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16 February 2017

Presentation title[To edit, click View > Slide Master > Slide Master]

2

© 2017 Deloitte. All rights reserved

Introduction

3© 2017 Deloitte. All rights reserved

Speakers

Eric Centi

Partner

Tax

Luxembourg

Katherine Worraker

Director

Tax

United Kingdom

Julien Lamotte

Director

Tax

Luxembourg

Seamus Kennedy

Senior Manager

Tax

Ireland

Rachel Henry

Assistant Manager

Tax

Ireland


Agenda

1. Introduction

2. UK Tax Update (Brexit, Autumn Statement)

3. Irish Tax Update (Finance Act 2016)

4. Luxembourg Tax Update

5. BEPS Update

6. Conclusion

1

2

3

4

5

6


5


UK Tax Update


Brexit - How the UK will exit the EU

Current position

• The UK Government released a White paper on 2 February 2017.

• Article 50 to be triggered no later than the end of March.

• Intention for existing EU law to be written into UK law initially “wherever practical and appropriate”

• White Paper stated the Government would seek “the freest possible trade in financial services between the UK and EU member states”

Key questions for asset managers

• What is the consequence of losing access to passporting?

• Should activities be relocated?

• What is structure of distribution model?

• Where are fund vehicles and customers located?

• What would be the tax consequences of potential alternative models?


Restructuring considerations

Firms may need to re-evaluate their current UK and EEA footprints, including their distribution networks

UK firms

If the UK loses its existing passporting rights, investment managers will need to re-evaluate their current EEA and UK footprints. UK firms will need to ensure they have a sufficient EEA presence, with appropriate levels of capital and staff to support any planned expansion of their EEA businesses. The operational restructuring required will vary significantly between firms, depending on the extent of their existing EEA presence.

Local distribution entities

UK-based distributors may need to set up EEA branches (if this is allowed in the relevant countries) or an EEA subsidiary (which could access retail clients across the EEA via a MiFID passport). It is also possible that EEA-based distributors serving UK clients may need to set up a UK branch or subsidiary.

Distribution networks

Investment managers will need to consider their distribution networks, as UK-based distributors will only be able to sell funds to EEA retail clients where this is permitted in the relevant country, and MiFID II does not provide any third country passport for distributing to retail investors.

EU firms

European firms seeking to access UK clients will also need to review the extent of their UK presence. Currently, the UK is more open to non-EEA business than many EEA countries are, so it is possible that European firms seeking to access the UK market may face fewer barriers than UK firms seeking to access the EEA market. However, the UK is likely to want to push for reciprocity as part of its negotiations.


Brexit - Reward and employment

Practical considerations when moving people

Cost modelling of moving business / function to another location

Employee tax costs – income tax and social security – including the availability of ‘inpatriate’ regimes in host countries (e.g. Spain, France, The Netherlands)

Immigration

– understanding the status of current employees

- complexity and processing times can vary significantly

Wealth tax regimes overseas

Remuneration – are local regulatory, governance and disclosure requirements the same, more strict, or more permissive than the UK. Pension provision can also vary significantly between locations

Employment law – employment status, employment rights, need for new contracts


UK Update

Autumn Statement

A continued theme of focusing on UK competitiveness, counteracting tax avoidance and ensuring parity of onshore and offshore treatments.

Corporate tax

• Confirmation the corporation tax rate will be cut from 20% to 17% by 2020.

• Rules introduced that limit the tax deductions that large groups can claim for their UK interest expense from April 2017.

• From April 2017, for UK groups with taxable profits in excess of £5m, the amount available for offset by carried-forward losses will be restricted to 50%.

Product tax

• UK Authorised investment funds: dividend distributions to corporate investors - Modernisation of rules which allow exempt investors, such as pension funds business within Life companies, to obtain credit for tax paid by UK OEICs/AUTs.

• Offshore funds: deductibility of performance fees for reporting funds - Offshore funds which incur performance fees will, from April 2017, no longer be able to offset them against their annual reportable income. The expenses will instead be used to reduce the tax payable by an investor on disposal gains.


BEPS UK domestic changes

Interest restriction provisions

• New interest restrictions are to be introduced as a result of the BEPS Action 4 workstream.

• New UK rules to be effective from 1 April 2017.

• Deductible interest will be capped at 30% of tax EBITDA, with a group override based on the group’s interest to EBITDA ratio.

