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Headline Verdana BoldLink ‘n’ LearnInvestment Fund Tax6 October 2016

2© 2016 Deloitte. All rights reserved

01 Introduction

03 BEPS

Agenda

04 Anti-Tax Avoidance Directive

02 Capital Gains Tax

05 Country by Country reporting

06 FATCA

07 Common Reporting Standard

08 Conclusion


Introduction


Overview of Fund products

Traditional

Mutual Funds (USA)Unit Investment Trusts (USA)Common Contractual Fund (Ire)SICAV/SICAF (Lux/France)BEVAK/BEVEK (NL/Belgium)VCIC/ICAV (Ire)Exchange Traded FundOpen Ended Investment CompanyAuthorised Unit TrustInvestment Trust Exchange Traded FundAuthorised Contractual Scheme

Alternative

Hedge FundJersey (/G) Property Unit TrustExchange Traded FundUK Limited PartnershipUnauthorised Unit TrustVenture Capital TrustRAIF (Lux)Real Estate Investment Trust


Uncertainty on how the UK will exit the EU

The various exit scenarios have different implications

Market access

Access to the Single Market

and passporting preserved

Access to the Single Market will be defined

through bilateral agreements

No Single Market and passporting. Authorisation / via

subsidiary required

The UK will have no formal influence over adoption of EU

regulation, but will have to implement it

The UK will have no formal influence over adoption of EU regulation, it may be able to pick and choose

which rules to implement* to achieve market access

The UK will be able to review existing rules and deviate from the EU legislation.

Deviation may make it more difficult to gain equivalence

Muted effects from Brexit as the UK

would preserve most of the features of the

current regime

Contingency plans to focus on short-term operational implications to

avoid disruptions

Operational and strategic changes will likely include major

decisions and associated costs

PlanningPotential exit model Influence

3. Third country

2. Swiss model EFTA + bilateral

agreements

1. EEA*

* In this scenario, the UK will be able to negotiate provisions of bilateral agreements with the EU, but will have to meet EU standards to be able to benefit from access to the Single Market


How can passporting be maintained in the event of Brexit?• The UK becomes a member of the EEA or agrees single

market access in bilateral agreements. (Switzerland - a precedent of bilateral agreements)

Equivalence• If the UK enters into a non-EEA relationship, then it will

need to apply for ‘equivalence’ to be able to carry on offering certain services and products into EU Member States. This mechanism - to be deemed equivalent - is not currently available for all products and activities

Several directives underpin UK access to the EU Single Market• Markets in Financial Instruments Directive (MiFID)• Undertakings for Collective Investment in Transferable Securities (UCITS)• Alternative Investment Fund Managers Directive (AIFMD)• Capital Requirements Directive (CRD)• Solvency II Directive• Payment Services Directive (PSD)

UK firms lose the right to passport in the EEA• May need to get authorisation from

regulators EEA member states• Will have to comply with both UK and host

country regulation if they want to carry out regulated activities in EEA Member States

• Cross-border groups may consider a restructure

Brexit and access to the Single Market

The issue of ‘passporting’ and equivalence


Impact of Brexit

Managing a UCITS

The UCITS passport regime allows:• EU UCITS management companies to manage UCITS funds domiciled in

any Member State; and • EU UCITS funds to be marketed to retail and professional investors in any

Member State.

Rights for EU firms

based on EU membership

Treatment of non-EU

firms

Impact on UK firm doing

business in the EU if the UK

becomes a pure third country

• There are no access rights for non-EU firms. UCITS management companies and UCITS funds must be domiciled in the EU.

• Some Member States may allow non-EU funds to be marketed to retail investors in their country, but national regimes are likely to be restrictive and may not allow this at all.

• UK investment managers marketing UCITS funds to EU retail investors will need to set up a UCITS management company in the EU and UCITS funds in the EU if they do not already have these entities in the EU.

• Portfolio management can be delegated back to a UK entity, provided that the UK entity is subject to prudential supervision and that supervisory cooperation is ensured. The EU management company needs sufficient resources and expertise to oversee the portfolio manager. *

• Each UCITS fund must have a depositary located in the same Member State as the fund. This can either be a registered office or a branch.

*The UK portfolio manager also needs either to be subject to equally effective remuneration requirements to UCITS V


Capital Gains Tax


Capital Gains

World map of high risk countries

Example of ‘high tax risk’ countries:

• Bangladesh• China• Czech Republic• India• Indonesia• Mexico• Venezuela• Pakistan• etc.

