TRUST The magazine of

> P. 12-15

Gérard Lopez (Genii)

Having fun, seriously!

> 06 Focus From SGGLAND with love> 08 BENELuX Our Partners contribution> 66 Your SGG Contacts at IFA Copenhagen SPECIAL IFA

Table of conTenTS

03

The SGG Group magazine I Publishing Director: Serge Krancenblum I Editor-in-chief: Christian Mognol I Editorial staff: Ewa Gutfrind-Józefowicz, Roberta Saulini, Christian Mognol, 360Crossmedia I Design & coordination: 360Crossmedia I Artistic director: Franck Widling I Cover credit: LAT Photographic/DR I Printed in Luxembourg I Print run: 5 000 copies.

fRom THe Top 05By Serge Krancenblum

focUS 06From SGGLAND with love

benelUX 08Luxembourg 08Netherlands 26Belgium 38

Global 44International 44United Kingdom 46Russia 50Malta 52Portugual 54Germany 56France 58

SGG: We SUppoRT yoUR ambiTionS! 60

yoUR SGG conTacTS aT ifa copenHaGen 66

TRUST SPECIAL IFA

Base your finance business in Europe’s most cosmopolitan country.Luxembourg.

We offer the world in one compact centre. People from 150 countries make their home here, many working in our thriving financial sector. At the crossroads of Europe, with a stable political and social environment, we are recognised as an international finance hub.

Agency for the Development of the Financial Centre 12 rue Erasme, P.O. Box 904, L-2019 Luxembourg Tel: (+352) 27 20 21 1 Fax (+352) 27 20 21 399 Email l�@l�.luwww.luxembourgforfinance.lu

fRom THe Top

SGG is proud to sponsor the 67th IFA Annual Meeting in vibrant Copenhagen.

For more than 110 years in the Netherlands, and for 60 years, this year, in Luxembourg, SGG has been servicing multinationals, real estate investors, private equity funds and family offices providing them accounting, compliance and administrative support in our 15 locations.

This summer ANT and IMFC, our group companies in the Netherlands, Belgium, Curacao, Hong Kong and Shanghai become SGG.

As from now on we will operate under ONE brand with ONE goal: to support our clients’ ambitions!

Our partners honor us by contributing to this special IFA edition.

Enjoy their articles with the latest legal and tax news in the jurisdictions where SGG operates.

We wish you all a fruitful and enjoyable stay in Copenhagen.

Warmest Regards

Serge KrancenblumCEOSGG GrOup

05 © M

yOffi

cial

Sto

ry/J

essi

ca T

heis

DEAR

ifa fRiendS,

LUXEMBOURG I THE NETHERLANDS I BELGIUM I SWITZERLAND I MALTA I LIECHTENSTEINCYPRUS I USA I CHINA I BVI I CURAÇAO I MAURITIUS I PANAMA I INDIA I NEW ZEALAND

WEDNESDAY

28TH

AUGUST

SGG IS A LEADING CORPORATE AND FUND ADMINISTRATION SERVICES PROVIDER

› Independent and fully regulated› 500 professionals worldwide› 110 years’ experience

Delivering reliable accounting, reporting, tax and secretarial support to private equity, real estate, corporations and family offices.

www.groupsgg.com

WE SUPPORT YOUR AMBITIONS

yinpartySAVE

THE

DATE

focUS

06

clienTS fiRST. alWaySOur business is a client centric business: we do it with passion as we love what we do. When SGG Luxembourg started its service offer to clients, 60 ago, the original approach was to enhance their patrimonial situation. Our clients came to Luxembourg to protect their assets but also to struc-ture the latter with Luxembourg companies and legal solutions. In order to help our clients with the day to day management of their Luxembourg vehicles, we started offering them accounting, tax filing and ancillary legal compliance activities linked to the proper maintenance of their local legal entities.

fRom lUXemboURG and THe neTHeRlandS To THe WoRldAt that time, “globalization” wasn’t that often used to describe the beginning of an activity where large enterprises and entrepreneurs started to discover Luxembourg as a hub to expand their cross border activities. With a growing client base and – contem-porarily – a growing demand from our clients for the same quality service they enjoyed in the Grand Duchy, SGG was bound to expand.

THe neTHeRlandS WaS THe neXT STepAfter we opened the first office in Geneva, Switzerland in 1979, the Netherlands were the next obvious step. Some Private Equity houses, our fai-thful clients since our Luxembourg beginnings, were more and more often using the Netherlands in their investment structuring. As Luxembourg, the Netherlands is another jurisdiction of choice for international groups as the country has a good - if not excellent - double tax treaty network. It also has a healthy infrastructure of service providers. In order to assist our clients in the latter jurisdiction, SGG first opened Amsterdam. In 2008, SGG added

a further location on the global map, through the acquisition of a Luxembourg based service provider with a presence in the Netherlands. The Brussels’ office followed soon after, as more clients were loo-king for a reliable service for Belgian holding com-panies structures. Our clients expected there the same service quality level they enjoyed in Luxembourg. The growing number of Belgian com-panies we currently assist confirms that the deci-sion to expand in our neighboring country was a sensible one: SGG Belgium is a real success.