Anti-hybrid provisions

• New anti-hybrid provisions have been introduced as a result of the BEPS Action 2 workstream.

• New rules are effective (broadly) for payments / quasi-payments on or after 1 January 2017.

• Objective to counter mismatches generated by hybrid instruments, entities and transfers, and certain permanent establishments.

• Mismatches include timing mismatches.

• The counteraction varies but typically involves denial or restriction of UK deductions or imputation of additional UK income.

BEPS Actions 8 to 10

• The new OECD guidelines are now enshrined in UK law.

• The broad principles set out in the Action 8 to 10 reports should, therefore, be considered when reviewing existing or implementing new financing arrangements.

• Guidance on the transfer pricing of financing transactions expected in 2017.

Modernised loss regime

• The business tax roadmap set out the Government’s plan for modernising the UK’s corporation tax loss regime:

• Losses incurred from 1 April 2017 will be carried forward against profits from any income stream and company in a group.

• From 1 April 2017 there will be a cap on loss utilisation to 50% of a company’s taxable profits.

• The restriction will only apply to profits in excess of £5 million.

• The current streaming rules will continue to apply to losses incurred pre-1 April 2017, but the 50% limit will apply to the use of such losses.


Country-by-Country Reporting – Legislative status

UK

Finance Act 2015Section 122 Finance Act 2015:

“The Treasury may make regulations for implementing the OECD's guidance on country-by-country reporting.”

SI 2016/237Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.

Made on 26 February 2016.

• 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.

• UK regulations were adopted for accounting periods beginning on or after 1 January 2016.

• The UK threshold is £545 million based on the average rate as at 31 December 2015.

• Regulations draw on definitions from the OECD model legislation.

• Main variation from OECD model: local filing in respect of UK subgroups in some circumstances.

• The UK legislation requires notification to HMRC by the UK filing deadline (i.e. UK notification is required by 31/12/2017 for a 31/12/2016 accounting period)


UK Update

Corporate Criminal Offence

New UK offences, expected to be in force from September 2017, are set to make it easier for HMRC to prosecute companies and partnerships that fail to prevent employees, suppliers, contractors or other associates from facilitating UK or overseas tax evasion

Part of an expanding list of domestic and international initiatives from the UK Government, focusing on tax transparency and governance of tax risk

Ben. Owner

Digital Acc.

Global Info Exch.

Op. Taxes

Tax Strategy

Country by Country

Corp Crim OffenceIdentification of more tax

evasions under OECD CRS

Inability to prosecute corporations effectively

Increasing political focus on tax transparency

Acting as a leading light internationally

UK G

overn

ment

Dri

vers


UK Update

Corporate Criminal Offence

Three stages must all occur for the offence to have been committed by a business and it can apply to UK and overseas tax evasion*

*Subject to tests on dual criminality and UK nexus

Criminal evasion by a taxpayer (either individual or legal entity) under existing law

Stage 1

Stage 2

Stage 3

A person acting in their role as an “associated person” of a relevant body (company/partnership) facilitated the evasion

The relevant body failed to prevent its associated person from committing the act

DefenceThe relevant body had in place ‘reasonable prevention procedures’ or it is unreasonable to expect them


14


Irish Tax Update


Overview of Changes

Finance Act 2016 introduced a new tax regime for

Irish Real Estate Funds (“IREFs”).

An IREF is a fund or a sub-fund:

• In which 25% or more of the market value of

the assets derive their value directly or indirectly

from Irish land;

• Which is dealing in or developing land;

• Which carries on a property rental business or;

• The main purpose or one of the main purposes

of the fund or sub-fund is the carrying on of an

Irish property business.

• Applies to accounting

periods beginning on or

after 1 Jan 2017

• 20% withholding tax

(liability of fund)

• Exempt investors

(EU/EEA)

• Personal Portfolio IREF

rules

• Capital gains 5+ years

are exempt if not PP

IREF

Finance Act 2016

Irish Real Estate Funds - IREFs

What does it mean?

With some exclusions unit holders may be subject to

20% WHT on “IREF taxable events” including the

distribution/redemption of:

• Property related income calculated using IAS or GAAP

specified in the prospectus (effectively rental profits,

trading profits and interest arising on certain loans

secured on Irish property);

• Realised gains on shares deriving their value from

land in the State, other than listed shares, but

including shares in a REIT;

• In respect of a non-Personal Portfolio IREF (PP IREF),

realised gains on investment properties held for less

than 5 years / gains on trading assets;

• In respect of a PP IREF, all realised and unrealised

gains on investment properties.

