduced FAIA file B: requested for non integrated system where accounting and invoicing are in different systems

Your challenge

• Are you immediately concerned by Phase 1 or will you only be concerned by Phase 2?

• Are you able to provide a FAIA file upon request of the VAT Authorities ?

• Is your FAIA file (VAT) technically compliant ?

• Will you send your data to the VAT Authorities without a pre-test ?


Regulatory Update


CSSF Circular 18/698

Regulation Update

UCITS management companies and AIFMs, as well as management companies subject to chapters 16 and 17 of the 2010 Law (together referred to as “GFI”)

Luxembourgish entities acting as transfer agent for investment funds

CSSF Circular 04/155 and IML Circular 98/143 no longer applicable to GFIs (both circulars included into 18/698)

Repeals CSSF Circular 12/546, as amended

Amends CSSF Circulars 11/512 and 17/671

Comprehensive list of definitions;

Delegation and Oversight; Governance; AML/CFT …

Please see following slides With immediate effect

CSSF Circular18/698 on the authorization and

organization of Lux investment management companies;

Specific provisions on AML/CFT for GFIs and entities carrying out the function of registrar agent

Scope of Application

Revised Rules

Entry into Force

Mostsalienttopics


CSSF Circular 18/698 - Highlights of most salient topics

Regulation Update

Applicable to all delegated functions (Central Administration, Portfolio Management, Marketing, Valuation)

Formalisation of due diligence (i.e. via a report)

Detailed content of the due diligence documents (i.e. due diligence questionnaire and report)

Focus on delegation and oversight aspects

Alignment of the delays within which the annual reports / recurring information have to be transmitted to the CSSF: five months after the business year-end of the GFIReporting to the

CSSF

Availability of board members / Fit & Proper Dashboard

Defined thresholds on the time spent and number of mandates for board members: maximum 1,920 hours per annum and 20 mandates;

Introduction of a “fit and proper” dashboard for board members and conducting officers

Other regulations EMIR, MMFR and MiFID

Specific sections on the application of the European Market Infrastructure Regulation (EMIR), Money Market Fund Regulation (MMFR) and Markets in Financial Instruments Directive (MiFID)

Internal Governance Risk Management

Different scenarios and rules in respect of AML / CFT

New annual reporting requirements in the area of AML / CFT to be transmitted to the CSSFFocus on AML /

CFT

Own funds requirements for GFI with an extended license (i.e. offering discretionary portfolio management and other investment management services)Own fund

requirements for extended license

Definition of the three-lines-of-defence model to be applied by GFI

Alignment of the risk management requirements for AIFs and UCITS

Relationship with Depositary

Exchange of information between the GFI and the depositary for oversight purposes (CSSF circulars 16/644 and 18/697)


GovernanceSupport

functions3)

Non-core

functions2)

Internal Control

framework

Remuneration

Core Functions1)

Delegation

• Degree of delegation (based on objective reasons)

• Sound Due Diligence on all delegates

• Ongoing monitoring

• Sufficient expertise within AIFM to challenge the work of delegates

(applicable to all asset classes administered by the AIFM)

Governance

Staffing

Internal control

Framework

Key component and guiding principles

Remuneration

• Implementation of policies and procedures to grant final decision

making power to Conducting Officers of AIFM

• Separation of critical functions to avoid conflicts of interest

• Sound policies and procedures on internal governance, conflict of

interest and code of conduct

• Sufficient resources and expertise to diligently select and monitor all

delegated functions on an ongoing basis

• Senior management functions should be available to meet the CSSF

on a short term notice

• Three organizational levels : Board, Senior management and staff

• Reality and staffing of functions located in Luxembourg

• Actual oversight and control performed on delegated functions

• Documentation of function-related processes

• Sound policies and procedures based on funds and assets classes of

the AIFM

• Desk-based and on-site controls on an ongoing basis

• Ex ante and ex post controls

• Remuneration policy should promote sound and effective risk

management and transparency

• Existence of, and governance around, support functions

• Documentation of function-related processes

• Decision making power in Lux

• Separation and autonomy

functions and reporting lines

• Documentation of decisions and

internal/external reporting flows

Notes1) Risk Management, Portfolio Management2) Valuation, Reporting & Disclosure, Marketing & Distribution, Investor Compliance, Investment Compliance, Internal Audit, TA, FA, Corp. Sec.3) Legal, IT, Tax

• Overall weight of delegation

• Actual decision, oversight and control performed on delegated functions

• Reality and staffing of functions located in Luxembourg

• Level of remuneration of the AIFM vs Portfolio manager / investment advisor

• Remuneration of professionals

Tax Governance in an AIFM context

Regulation Update


Tax

governance

AIFM

AIF

• Function and responsibility

• Policy

• Tasks

• One of the CO to cover tax governance and relation with group

function

• Risk approach towards tax responsibility, reporting and topics covered

• What is checked and where?