SeRvicinG oUR clienTS WHeReveR THey aReIn a constantly changing world, Luxembourg and the Netherlands - although sometimes perceived as competitors - were always present in the organiza-tion chart of our Private Equity and corporate clients structures. In order to offer our clients the best of both worlds, SGG Dutch expansion soon became a strategic must. Our Executive Committee identified possible available targets but not all of them fitted both our philosophy and approach: a top notch quality service to our end clients while always keeping their advisors in the loop. With IMFC and ANT, SGG was lucky enough to find two leading Dutch service providers sharing the same values and client centric approach. Both transactions were finalized in less than a year between August 2011 and April 2012. With two strong operational plat-forms, SGG now employs more than 500 professio-nals in 14 jurisdictions: SGG has now a true presence on a global scale. With offices in Aruba, Shanghai and Hong Kong, ANT added two continents on the SGG map. Contemporarily, SGG opened offices in Malta and strengthened activities in Cyprus by becoming a licensed trust company. As more and more of our clients stemmed from the USA - espe-

fRom SGGland WiTH love

cHRiSTopH n. KoSSmannchristoph.kossmann@sgg.lu

07

cially the Private Equity and Real Estate players - we opened a New York office in 2012. Our NYC pres-ence allow us to be closer to our existing clients in the Americas and assist US and Canada law firms and tax advisers with their projects in all SGG jurisdictions.

Recent developments of fund administration acti-vity in most jurisdictions where SGG is operating has driven us to strengthen our Fund Administration Team in Curaçao. ANT Curaçao enhances its role as a global player in the Dutch Caribbean. From Curaçao we offer corporate and fund administration services to foreign clients that invest in the Latin American markets and to those Latin American clients that invest in international markets. Our clients are family businesses, family offices and fund managers. They expect solid regulation and flexible business solutions in a stable environment. As part of the Dutch Kingdom, the Curaçao jurisdiction pro-vides just that to them.

As we are in a client driven business, the story goes on as and will always do. We listen to our clients’ ideas and needs and will open operational platforms wherever it makes an economic sense for both of us. We will open in all jurisdictions where our clients expect the SGG service quality level they are accus-tomed to. As from August 2013, ANT, ANT SINOVA, IMFC will operate under the SGG brand.

IFA 2014, Mumbai, India special edition will also be SGG’s next destination. That is, wherever, as long as we keep on supporting their ambitions: our N°1 priority.

By christoph N. Kossmann,SGG Group

© D

r

© D

r

THe lUXemboURG fReepoRT, a Game cHanGeR

With the addition of a high-tech free-port for storage of valuable goods, the landscape at Luxembourg airport is about to

change for the better! The 20,000 m2 4-storied facility, including an ultra-safe basement, will be operated by licensed forwarders and agents, specializing in the handling, transportation and storage of works of art, precious metals, fine wines, diamonds and jewellery and other valu-ables. End customers will be collectors, inves-tors, museums, family offices, investment funds and others in need of storage and related ser-vices. In the summer of last year, Luxembourg enacted legislation creating a special regime suspending VAT and customs duties on goods introduced into a free zone from third countries or originating in the EU and destined for export outside of the EU. The Luxembourg Freeport is established in such a free zone. The special tax regime applies as long as the goods remain in storage in the freeport, which can be for an unlimited period of time. VAT is also suspended on storage and other value adding services while the goods remain in custody at the freeport.

The Luxembourg Freeport will be a one stop shop: customers will be able to have their works • displayed in state of the art show rooms for their own pleasure or to facilitate transactions, • photographed for inclusion in catalogues,• crated for transportation,

• framed, • restored, • analysed to determine their origin or historywithout having to move the goods out of the facility. Indeed those services will be provided and performed on the premises by scientific laboratories and other craftsmen.

The Luxembourg Freeport will not be a secret place, all Luxembourg laws, including without limitation anti-money laundering laws, will apply. It will, however, be a private place not open to the public. Members of the public will be able to view and enjoy the works on storage to the extent that their owners lend them out for museum or gallery shows. They will be able to make such loans without “blowing” the tax regime.The project will benefit from the existing infra-structure offered by the air cargo terminal. The Luxembourg Freeport will be constructed on the North Western end of the runway, a stone throw away from the cargo planes. Goods can be delivered directly to the freeport from the tarmac and also by road, as the facility will have both an "air" and a "land" side access.Local banks that do not have safes or no longer want to invest in that activity will be able to use the freeport for their own needs or that of their customers.