Effective Date

Accounting periods commencing on or after 1 January

2017.

Impacts profits arising pre 1 January 2017 if distributions

from such profits are made after this date.


• Applies to accounting

periods beginning on or

after 1 Jan 2017

• 20% withholding tax

(liability of fund)

• Exempt investors

(EU/EEA)

• Personal Portfolio IREF

rules

• Capital gains 5+ years

are exempt if not PP

IREF

Finance Act 2016

Irish Real Estate Funds - IREFs …continued

Exclusions

Shareholders not subject to the IREF tax (“Good

Investors”):

• Irish or EU/EEA pension fund *

• Irish or EU/EEA Life Assurance business *

• Irish or EU/EEA Investment Undertaking (fund) *

• S.110 Securitisation Companies

• Irish tax resident individuals / plain vanilla Irish tax

resident corporates

• Irish Charities

• Irish Credit Unions

*Where EU/EEA Pension Funds, Life Assurance business or

Investment Undertakings have an indirect holding in an

IREF, then WHT may be deducted but can be subsequently

reclaimed by the shareholder.

EU/EEA equivalence of Irish pension funds/life companies

and investment undertakings is important.

*Subject to the IREF not being considered a “Personal

Portfolio IREF”

Note: declarations are required – need to be in place

by 30 June 2017

Anti-Avoidance - Personal Portfolio IREF (“PP IREF”)

1. What is it?

Investor (and/or connected person / person acting on their

behalf) has power to select / influence the assets or

business of the IREF,

2. Implications for PP IREF?

• Can turn certain “good” investors to “bad”

• Indirect holdings by “good” investors effectively ignored

• All property gains taxable (including unrealised gains

and gains on assets held > 5 years


Overview of Changes

Finance Act 2016 ring-fences the holding and/or

managing of “specified mortgages” as a “specified

property business” within an Irish securitisation company.

The following defined transactions and business fall out of

scope of the amendment:

• A CLO transaction;

• A CMBS/RMBS transaction;

• A loan origination business (but not a PPN);

• A sub-participation transaction;

• Activities which are preparatory to the above.

A specified mortgage is broadly a loan or derivative

contract (e.g. total return swaps, (“TRS”)), which derives

its value from, or the greater part of its value, directly or

indirectly, from land in Ireland and also includes units in

an IREF.

There is no de minimus rule (unlike funds), so “derives its

value from” needs careful analysis.

Any profit-participating interest or certain payments

under derivative contracts, which are paid out of the

profits of a specified mortgage, in excess of a

reasonable commercial rate of return are treated as a

distribution and therefore not deductible in computing

the taxable profits of the “specified property business”, as

well as potentially being subject to 20% withholding tax.

• Effective 6 Sept 2016

• Non deductibility of PPN

interest (25% tax)

• Transfer pricing/arms

length considerations

• Exempt noteholders

(EU/EEA)

• Loan origination/other

carve outs

Finance Act 2016

Changes to S110 TCA 1997

Exclusions

The legislation provides that payments to certain types of

‘good investors’ will not be subject to the new rules. The

following recipients are treated as ‘good investors’:

• An Irish resident individual within the charge to Irish

income tax or a company within the charge to Irish

corporation tax on the interest;

• A Revenue approved Irish pension fund;

• An EU/EEA authorised pension fund which is subject to

supervisory and regulatory arrangements equivalent to

those in Ireland;

• An EU/EEA individual or company who is subject to tax

without any reduction in the EU/EEA on income or profits

(gains is not sufficient) in respect of such payments,

provided the recipient is not receiving the payment under

an arrangement which is intended to avoid tax and, if the

recipient is a company, that it is carrying on a genuine

economic activity in an EU/EEA state relevant to the

holding of the PPN.

• An Irish investment undertaking (other than one which

would be a “personal portfolio Fund” in accordance with

the tests introduced in Finance Act 2016 for personal

portfolio IREFs);

• An IREF, being an Irish Real Estate Fund as per Finance

Act 2016


Effective Date

These amendments apply with effect from 6

September 2016.

S110 Notifications

Finance Act 2016 also amended the S110

notification requirements. The S110 notification

must be made in writing to Revenue no later than

8 weeks from the date on which the qualifying

assets are first acquired. Where the company has

first acquired qualifying assets pre 1 January

2017 and has not yet made the S110 notification

to Revenue, the notification must be made within

8 weeks from 1 January 2017*.

