the_idea_reit, tiêu chí đánh giá
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8/7/2019 The_idea_REIT, tiêu chí đánh giá
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The general ramework o the vari-
ous REIT regimes is to a large extent
similar, meaning that a certain Euro-
pean standard is developing. At the same
time there are still many technical dier-
ences among the various regimes. Many o
the requirements or beneting rom a given
REIT regime are motivated by governments’
ear o abuse and their concerns about the
loss o tax base in the international context,
and not primarily ocused on the question
o how to create a fexible, transparent and
competitive regime.
In the atermath o the nancial crisis, gov-
ernments o the various European countries
start to understand that the ear o abuse
o REIT systems and leakage o tax base
What would an
‘ideal REIT’ look like?
The fowering o REIT regimes in Europe is not the result o concerted
action by European institutions or governments. It is rather the
ruit o successul lobbying by industry groups and the competitive
pressure that existing, and announced, REIT regimes exercise on thepolitical will o authorities in various European countries.
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rom the country is oten the main reasonwhy a given REIT system will not ‘take o’
suciently, or will slow down. Legislators
should spend more time on the elements
that should make a REIT regime successul,
both nationally and internationally. A well
thought out system, preserving the right bal-
ance between having a competitive EU law-
compliant REIT regime and the protection
o the local tax base, should be a easible
objective or European Governments. Too
many complicated tax and regulatory rules
run the risk o killing the goose that laid the
golden egg..
A well-balanced REIT regime may result in
higher standards of management and report-
ing, a more stable and robust property sec-
tor, a regular and reliable source of tax rev-
enue for the government and a liquid form
of investment in real estate for all. Also, at
a time when the European Commission is
taking steps to improve regulation, increase
transparency of the investment markets and
reduce the risk of future economic crisis,
positive steps to grow the public property
markets would go a long way to attain thesegoals.
The ideal REIT regime
There is no standard denition o what a
REIT is. The denition used by the OECD is:
“A publicly listed property investment com-
panies that own, operate, develop and man-
age real estate assets or the purposes o
obtaining returns rom rental income and
capital appreciation. REITs obtain special
‘tax-transparent’ status in return or meet-
ing certain obligations (high distribution
requirements, gearing restrictions, restric-tions on development etc)”.
In dening the ideal European REIT regime,I rst take a look at the main characteristics
that orm part o the general ramework o a
REIT: 1) legal orm 2) listing and sharehold-
ing conditions, 3) the activity or asset test,
4) leverage restrictions, 5) distribution lim-
its, 6) the conversion charge and the inter-
national outlook.
Legal form
The REIT should preerably have the orm o
a stock company with limited liability that
is recognisable internationally (and not the
orm o a trust, or the like).
Listing and shareholders conditions
There is always ear that REIT regimes will
be abused or private structures. The sim-
plest remedy or this is to impose a list-
ing requirement. All other shareholders’
requirements (like in Germany, UK and the
Netherlands) are oten substantially com-
plicating the regime. The main reason or
most o these shareholders’ requirements
is to avoid that a limited group o (oreign)
private shareholders will be able to receive
REIT prots at a very low tax rate (or ree oany tax in the country o residence o the
REIT).
Scope of activities
A REIT regime should, o course, be restricted
to property investment activities, albeit
invest in a large spectrum o property assets.
The new German and UK regimes are still
suering rom too many regulatory rules
and restrictions (complicated asset tests,
etc). For example, in both the UK and Ger-
many, there are serious restrictions to the
holding o properties via partly owned sub-sidiaries and partnerships. In the Nether-
lands, the scope o permitted activities is
still dened much too narrowly (only very
passive property investment is allowed),
blocking Dutch REITs to conduct certain
asset management activities.
In addition to property investments, a REIT
should be able to conduct certain related
businesses (cleaning company, project
development activities also or third parties,
etc). These activities should, o course, not
benet rom the ‘tax fow through’ REIT
Too many complicated tax and regulatory rules run
the risk of killing the goose that laid the golden egg.
)
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What wold an ‘ideal REIT’ look like?
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treatment. The US concept o a ‘taxable REIT
subsidiary’ has proven to be successul and
is ollowed by various European countries
(in Germany, France and the UK it is possi-
ble to conduct taxable commercial activities
within certain limits).
Leverage
Many countries impose specic REIT lever-
age restrictions, to avoid the distributable
prot being eroded (which would reduce
the withholding tax claim on the distribu-
tion o prot). Today, you can probably say
that the nance restrictions have protected
REITs against excessive leverage which put
many non-REIT property unds in trouble as
a result o the nancial crisis. It is probably
air to say that the market expects that REITs
observe certain airly conservative leveragerestrictions.