While supported by the Luxembourg govern-ment which enacted the legislation enabling

the Freeport activity and making available land at the airport, the project is privately funded. The investor behind the project is EUROASIA, a Swiss company, which already owns the Singapore Freeport, which opened for business in May 2010, and which is the largest private owner of the Geneva Freeport. EUROASIA is also the parent company of Geneva based Natural Le Coultre, a leading forwarder for transportation and storage of fine art. NLC will be one of the tenants of the Luxembourg Freeport which will be operated under the supervision of the Luxembourg Customs Authorities. All goods that enter or exit the facility will have to be declared to Customs, which will be physically present at the facility and have an unlimited right to inspect declared goods. The Luxembourg Freeport will be unique in its kind in the European Union. It will be a con-temporary, high-end facility built on a prime location thus offering better a value proposi-tion to customers than the Swiss freeports which date back to the middle of last century. Construction works for the Luxembourg Freeport are well underway and the facility is expected to become operational in September 2014.

By David Arendt,darendt@luxfreeport.luCEO Luxembourg Freeport

benelUX I LUXEMBOURG

08 09

david aRendT

© D

r

www.realestate.bnpparibas.lu

Your contact in Luxembourg : +352 34 94 84 / +352 26 26 06 06www.realestate.bnpparibas.lu

BNP Paribas Real Estate will build with you targeted and integrated real estate solutions for your every need:Property Development, Transaction, Valuation, Consulting, Property Management, and Investment Management.

With our international scope and on-the-ground presence, you’ll find the perfect partner that can ensure the success of your real estate project. With BNP Paribas Real Estate, all the pieces come together.

BNP Paribas Real Estate - 167 quai de la Bataille de Stalingrad - 92867 Issy-les-Moulineaux Cedex - France - SAS au capital de 329 196 608 € - 692 012 180 RCS Nanterre.

BNP Paribas Real EstateAll the building blocks

311012_Corpo_Lux230X300.indd 1 31/10/2012 18:50:04

10

benelUX I LUXEMBOURG

banK SecRecy in TaX maTTeRS lifTed in lUXemboURG: fRom SaUl To paUl

saul of Tarsus, on his quest to wipe the Christian church, got struck by a lightning during which Jesus appeared to him. Saul converted to

the Holy Church, changed his name to Paul and became the first evangelist for Christ. The similarities with the change of tax policy recently operated by the Luxembourg govern-ment are striking: for decades, Luxembourg applied a very strict bank secrecy regime in tax matters, both domestically and internationally. Because the Luxembourg tax authorities were denied any access to bank informa-tion as regards Luxembourg resident taxpayers, they at the same time were discharged from assisting for-eign tax authorities on similar requests, as a result of applica-ble tax treaties and EU direc-

The short-term effects of this U-turn in tax policy are likely to be negative since tax cheaters having placed funds in Luxembourg probably had been counting on its bank secrecy regime to last, no matter what. They will have to look for alterna-tive solutions. Those solutions will most of the time take the form of cash withdrawals and wire transfers to genuine tax havens (in shrinking numbers). Banks will be left with less cash to manage; how much less is anybody’s guess. This is clearly not good news, especially in times of increased constraints, as the banking sector, in Luxembourg and abroad, is facing in the after-math of the 2008 financial collapse.The government is hoping however for the expected long-term benefits to outweigh the short-term misery of the bank secrecy lifting. Indeed, pressure had been mounting over the years on any country that did not agree to exchange bank information with foreign tax authorities. Failing to do so could mean that the country would get put on the OCDE black list, and/or that unilateral measures would get adopted by the respective countries to sanction Luxembourg as a non-compliant country. The exam-ple of the termination of the German-Swiss double tax treaty, and the rejection by the German Bundestag of a revised treaty with Switzerland, which would have preserved the Swiss bank secrecy at the expense of a sub-stantial withholding tax, pro-vided enough evidence to the Luxembourg govern-ment that the days of the bank secrecy in tax matters were indeed over. Rather than fighting a lost battle, it seemed prefera-ble to embrace the change and aban-don the secrecy regime. By doing

so, Luxembourg expects to be able to move out of the corner of the accused, i.e. the countries that only create obstacles to the legitimate attempts by governments to collect taxes. Clearly, if Luxembourg moves alone, whilst Austria, Switzerland and other more exotic coun-tries still apply a tight bank secrecy regime, Luxembourg would be put in a competitive dis-advantageous position vis-à-vis those countries. This risk is well known to the government which thus has been advocating a level playing field by requesting those countries to follow suit and to also abandon their bank secrecy rules in tax mat-ters. Austria has recently been indicating that it might decide to reconsider its bank legislation in a manner analogous to what Luxembourg will do. The EU commission just received a mandate from the Member States to reopen negotiations with Switzerland with a view to achieving an automatic information exchange with the EU. The opinion in Switzerland on the matter seems to hang in the balance. Hence there exists a rea-sonable hope for Luxembourg that in not too dis-tant future Luxembourg’s most direct competitors will have decided to adopt the same rules as Luxembourg will in respect to information exchange. Some countries will still retain their bank secrecy rules, but they will be outlawed by the EU and the OCDE, and almost invariably located in distant places. Hence it is unlikely for those wishing to withdraw funds from their Luxembourg bank to find a realistic alternative. The tax cheaters will have to bite the bullet and

declare the previously unreported income and assets at their local tax authorities or hope for some tax amnesty rules to become avail-able to them.