In addition, the form now requires more detail in

relation to the S110 activities and structure.

*Note as the new S110 notification form has yet

to be released by Revenue it is hoped there will

be an extension to the above deadline.

Key Changes

• Specified property

business

• Investor profile –

exemptions available

• Arms length transactions

• Non-deductible interest

Finance Act 2016

Changes to S110 TCA 1997

• Effective 6 Sept 2016

• Non deductibility of

PPN interest (25%

tax)

• Transfer pricing/arms

length considerations

• Exempt noteholders

(EU/EEA)

• Loan origination/other

carve outs


• S.195B TCA 1997 introduced in January 2016 provides that a non-executive director resident outside of Ireland shall be exempt from Irish income tax on payments made by a company to or on behalf of such a director in respect of expenses of travel and subsistence

• Expenses must have been incurred solely for the purpose of the attendance by him or her at “a meeting attended by a relevant director in his or her capacity as a director for the purposes of the conduct of the affairs of the company”.

• Only applied to non-resident non-executive directors.

Finance Act 2016 changes:

• Finance Act 2016 introduced relief for Irish resident non-executive directors in certain circumstances.

• Exemption from Irish income tax on payments in respect of expenses of travel and subsistence will apply where any emoluments received by the director from the company, other than reimbursement of expenses, do not exceed €5,000 in the year.

• Again, only applies to payments made by a company to or on behalf of a relevant director of that company in respect of expenses of travel and subsistence incurred by the relevant director, solely for the purpose of the attendance by him or her at a relevant meeting.

• Effective date – 1 January 2017

Non-executive Directors expenses of travel & subsistence

Irish Tax Update – Finance Act 2016


Country by Country Reporting - Reminder

Where an entity is an Irish resident constituent entity of an MNE group within the remit of CbC, and the fiscal year end of the ultimate parent of the group was 31 December 2016, a notification should have been made to Revenue by 31 December 2016 confirming the status of the entity within the group for CbC reporting purposes. If this has not been done, it’s important that this is actioned immediately.

CRS – Deadline reminder

The first CRS deadline in Ireland is 30 June 2017. Likely to be a significant increase in reportable investors (compare with FATCA) for many funds.

Re-negotiation of the Ireland/US treaty

In February 2016, the United States published an update of the U.S. Model Tax Treaty, which will form the basis for the renegotiation of the existing Ireland-U.S. tax treaty. Comments were welcomed and Deloitte has made a submission which is available on our website.

Other Items of Note

Irish Tax Update


Corporation Tax Deadline (Dec y/e)• 23 September – pay and file • 23 June – preliminary tax (first

instalment)• 23 November – preliminary tax

(second instalment)

iXBRL:• Deadline extension• DPL requirement• Late filings

Other Issues:

• 46Gs – Revenue chasing• Refund offsets (not processed

without computations and iXBRL FS submitted)

• Penalty letters (late filings/insufficient payment of preliminary tax)

Other items of noteRevenue Audits & Compliance obligations

Revenue:

• Majority of audits still all tax

heads

• PAYE & VAT are the most

popular single tax head audits.

• Number of audits has fallen in

recent years but yield per audit

has increased

• Less concessionary treatment


22


Luxembourg Tax Update


Luxembourg corporate tax reform for 2017Main drivers

REDUCTION IN

NOMINAL TAX RATE

TRANSFER

PRICING

Source: EU Commission and Deloitte

• 27.08% (2017)• 26.01% (2018)• CIT & MBT

components

LIMITATION OF

CARRIED FORWARD

TAX LOSSES

• New rules inspired from BEPS Actions 8-10 re. TP

• Limitation to 17 years for tax losses realized from FY17

VAT

• Directors’fees• Penalties &

Directors’ liabilities


Luxembourg corporate tax reform for 2017Transfer Pricing - New Article 56bis LITL

Goal?

Introduction of art. 56bis is a clear intent from Luxembourg, as OECD member, to incorporate most of the TP aspects contained into BEPS Actions 8-10 into domestic legislation“Most of”: Except the value chain analysis

What are the changes ?