CHINA:• Highly complex tax system• Great uncertainty despite

recent publication of tax circulars

INDIA / PAKISTAN:• Highly complex tax system• Local Tax Agent required• Tax assessment• Aggressive position of local

tax authorities

VENEZUELA:• Local Tax Agent

required• Repatriation issues


Capital Gains

Current trends and services

AWARENESS OF LOCAL CAPITAL GAINS TAX RISK

PROVISION FOR UNREALIZED

CAPITAL GAINS

DELOITTE’S ASSISTANCE

Description

• Management Companies are increasing their awareness of the risk for funds to be taxed oncapital gains in the countries of investment

• Notwithstanding the above, the majority of Management companies do not monitorsystematically the local taxation (and eventual changes) in the countries of investment andthe risk exposure of their funds

• We assist funds in assessing the high risk countries providing them with a sanity checkreview, where we:

Review the countries of investments to identify in which high risk countries the fund isinvesting (if any)

Check the compliance of the fund with the local tax requirements on capital gain taxation

Coordinate with our local offices to ensure the local tax compliance of the fund

• Funds investing in high risk countries book provisions for unrealized capital gains onlyoccasionally

• The computation of the provision to be booked usually requires specific local expertise


Base Erosion Profit Shifting (“BEPS”)


BEPS

Where are we now?

November 2012G20 leaders meet

January/ July 2015Reports on all actions finalised

February 2013 “Addressing Base Erosion and Profit Shifting” published

November 2015First meeting to negotiate multilateral instrument (Action 15)

October 2015Reports presented to G20 Finance Ministers and published

July 2013Action Plan delivered to G20 Finance Ministers

Late 2013Early 2014 Discussion drafts, public comments, public consultations on 2014 deliverables

January/ December 2016 Specific issues worked on (including pricing aspects of financial transactions)

December 2016Sign multilateral instrument


BEPS

Main relevant BEPS actions

#7

BEPS

TransferPricingdocumentation

Disclosure ofAggressivetax planning

BEPS data collection Permanent establishment

status

TransferPricing –Intangibles

TransferPricing –Risk capital

HybridsCFCs

Interestdeductions

Disputeresolution

HarmfulTax practices

Fiscal

Compliance

Operatingmodels

Financing

#6

#15

#5

#11

#12

#13

#14

#4 #2#3

#10

#8

#9

#1

Prevent treaty abuse

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Digital economy

TransferPricing – HighRisk trans-actions

Multilateral instrument

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TransferPricingdocumentation

Disclosure ofAggressivetax planning

BEPS data collection

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BEPS

Critical Actions for the Investment Management Industry

Action 6: Anti-Treaty Abuse

Action 8,9,10 & 13: Transfer Pricing

Action 7: Permanent Establishment

Action 5: Harmful Tax

• Aligning transfer pricing outcomes with value creation• Key areas: intangibles, aligning activities with contractual allocation of

risk and actual returns• Transfer pricing documentation, country-by-country reporting• Impact on substance and profit allocations – very relevant for

management companies, investment managers and fund administrators

• Brokers removed from the exemption for independent agents• Independence assumed where at least 10% of sales are to unrelated

parties• New test of “closely connected”• Broadening of dependent agent rules• Undisclosed agency arrangements to be subject to a new test to determine

which party “habitually plays the principal role”• Guidance regarding attribution of profits to PEs expected during 2016 –

potential impact on sub-advisory, marketing and distribution arrangements

• Recognition of OECD 2010 report and the specific issues for funds• Limitation on Benefits (LOB) Clause to be included in the OECD Model

Tax Convention subject to review• Member States can choose to implement (a) LOB and Principal

Purpose Test (PPT) or (b) PPT alone or (c) LOB and anti conduit rule• Treaty entitlement of non-CIV funds and pension funds – public

consultation process recently concluded

• Scope: Income taxation of geographically mobile activities• One Gateway Criterion: No / Low effective tax rate• Three Key Factors

• Ring-fenced from domestic economy• Lack of transparency• No effective exchange of information with respect to the regime

• Substantial Activity Requirement• Improving Transparency in relation to Rulings


Anti-Tax Avoidance Directive (“ATAD”)


Anti-Tax Avoidance Package

Reminder

EU Anti-Tax Avoidance Package

ATA Directive DAC 4 Tax TreatiesRecommendationExternal Strategy for

Effective Taxation

Legislative initiatives Non-Legislative initiatives

• CFC rules• Exit taxation• Interest

limitation• Hybrids• General Anti-

Avoidance Rule (GAAR)

Details

Timing

Country-by-country reporting between tax authorities on key tax related information on MNEs

Advises EU Member States how to reinforce their tax treaties against abuse by aggressive tax plannings in EU Law compliant way

Sets out a coordinated EU approach against external risks of tax avoidance and promote international tax good governance

EU Directive adopted

on 12 July 2016

EU Directive adopted on

25 May 2016

Create a solid framework for EU Member States to deliver on their BEPS commitments in a coordinated way