By Alain steichen,Partner, Avocat à la Cour asteichen@bsp.luand christine Beernaerts,Senior Counselcbeernaerts@bsp.lu

bonn Steichen & partners

tives. This tight bank secrecy regime in tax matters clearly helped Luxembourg to become one of the prominent global private banking places with over 300 billion under management and in excess of 3 trillion of investment funds assets.Foreign tax practitioners and investors thus may

rightfully ask themselves as to whether the Luxembourg government may

have lost the plot when it did announce in April of this year that it would apply the auto-matic information exchange as regards EU citizens as of January 1st, 2015, provided the informa-tion relates to ’interest income’ as defined under the EU Savings directive. The information

exchange will thus look as follows by then:

coUnTRy/inTeRnaTional TaX aSSiSTance inTeReST income oTHeR income

EU Member State (and the USA) Automatic Upon request

Third country with tax treaty Upon request Upon request

Third country with no tax treaty No assistance No assistance

11

© rémi Villaggi

© rémi Villaggi

1312

SUcceSS SToRy I LUXEMBOURG

LUxEMBOURG-BORN GéRARD LOPEz HAS MADE THE WORLD HIS PLAyGROUND, THROUGH COMPANIES SUCH AS MANGROVE CAPITAL PARTNERS AND GENII – AND THE LATTER’S MOST HIGH-PROFILE INVESTMENT, THE LOTUS FORMULA 1 TEAM.

GéRARD LOPEz

HiGH-Speed bUSineSSman

© L

AT

ph

oto

gra

ph

ic

SUcceSS SToRy I LUXEMBOURG

1514

HoW mUcH fUn iS iT To dRive Genii?The Formula 1 element of Genii is a very high profile, but it only takes around one day of my time each month. That said, it is a lot of fun to run Genii. We have contacts with governments and decision-makers all over the world who have power but do not know each other. Our job is to identify opportunities that create value for all three parties. Sometimes we host potential par-tners in the F1 paddock, but we have a solid worldwide business network, so many meetings take place in ordinary offices. HoW impoRTanT iS THe Team foR yoU?For an active or passive investor, recruitment is critical. I have seen great projects fail when the team was not good enough, and average ones succeed thanks to extraordinary managers. Having studied art and information technology,

I don’t believe in such a thing as ’technical fai-lure’. Behind every malfunction, there is an indi-vidual - sometimes the person who designed the machine or coded the software - That’s why cash flow, bottom line and market share is secondary when I invest in a company. If it has a solid team, with soft skills allowing them to cope cultural, technological and social problems, the project will succeed.

WHaT aRe THe viRTUeS of Speed?There is a gap between the speed of people and the speed of information. People move at the same speed as they did back in the 1970s – slower, in fact, if you think about Concorde. But information is travelling much faster, which creates both risks and opportunities. When I started working in 1993, I used the fax machine. The cycle of communication was 24 hours for

everyone - it took one day to receive an answer. With the internet and mobile phones we shifted into instant communication, where you can capture – or lose – an opportunity within seconds. Now we are in high-speed mode all the time, which is not ideal for stepping back before taking an important decision. WoUld yoU Recommend lUXemboURG To a bUSineSS paRTneR?Of course! I am a true believer in Luxembourg. You may not find there the young, ambitious, single man or woman willing to invest 100% of their time in their professional life, but it is a great country for people looking for the perfect balance between work and family life. The country is small, fast-moving and very stable. If I didn’t believe it was one of the best places in the world, I would live elsewhere.

© L

AT

ph

oto

gra

ph

ic

© D

r

I don’t believe in such a thing as ’technical failure’.Gérard Lopez

benelUX I LUXEMBOURG

1716

UNTIL VERy RECENT DEVELOPMENTS, LUxEMBOURG HAD A RESTRICTIVE POLICy TOWARDS ExCHANGE OF INFORMATION. INDEED, ONLy "NECESSARy INFORMATION" WITHIN THE MEANING OF THE OECD MODEL CONVENTION COULD BE DISCLOSED AS LONG AS SUCH INFORMATION WERE NOT CHALLENGING THE LUxEMBOURG DOMESTIC LEGISLATION AND NOTABLy THE WELL-ESTABLISHED PRINCIPLE OF BANK SECRECy.

lUXemboURG moveS ToWaRdS aUTomaTic eXcHanGe of infoRmaTion

The financial crisis and the related econo-mic turmoil heightened international pressure for an increased transparency regarding tax matters.

In this framework, Luxembourg adopted signifi-cant measures on tax cooperation and exchange of information in signing new Protocols and in ratifying new Double Tax Treaties ("DTTs") that includes provisions in line with article 26 of the OECD Model Convention. Basically, under article 26, exchange of informa-tion on request is admissible where such informa-tion is foreseeably relevant for the control or the assessment of taxes of the requesting State, regardless of bank secrecy or domestic tax interest. This meant (at least at that time) that in signing such Protocols and DTTs, Luxembourg was not eager to implement automatic exchange of infor-mation. Indeed, automatic exchange of informa-tion has never been the preferred route of the Luxembourg Government which has always consi-dered the withholding tax system to be the most effective instrument to guarantee effective taxation and client privacy.