• Reinforce the functional risk profile analysis

• Controlled transactions have to be accurately delineated to go beyond contracts

• Risk identification

• Remuneration on a Control over risk approach

• Does not attribute residual return to entities that do not manage and control operational risk

• Introduction of an anti abuse provision that in first wording goes beyond OECD. In exceptional circumstances, transactions can be ignored in order to apply appropriate methodology

Take Away:

• Alignment on BEPS report – only in “exceptional circumstances”

• As any Anti-abuse provision impact can only be tested through practice

• Tool for LTA to “control” the international tax strategies as implemented by taxpayers in Luxembourg going forward

• No documentation required yet but emphasize the importance of defensive documentation

- Exception: Specific case of intra group financing activity scoped by Circular n°56/1 – 56bis/1 dated27 December 2016


25


Base Erosion Profit Shifting (“BEPS”)


Towards more transparency and more coherence

Base Erosion and Profit Shifting


A 15-point Action Plan

Base Erosion and Profit Shifting

• Multilateral Instrument

provisions currently discussed

• Luxembourg to announce

reservations (i.e. minimum

standard or more …)

• Comments by Luxembourg tax

advisors & professional

associations;

• Signing by June 2017


Anti-Tax Avoidance

(EU Directive 12 July

2016)

Exchange of

Information on Tax

rulings (Revised

Administrative Cooperation

Directive –

8 December 2015)

Recommendation on Tax

Treaties

(EU recommendation 28

Jan 2016)

Country-by-country

reporting

(Revised Administrative

Cooperation Directive –

25 May 2016)

Anti-hybrid and General

Anti Abuse Rule for

dividends

(Revised EU Parent-

Subsidiary Directive)

CCCTB

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

• A CCTB first followed by a CCCTB

• New proposal made on25 October 2016

2016 2017 2019

Anti-hybrid with third countries

• Add-on to the EU Anti-Tax Avoidance Directive

• Fully implement BEPS action 2 on hybrids at EU level

• New proposal made on25 October 2016

More to come …

Best in class approach

The EU answer to BEPS

EoI of Tax rulingsNo specific rules for any

industry

CbCR• Turnover > EUR 750m

• Specific timing for non EU groups

• Previous CRD IV experience

Anti-hybrid & GAARNo specific rules for any

industry

Recommendation on Tax Treaties

• Evolutions on PE & DTT policies

• No implementation date

ATA D

• CFC rules

• Interest limitation (FS carve-out)

• Hybrids

• Exit taxation

• GAAR

29© 2017 Deloitte Tax & Consulting

“Interested Parties will develop a multilateral

instrument designed to provide an innovative approach

to international tax matters, reflecting the rapidly

evolving nature of the global economy and the need to

adapt quickly to this evolution”©2016 Deloitte Touche Tohmatsu.

OECD Multilateral AgreementIntroduction

There are currently more than 3000 existing income double tax treaties varying widely in their details

The OECD recognised that updating existing income double tax treaties for BEPS tax-treaty related measures would have required significant time and resources

15


OECD Multilateral AgreementWhere do we stand?

24 November 2016Publication of the negotiated text of the Convention

5 June 2017Signing ceremony @ Paris Many countries likely to sign

31 December 2016Opening for signatures

Entry into force• At least deposit of the 5th instrument

of ratification + 3 months• After, from time to time + 3 months

27 January 2017 State’s choices to be communicated to the OECD

March /AprilDiscussions between StatesMatch-making experience

Process

Ne

goti

atio

n

1

1

Negotiation

2

Sig

natu

re

3

National

Ratifications

4Exchange o

f in

str

um

ents

5

Entr

y into

forc

e

effective d

ate

We are

here


Permanent establishment Hybrid mismatches

Treaty abuse Dispute resolution

• Purpose of a convention (minimum standard)

• Prevention of treaty abuse (minimum standard)

• Dividends transfer transactions

• Capital gains from alienation of shares or interests of Entities deriving their value principally from immovable property

• Anti-abuse rule for permanent establishments situated in third jurisdiction

• Application of tax agreements to restrict a Party’s right to tax its own residents

• Mutual agreement procedure (minimum standard)

• Corresponding adjustments (minimum standard)

• Arbitration

• Commissionaire arrangements and similar strategies

• Specific activity exemptions

• Splitting-up of contracts

• Definition of a person closely related to an enterprise

• Transparent entities

• Dual resident entities

• Application of methods for elimination of double taxation

OECD Multilateral AgreementMeasures covered


32


Conclusions


Q&A


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