• VAT structuring

• Direct tax

• Transfer Pricing

• VAT structuring

• Direct tax structuring

• Transfer Pricing

• VAT filing

• Direct tax filing

• Transfer Pricing periodic review and implementation

• VAT filing

• Direct tax filing

• Transfer Pricing periodic review and implementation

• Tax governance within

an AIFM requires the

establishment of a tax

(support) function and

the design of a tax

policy

• The tax function is

responsible for the

implementation and

adherence to this tax

framework at AIFM

and AIF level

Level Considerations Tax Compliance

1

2

3

Comment

Regulation Update




Regulation Update

Governance

Increased focus by regulators on tax as part of corporate governance

function (indicator of proper management)

Tax audits

Scrutiny by local tax authorities on transfer

pricing

Transparency

Increased focus on transfer pricing documentation

Industry

Move to regulatedstructures under

AIFM regime

Models & policies

Appropriateness and defensibility of

existing TP models and policies

Transfer pricing policies and approaches

• BEPS impact on the appropriateness of existing TP policies and approaches specific to the asset management sector

• Remuneration (for tax purposes) for the unique role of captive ManCos depending on delegation model vs. unregulated structures

• Defensibility of one-sided approaches, i.e. where captive ManCo under delegation model retains residual profits

• Cost plus arrangements (e.g. for advisory related activities)

• Permanent establishment thresholds

• Approaches to support split of management fees for the remuneration of

• Capital raising (incl. marketing and LP services)

• Investment management (incl. advisory)

• Fund production (principal function of ManCo) and

• Fund administration, back-office services and other support functions

• Revisiting Luxembourg-specific legacy tax arrangements

• Rulings with goodwill deductions, investment grants or cost plus arrangements

• Restructurings and transfer of activities

• Brexit-related on-shoring of activities in Luxembourg

Substance

Overlapping discussion on organizational and economic substance

from a tax and regulatoryperspective

1

2

3

4

Politicalenvironment

BEPS, Brexit,and EU state aid


Your contacts at Expo Real

Deloitte Luxembourg



Deloitte Luxembourg

Audit

Philipp StorkSenior Manager

Audit

Phone : +352 45145 4211

Mobile : +352 661 452 165

[email protected]

Languages: English, German, Spanish

Lize GriffithsPartner

Audit

Phone : +352 45145 2693

Mobile : +352 621 505 576

[email protected]

Languages: Afrikaans, English

Harald ThulDirector

Audit

Phone : +352 45145 3467

Mobile : +352 621412697

[email protected]

Languages: English, German

Sigo Risy, MRICSDirector

Audit

Phone : +352 45145 2188

Mobile : +352 621 378 381

[email protected]

Languages: English, German, Italian

Andreas MeierPartner

Audit

Phone : +352 45145 2320

Mobile : +352 661 451 669

[email protected]




Deloitte Luxembourg

Advisory & Consulting

Frank LichtenthälerPartner


Phone : +352 45145 4387

Mobile : +352 621 777 486

[email protected]


Jean Pierre LequeuxPartner


Phone : +352 45145 3598

Mobile : +352 671 671 404

[email protected]

Languages: English, French, Spanish

François GuiotManager


Phone : +352 45145 3008

Mobile : +352 661 799 506

[email protected]

Languages: English, French, Spanish

Accounting

Björn HerbergerDirector

CBT-CORPACC

Phone : +352 45145 5864

Mobile : +352 621 964 703

[email protected]

Languages: English, French, German

Alexandre Prost-Gargoz Partner

CBT-CORPACC

Phone : +352 45145 4407

Mobile : +352 661 452 057

[email protected]

Languages: English, French, German,

Spanish



Deloitte Luxembourg

Tax

Christian BednarczykPartner

CBT-M&A

Phone : +352 45145 4467

Mobile : +352 661 452 018

[email protected]


Paul PotockiSenior Manager

CBT-M&A

Phone : +352 45145 3928

Mobile : +352 621 821 915

[email protected]

Languages: English, French, German, Polish

Yves KnelPartner

CBT-M&A

Phone : +352 45145 2260

Mobile : +352 621 251 016

[email protected]

Languages: English, French

Denis BossertManager

CBT-M&A

Phone : +352 45145 4839

Mobile : +352 621 568 408

[email protected]


Cedric TussiotPartner

INDT-VAT

Phone : +352 45145 2604

Mobile : +352 691 911 831

[email protected]


Francisco Da CunhaPartner

CBT-M&A

Phone : +352 45145 2337

Mobile : +352 621 494 683

[email protected]

Languages: English, French, Portuguese,

SpanishChristophe MassetPartner

CBT-M&A

Phone : +352 45145 4431

Mobile : +352 661 452 061

[email protected]



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