However, international developments (such as

FATCA and the failure of the Rubik negotiations) as well as increased EU pressure on the harmoni-zation of tax rules led the Luxembourg Government to announce the end of the transitional period fore-seen in the EU Savings Directive ("EUSD") by intro-ducing the automatic exchange of information as from 1 January 2015.

As a first step, Luxembourg has transposed the EU Council Directive 2011/16/EU on administrative tax cooperation ("Directive") through the law dated 29 March 2013. However, only provisions regarding exchange of information on request between EU Member States have been transposed and are applicable as from 1 January 2013.

Indeed, the Luxembourg Government has postpo-ned the transposition of the mandatory automatic exchange of information foreseen by the Directive to a future date. The said automatic exchange of information will cover five categories of income and capital (income from employment, director’s fees, life insurance products, pensions, ownership and income from immovable property).

1 January 2015, will mark the end of bank secrecy

rules for EU citizens who have savings in the country. As from this date, Luxembourg will apply the automatic exchange of information as defined in the EUSD within the EU and applicable to inte-rest paid to individuals resident in an EU Member State other than the one where interest is paid. However, the withholding tax system applicable for Luxembourg residents will remain.

Moreover and in a visible effort to demonstrate its willingness to implement domestic tax rules com-patible with international standards, Luxembourg’s Ministry of Finance signed the Convention on Mutual Administrative Assistance in tax matters ("Convention") at the OECD in Paris on 29 May 2013. The Convention aims at facilitating interna-tional co-operation among tax authorities to improve their ability to tackle tax evasion and ensure full implementation of national tax laws, while respecting the fundamental rights of tax-payers. Amongst other provisions, the Convention covers all forms of compulsory payments except for customs duties. It applies to taxes on income, profits, capital gains, and net wealth levied at the central government level. It also covers local taxes, compulsory social security contributions, estate, inheritance or gift taxes.

Further to the OECD ceremony, the Ministry declared: "The signature of the Convention is an important step for Luxembourg. It shows our com-mitment to implement the principle of automatic exchange of information which is however only efficient if it is implemented on a global level". This global approach has been further stressed by the Ministry in the context of debates around the broadening of the EUSD scope. As such, Luxembourg is willing to participate and imple-ment any relevant rules in order to tackle tax eva-sion and tax fraud provided that non-EU member states, such as Switzerland, Andorra, Monaco, San Marino and Liechtenstein are also incorporated into EU talks on these topics.

Further, latest declarations from the Ministry of Finance go beyond the automatic exchange of information for individuals and aim at sharing also confidential information about multinationals’ bank accounts. Luxembourg is willing to sign up to a new French-led “pilot project” – agreed on April with Germany, Britain, Italy and Spain – to share data beyond foreign-held savings accounts.

In the wake of these declarations, Luxembourg is clearly demonstrating its political willingness in going a step further and broadening the spectrum of information sharing. However, only the global approach will allow to "maintain the level playing field" between EU Member States and third countries and ensure the competitiveness of the EU internal financial market.

By Amar Hamouche,Tax Director Amar.hamouche@bakermckenzie.combaker & mcKenzie luxembourg

© 3

60

Cro

ssm

edia

/Jes

sica

Th

eis

benelUX I LUXEMBOURG

18

ThE LUXEMBOURG LIMITED PARTNERShIP

a pRomiSinG Tool foR fUnd manaGeRS and alTeRnaTive fUndS

Indeed, besides the existing (and slightly enhanced) partnership limited by shares (“Société en Commandite par Actions” or SCA) it has improved the common limited

partnership (“Société en Commandite Simple” or SCS) regime - which, as pointed by the legislator, despite its similarities with the limited partner-ship has not been really used in practice - and introduced a new form of limited partnership referred to as the special limited partnership (“Société en Commandite Spéciale” or SCSp).Inspired by the Anglo-Saxon limited partnership, believed to be the most efficient form to operate funds, this new SCSp regime aims at attracting new fund projects into Luxembourg taking advan-tage of the flexibility of the Anglo-Saxon model. One of the key features of the SCSp is the absence of legal personality. It is to be noted that during the transposition period that status raised ques-

bility. It should not be underestimated that foreign asset managers are keen to work in an environ-ment they are familiar with. In that respect the SCSp’s “contrat social” mirroring the limited par-tnership agreement format will definitively be of a great help to structure funds in Luxembourg in a way that is understandable by everyone. One point of interest is also that the managers of such SCSp will not necessarily need to be the unlimited partner of such SCSp. In practice that will, in light of AIFMD, be of a great importance since a single authorized manager will be in a position to take up the management role in dif-ferent SCSps without the requirement to act as unlimited partner for any of them.To complete the list of opportunities offered by the new SCSp it shall be noted that SCSp will have no statutory minimum share capital, that know-how contribution (“apports en industrie”) will be accepted (it is currently prohibited for Sociétés en Commandites par Actions, Sociétés Anonyme and Sociétés à Responsabilité Limitée). Last but not least, SCSp will be able to issue