Promote tax good governance globally - including implementation of BEPS in third countries

CCCTB

EoI of tax rulings

Under discussion measures

COM(2016) 26 FINAL COM(2016) 25 FINAL C(2016) 271 FINAL COM(2016) 24 FINAL

FISC 124

Issued by the EU Commission on

28 January 2016

Issued by the EU Commission on

28 January 2016

• Set up a single set of rules that companies operating within the EU could use to calculate their taxable profits

• Optional vs. compulsory?• CCCTB vs. CCTB?• Proposal expected by end 2016

Others

Initiative

Common Consolidated Corporate Tax Base (CCCTB) Ensuring effective taxation where profits are

generated Additional measures for a better tax environment for

business Further progress on tax transparency EU tools for coordination

EC Communication - A Fair and Efficient Corporate Tax System in the EU

5 Key Areas for Action

17 June 2015

Interest & Royalties

EU Directive

Revised PSD

COUNCIL DIRECTIVE 2011/96/EU

28 Jan 2016

4 Main Objectives

Re-establishing the link between taxation and where economic activity takes place Ensuring that EU Member States can correctly value corporate activity in their

jurisdiction Creating a competitive and growth-friendly corporate tax environment for the EU Protecting the Single Market and securing a strong EU approach to external

corporate tax issues to deal with non-cooperative tax jurisdictions and to increase tax transparency

• No withholding tax exemption if there is no effective taxation elsewhere in the EU

• EU Directive implementing the exchange of information in relation to cross-border tax rulings and APAs

• Applicable from 2017

• Anti-hybrid rules• General Anti-

Avoidance Rule• Applicable from

2016

COM(2015) 302 FINAL

https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/1-2016-26-EN-F1-1.PDFhttp://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.02/DOC_1&format=PDFhttp://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/anti_tax_avoidance/c_2016_271_en.pdfhttp://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1454056581340&uri=COM:2016:24:FINhttp://data.consilium.europa.eu/doc/document/ST-12802-2015-INIT/en/pdfhttp://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02011L0096-20150217&qid=1454486274290&from=ENhttps://ec.europa.eu/priorities/sites/beta-political/files/com_2015_302_en.pdf


Anti-Tax Avoidance Directive

Key dates

21 June 2016Political agreement on ATAD at ECOFIN Council (silence procedure)

31 December 2018Deadline for the implementation of the ATAD into domestic laws

01 January 2024Maximum delay for interest limitation rules for Member States having already national targeted rules preventing base erosion except if the end of the first full fiscal year following the date of publication of the agreement between OECD Members on a minimum standard with regards to BEPS action 4 occurs before

12 July 2016Approval of the final ATADtext without any debate

31 December 2019Possible delay for exit taxation rules

01 January 2019Entry into force of the ATAD

October 2016Draft proposal to be made by the EU Commission regarding hybrid mismatches with third countries

31 December 2016Expected date of approval ofthe new draft proposal onhybrid mismatches


Anti-Tax Avoidance Package

What is in – what is out

OECD BEPS Action plan implementation

Other measures which are not deriving from BEPS

Measure initially foreseen and finally deleted

• Hybrid mismatches (Action 2)• Interest limitation rules (Action 4); and• Controlled Foreign Companies, “CFCs” (Action 3)

• General Anti-Abuse Rule; and• Exit taxation rules.

• Switch-over clause that treat some income/gains as taxable instead of granting an exemption


Country By Country ReportingLatest Developments


Country by Country Reporting

• 30+ countries have signed a multilateral agreement providing for the automatic exchange of “country by country” (CbC) reports with other participating jurisdictions if the multinational group that has submitted the CbC report has operations in that jurisdiction.

• In addition, on 28 January 2016, the European Commission proposed further amendments to the Directive on Administrative Cooperation (DAC) providing for the automatic exchange of country by country reports between Member States.

• Under the proposed amendments, EU Member States would be required to exchange reports received with other EU Member States if the multinational group that has submitted the CbC report has operations in that jurisdiction. It is intended that the amendment to DAC will be implemented by Member States by 31 December 2016.

• CbC reporting applies to multi-national groups with annual consolidated group revenue of €750m or more in the preceding fiscal year;

• Entities that will report to tax authorities may be required to complete a notification procedure before the end of the first accounting period to which the CbC reporting rules apply (could be as early as 31 December 2016);

• CbC reports will be required to be made in XML format in accordance with a prescribed schema. The information to be provided includes details of revenue, profits, income taxes, capital, accumulated earnings, employees and tangible assets in each jurisdiction in which the multi-national group operates.