Distribution obligation
As a REIT is not paying corporate income
tax, it is important that its prots are distrib-
uted to the shareholders (where these prots
will be subject to tax). This is an incremental
part o the tax philosophy o a REIT. How-
ever, it should not be a requirement that a
REIT is obliged to distribute all o its cash.
For example, in the Netherlands, a REIT is
obliged to distribute 100% o its current prot
(excluding capital gains), while at the sametime, it is virtually impossible to depreciate
on immovable property! A distribution obli-
gation that covers around 80% o the distr ib-
utable prot would be a better system.
Conversion regime
Most European countries have introduced a
special conversion regime (also reerred to
as ‘exit tax’): allowing a company to con-
vert to a REIT and pay tax on the latent cap-
ital gains at a reduced rate o prot. France
even introduced an innovative system
whereby corporate groups are able to trans-
“Achieving the right balance between a competitive
EU law-compliant REIT regime and the appropriate
level of protection of the local tax base is within the
grasp of European governments,” say Ronald Wijs.
er real estate to a SIIC and pay tax on the
capital gain at hal the normal tax rate (con-
version regime extended to transers to
REITs). Such a sophisticated conversion
regime is an important tool to promote the
growth o the listed REIT sector. The UKand Germany have ollowed France in this
respect.
International investments
A weakness in certain European regimes is
the lack o allowance or overseas invest-
ments. Many regimes are based on the idea
that a local REIT will only invest in local
properties and uncertainties arise as soon
as investments are made in oreign prop-
erties (which is oten done via corporate
structures). The German, the UK and also
the French regimes seem to suer rom thisproblem to a certain extent.
EU-compliant REIT tax system
As mentioned beore, governments ear
that a more fexible REIT regime will open
the door to the erosion o the domestic tax
basis:
oreign REITs being able to repatriate•property income ree o local tax to their
home country;
REITs distributing dividends to oreign•
shareholders ree o withholding tax.
In other words, there is ear that a too lenient
REIT regime would allow oreign REITs own-
ing local real estate or oreign shareholders o
a local REIT to extract income and gains rom
real estate without paying any local tax.
The EPRA Taxation Committee designed
recommendations or a REIT tax treatment
that would allow national governments to
remove some o the anti-abuse limitations
that are hindering the growth o REITs and
at the same time giving security about the
revenue basis or local governments.
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rnald J.b. Wijs (1961), tax lawer, has a
road experience in Eropean cross-order
corporate tax planning, in particlar inol-
ing the benelx contries, France, German and Switzerland. He ocses on
strctring o Eropean priate eqit nds and inestments or oth Ero-
pean and American clients. He has road experience in the feld o strc-tring and adising Eropean propert inestment nds, in the priate as
well as the listed sector (REITs). Frthermore, he reglarl adises pension
nds in respect o the strctring o actiities and inestments.
He has worked at the Genea ofce and headed the Paris ofce. Ronald is
a reqent speaker at seminars. He is a memer o the International Fiscal
Association (IFA), the International bar Association (IbA) and the Tax Trans-
parenc Committee o the Eropean Plic Real Estate Association (EPRA).
He has written arios articles on topics related to priate eqit and prop-
ert inestment nds.
Ronald J.b. Wijs Tax Lawyer [email protected]
The idea is not to create a uniorm European
regime, but rather a practical concept con-
sisting o certain recommendations that EU
Member States could adopt and implement
in their law. The recommendations are built
on two key eatures:EU Member States could agree on a bi-
•lateral or multilateral basis on certain
minimum criteria that must be satised
in order to be recognised in the other
country as a REIT. That is, a system o
mutual recognition based on certain min-
imum criteria is developed between cer-
tain Member States. These criteria should
basically concern the key characteristics
mentioned above (the typical ‘REIT crite-
ria’, like shareholders’ conditions, lever-
age restrictions, etc).
For cross-border investments, an allocation•system is implemented or the withhold-
ing o tax by REITs. This system provides
or a air allocation o the tax between the
situs state (where the property is located)
and the Member State where the REIT is
a resident. The European countries adopt-
ing the system o ‘mutual recognition’ mayalso consider to amend their bilateral tax
treaties, so as to saeguard that oreign
shareholders o a domestic REIT always
pay a minimum withholding tax (at a rec-
ommended rate o 15%).
In essence, by agreeing with other Member
States on a minimum set o conditions and
a clear system or the collection and alloca-
tion o tax, certain uncertainties about the
tax basis will no longer exist. This will allow
Member-States to ‘put down their ences’,
thus helping their REITs to grow and expandcross border. n
About the Author
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What wold an ‘ideal REIT’ look like?