tions, notably as to the possibility for SCSp to own assets in its own name. From a tax perspective, the purpose is also to replicate the Anglo-Saxon limited partnership’s tax neutrality. The SCSp will be fully tax trans-parent, for corporate income tax, municipal busi-ness tax and net wealth tax if properly structured.Contractual freedom is the other key feature. In essence partners of SCSp shall be able to decide on a contractual basis how to operate their SCSp. This shall include procedures relating to the admission of new partners, transfer of partnership interests, allocation of profits or losses, forms of contributions, forfeiture, voting rights, quorum and majority rules in respect of collective deci-sions, conditions and procedure for dissolution. This is a main achievement under Luxembourg laws with regards to the attractiveness of the mar-ket place. Indeed the current structuring of funds using a Société Anonyme or a Société à Responsabilité Limitée often led to intense expla-nations over regulatory restrictions applicable to such corporate entities e.g. limitation regarding issue of preferred non-voting shares (for SAs) or the possibility to set up stringent forfeiture mecha-nisms. Those explanations were often seen as dif-ficult to accept from a commercial perspective when other jurisdictions did offer a greater flexi-

THE BILL IMPLEMENTING THE ALTERNATIVE INVESTMENT FUND MANAGER’S DIRECTIVE (AIFMD) INTO LUxEMBOURG LAW HAS TAKEN THIS OPPORTUNITy TO INTRODUCE ADDITIONAL STRUCTURING POSSIBILITIES FOR FUND MANAGERS.

bonds that can be listed and subject to a public offering. This is currently prohibited for a Société à Responsabilité Limitée. It is hoped that foreign fund promoters familiar with the flexibility of the limited partnership will now have the feeling Luxembourg do speak the same language. Once this SCSp will be going live it is to be seen how practitioners will use it. The flexibility offe-red by the SCSp regime will need to be balanced with special care when drafting the SCSp agree-ment. Given the warm welcome given by Luxembourg professionals wishing to accommo-date their clients’ needs, there is no doubt this new vehicle will be a great success.

By Hervé Leclercq,Funds Counsel, herve.leclercq@stibbe.comand Diogo Duarte de oliveira,Tax Partnerdiogo.oliveira@stibbe.comStibbe avocats

19© D

r

© p

ho

tog

rap

hy r

aou

l so

mer

s s.

àr.l.

20 21

benelUX I LUXEMBOURG

RISk MANAGEMENT

an UpcominG cHallenGe foR THe lUXemboURG aifS indUSTRy?

so far, an important part of regulated Luxembourg investment vehicles were not impacted by such problematic (SIFs, SICARs, UCIs organized under part II of

UCITS law, e.g. hedge funds). This (happy?) time is now over. Professionals have already noted for a couple of years that the Luxembourg supervision authority (the CSSF) focused on questions such as risk management and conflicts of interests during the instruction phase of vehicles such as Specialized Investment Funds (SIF) or venture capital investment companies (SICAR). Indeed, the CSSF requested that the prospectus (or private placement memorandum) of such vehi-cles includes sections dedicated to such topics. It was furthermore not rare that the CSSF requested the adoption by the vehicle’s management of a set of practical rules relating to these matters (inter-nal code of conduct). The evolution has therefore already started. In this

This set of new rules, applicable to all SIFs, has been detailed and clarified in the CSSF Regulation # 12-01 (the “Regulation”). The Regulation pro-vides a definition of the risk management func-tion, which shall focus on any risk that could be material in the scope of the SIF’s activity and, in any case on exposures to market, liquidity and counterpart risks. The Regulation moreover pro-vides that besides the usual documentation neces-sary for the implementation of a SIF, a risk management process (“RMP”) should be esta-blished. The RMP shall be reviewed by the CSSF during the instruction phase of the SIF.The RMP shall assess all risk exposures associated to the investment portfolio and identify the actual mechanisms chosen to monitor and mitigate such risks. It shall also describe how this will be orga-nized from a technical perspective (software to be used, number of employees dedicated to this acti-vity, etc.). In principle, the risk management func-tion shall be organized in an independent way.Luxembourg authorities have therefore partially anticipated the transposition of the AIFM Directive, with respect to the SIFs. It has also to be noted that the above-described rules apply to any SIFs whether they will qualify as AIFs or not. The scope of the Draft Law is however broader and will imply additional consequences for the global Luxembourg AIF industry.

WHaT To eXpecT noW?The Draft Law basically takes up principles men-tioned in the amended SIF law about conflicts of interests and risk management. They are however further developed in the Draft Law, which also provides for additional amendments to the SIF law, the SICAR law and the UCITS law (part II). The Draft Law moreover addresses the management of the liquidity risk and stresses out that the mana-ger of AIFs should in any case focus on the mana-gement of such risk.It has to be noted that the CSSF has adapted its own organization so that its Risk Management Service is already regularly involved in the ins-truction process of SIFs. It is likely that this shall extend to other AIFs. In terms of risk management and conflicts of inte-rests, the Regulation already offers a good indica-

respect, the imminent transposition in Luxembourg of the AIFM Directive will constitute a milestone, the consequences of which the fund industry should be prepared to face from the implementation phase of an AIF to its term.