Scenario 1 – Investor consolidates fund holding

Fund may be required to file an “equivalent” report if:

• the foreign investor is not in scope for CbC reporting in its resident country; or

• the investor’s country of residence has not concluded an agreement with Ireland to exchange CbC reporting information; and

• no other entity in the consolidated group acts as surrogate parent; and

• €750m group revenue threshold exceeded.

Note: it may be difficult for the Fund to confirm whether the above conditions apply. As such, it may choose to file a CbC report containing the information within its possession as a prudent approach to safeguard against potential penalties.

Country A

Investor

Equity holding

Country B Fund

Accounting Consolidation



Scenario 2 – Fund consolidates equity holding

Fund may be required to file a CbC report as an “ultimate parent entity” where:

• it consolidates a foreign entity (e.g. an entity in which it holds a significant equity interest) into its financial statements; and

• €750m group revenue threshold exceeded.

Investor

Country C equity holding

Country B Fund

Accounting Consolidation


FATCA Latest Developments


FATCA

Latest Developments

• Most FATCA returns filed have been nil returns

• Many countries’ guidance notes expected to be updated on a rolling basis

• Draft version of proposed new schema issued by the IRS in August 2016.

• Local tax authorities will be updating their FATCA validation to take account of these changes.

• Nil FATCA reporting FY16 – inconsistent approach across participating countries - tick the box, no report required etc. Expected to continue for foreseeable future


OECD Common Reporting Standard (CRS)New Exchange of Information Provisions


OECD Common Reporting Standard

What information has been released?

CRS

Common Reporting Standard

OECD Schemaupdated

EU DAC

CRS Commentary & FAQ’s

CRS Implementation

Handbook

CRS Regulations

Multilateral Competent Authority

Agreement

A practical guide to assist in understanding and

implementing the Standard

Sets out details including who needs to report and what detailed information must be collected for exchange in addition to common due diligence

procedures are to be followed

Council Directive amending EU laws to

allow for CRS implementation in EU

Member States

Standard for transmitting info electronically. Intended

to overcome practical issues

Detailed guidance on the application of CRS

Including useful examples

Still in draft form. Period for initial

commentary is now closed

Rules on the exchange of information. Equivalent to main body of a FATCA IGA.

Signed on 29 October 2014 – 61 Member States

signed up



CRS Classifications

• Financial Institution

• Custodial Institution

• Depository Institution

• Investment Entity *

• Specified Insurance Company *

* Specific definitions under FATCA & CRS slightly differ

• Reporting Financial Institution

• A Financial Institution which is not a Non Reporting Financial Institution

• Non Reporting Financial Institution

• Government Entities, Central Bank, Certain Retirement Funds



Increased Reporting on a Greater Number of Account Holders

Current FATCA Reporting Requirements

Future CRS (& FATCA) Reporting Requirements

Tax Authority

Reporting Financial Institution

US account holder

German account holder

Reports information on

US account holder only

Onward reports

information

Tax Authority

Reporting Financial Institution

US account holder

German account holder

Reports information on US & German account

holder

Onward reports

information

German Tax Authorities

IRS

IRS

Onward reports

information



Other Key Differences between CRS & FATCA

• There is no withholding tax obligation where CRS rules are not complied with which was not the case for FATCA

• Identifying which accounts holders are reportable under CRS is a residence based test as opposed to a citizenship based test as was the case for FATCA

• Certain categories of Non Reporting Financial Institutions have also been removed from CRS meaning a greater number of entities will have CRS registration and reporting requirements

• The exemption for Listed Regularly traded Financial Accounts which existed for FATCA, has not been included under CRS

• The thresholds for reporting pre-existing individual and entity accounts have either been lowered or completely removed

• Format of self certification for CRS



What you need to have done by now

Identify your entity classification for CRS purposes to determine if you have an obligation to report. If so;

• Establish project teams and resources for impact assessment & the collection of data for reporting – identify outside service providers as required

• Establish CRS governance and develop strategic plan

• Identify in scope Financial Accounts

• Confirm compliant account holder due diligence approach including form of self certification

• Consider how to track implementation across multiple jurisdictions & changes

• Assess impact of potential changes required to internal policies and procedures


Conclusion/Q&A

Headline Verdana BoldAgenda Overview of Fund productsUncertainty on how the UK will exit the EUBrexit and access to the Single MarketImpact of Brexit Capital GainsCapital Gains BEPSBEPSBEPS Anti-Tax Avoidance PackageAnti-Tax Avoidance Directive Anti-Tax Avoidance Package Country by Country ReportingCountry by Country ReportingCountry by Country Reporting FATCA OECD Common Reporting Standard OECD Common Reporting Standard OECD Common Reporting Standard OECD Common Reporting Standard OECD Common Reporting Standard

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