SiGnS of a pRoGReSSive evolUTion: THe eXiSTinG RUleSSince March 2012, the SIF law has been amended so that SIFs are now required to adopt a risk management policy, which shall include the imple-mentation of appropriate mechanisms to identify, measure, manage and monitor the risk linked to the SIF’s portfolio positions and the relative signi-ficance of the latter with respect to the global risk profile of the investment portfolio (insertion of a new article 42bis in the SIF law). It is moreover required that SIFs be organized in such a way that risks of conflicts of interests be as remote as possible.

RISK MANAGEMENT IS NOT ExACTLy A NEW TOPIC FOR THE LUxEMBOURG INVESTMENT FUNDS PROFESSIONALS. IN THE FRAMEWORK OF THE ALTERNATIVE INVESTMENT FUND MANAGER DIRECTIVE - IN FINAL PROCESS OF TRANSPOSITION IN LUxEMBOURG (DRAFT LAW # 6471 TO BE ADOPTED By 22 JULy 2013 AT THE LATEST, THE “DRAFT LAW”) - IT TAKES A NEW DIMENSION.

tion of the coming expectations of the CSSF regarding the organization of the AIFs. Some CSSF circulars and regulations relating to UCITS are also a valuable source of information (e.g. CSSF circular # 11/512 and CSSF regulation # 10-04). Such texts should already be carefully considered in view of implementing an AIF in order to avoid undue delays in its instruction phase.Indeed, to the extent that they qualify as AIFs, the SICARs, SIFs and other part II UCIs will have to comply with the Draft Law once adopted. It shall be noted that such AIFs, if created before 22 July 2013, will benefit from a one year grandfathering period to adapt their management processes.Be ready: the final countdown has already started!

By Pascale sicurani,Partnerpascale.sicurani@themis-lex.comand Bertrand Moupfouma,Partnerbertrand.moupfouma@themis-lex.comThemis lex avocats

© D

r

22 23

benelUX I LUXEMBOURG

lUXemboURG, an aTTR acTive HUb foR inTellecTUal pRo peRTyT

oday’s economies are increasingly based on knowledge and companies predomi-nantly invest in research and develop-ment (R&D) and intellectual property (IP)

such as trademarks, patents, software or goodwill which constitute their intangible assets. The value of those intangibles can be huge and finding the right location for R&D centers, engineers, and IP portfolios has become crucial for companies. Luxembourg has gained significant attractiveness in the field of IP exploitation. The high quality of legal protection that Luxembourg can grant to IP owners through its laws and treaties is combined with one of the most attractive tax regime of IP income in Europe. Also, Luxembourg has recently confirmed favorable tax regime for expatriates, that will attract more IP managers.

pRoTecTion of inTellecTUal pRopeRTyLuxembourg offers a safe legal environment for IP rights. Agreements protecting IP such as the Bern and Paris Conventions, the Patent Cooperation Treaty have been signed. Luxembourg has imple-mented EU directives and treaties such as the agreement on Trade-Related aspects of IP Rights. The European Patent Convention and the Patent Law Treaty have been signed.

focUS on innovaTionOne of the Luxembourg Government’s top priori-

ties is to focus on innovation. Business and inno-vation centers offer a platform to host and assist entrepreneurs or technology-based ventures wishing to set up new and innovative activities.

Several incubators provide the appropriate sup-port and guidance to new projects, thus facilitating their development and growth. They also serve as relay-centers offering a temporary location to foreign companies setting up their business in Luxembourg.

a Wide RanGe of financial incenTiveSLuxembourg offers a wide range of customized incentives within the framework of national incen-tive schemes and EU funded programs managed at a national level.

The incentives are available to large corporations, small and medium-sized enterprises and start-ups legally established in Luxembourg, and granted under many different forms, from cash grants to tax credits and guarantees. Co-financing rates may reach up to 100% of eligible costs and apply to investments such as R&D, energy and environ-ment, new technologies and logistics.With “K-Start”*, KPMG Luxembourg offers a free-of-charge package of services helping entrepre-neurs in such priority sectors (IP, ecotechonolgies and TMT) for both new or existing entities.

favoRable TaX enviRonmenTLuxembourg offers one of the most attractive IP tax regimes in Europe.

It provides for an 80% exemption on royalties and capital gains derived from a broad range of qua-lifying IP rights such as patents, software copy-rights, trade and service marks, designs and models, as well as internet domain names. Only income from copyrights (other than software), lite-rary or artistic works or plans, as well as secret formula or processes do not qualify. Acquired IP can benefit from the regime without the need for the acquirer to further develop the IP. Companies benefiting from the Luxembourg IP regime are sub-ject to an effective tax rate as low as 5.84%.

As a comparison, the “patent box” tax regimes adopted by a few other EU countries have generally a restricted scope of eligible IP with more restric-tions. For example, in many other countries, the favorable regime is only available for patents. In the Netherlands, the 5% effective tax rate provided by the “innovation box” is only applicable to income and capital gains derived from intangible assets for which a patent was granted or which result from R&D activities for which a qualifying R&D certifi-cate has been received. Trademarks, logos and similar rights are excluded from the regime. Acquired IP does not qualify except if it is further

developed to form part of a new IP.

individUal TaX incenTiveSThe authorities have recently improved the “expa-triate” tax regime that allows substantial tax exemptions of various allowances granted to expa-triates whose annual income is over EUR 50,000 (Circulaire L.I.R. N° 95/2 dated 21 May 2013). Also, despite the 43% top individual tax rate, the clean pension system and the very reasonable social charges make Luxembourg an attractive jurisdic-tion for scientists and engineers.

The attractiveness of Luxembourg for IP activities should even increase as the government is cur-rently considering improving the IP tax regime further. We can thus expect to see an increased presence of international groups centralizing their IP management activities in Luxembourg.

*See http://www.kpmg.com/LU/en/IssuesAndInsights/

Articlespublications/Pages/K-Start.aspx

By Louis Thomas,Tax Partner, Head of Line of Business for Commercial & Industrial clientsKpmG luxembourgand Bastien Voisin,Tax Partner, Luxembourg Center of ExcellenceKpmG new york

© L

eon

id A

nd

ron

ov

- F

oto

lia.c

om

loUiS THomaS

baSTien voiSin

© D

r©

ph

oto

gra

phy

rao

ul S

om

ers

benelUX I LUXEMBOURG

2524

lUXemboURG TaX aSp ecTS of THe alTeRnaTive inveSTmenT fUndS diR ecTive (aifmd)

Although the AIFMD does not contain tax provisions, its regulatory aspects, espe-cially concerning passport and delega-tion have direct and indirect tax impacts.

With a view to reinforce its attractiveness for both AIFs and AIFMs, Luxembourg has inserted tax provisions in the Bill to monitor these tax consequences.

place of effecTive manaGemenT and peRmanenT eSTabliSHmenT (“pe”) iSSUeS UndeR THe aifmd fRameWoRKThe AIFMD main purpose is to provide for a regu-latory and supervisory framework for the activities carried on by AIFM. Most of these activities consist in management activities. The place of location of such activities is of major importance when it comes to international taxation: place of effective management determines the tax residency of cor-porate entities. The fact that some of the activities could be dele-gated and even sub-delegated entails a lot of pos-sible scenarios as to the place of effective management but also as to the possible presence of a PE in more than one jurisdiction, for both the AIFM and the AIF.In the absence of specific provisions, a foreign AIF

porate law requirements, while ensuring non adverse tax consequences.

vaT iSSUeSThe scope of the VAT exemption applicable to management services is of utmost importance in the investment funds industry. The Bill therefore extends the scope of the exemption to the manage-ment of AIFs. Being allowed to delegate their ser-vices, AIFs and AIFMs will encounter VAT issues similar as the ones encountered by other investment funds in case of outsourcing of management ser-vices. The conclusions of the recent GfBk ECJ case should provide for some guidance in that respect.

TaX TRanSpaRency of limiTed paRTneRSHipSOffshore limited partnerships generally are fully tax transparent entities. In order to offer investors vehicles competing with offshore partnerships, the Bill creates a new special limited partnership (SCSp) and modernizes the legal regime of the SCS. The Bill achieves a full tax transparency of these vehicles by relaxing the conditions of the so-called Geprägetheorie. No Luxembourg tax is triggered at the level of the SCS/SCSp and its partners provided the general partner is a joint stock company holding less than a 5% share (which is generally the case in hedge funds or PE/PERE structures). To date, the mere presence of GP set up as a joint stock com-pany and holding a single share is sufficient to make the income commercial.

caRRied inTeReST ReGimeThe Bill creates a specific tax regime dedicated to

managed by a Luxembourg AIFM could be consi-dered as having a taxable presence in Luxembourg because it is effectively managed from there. To solve this potential tax issue, the Bill exempts foreign AIFs from Luxembourg taxes in situations where their central administration or place of effective management is located in Luxembourg. Thus, the presence of the AIFM in Luxembourg will never attract the tax residence of the foreign AIF to Luxembourg nor will it create a taxable presence in Luxembourg. The issue remains however for Luxembourg AIFs managed from abroad. In the absence of specific legislation in the jurisdiction of the AIFM, this country might try to attract there the tax resi-dency of the AIF.Overall, AIFMD provisions will have a major impact on how AIF and their management are structured from a regulatory, corporate and tax perspective. This is especially true for non-regula-ted forms of AIFs set up in Luxembourg. In the current framework, portfolio management func-tions are often delegated by the Luxembourg AIF or its Luxembourg GP, generally to non-Luxem-bourg advisors. The segregation of functions, as experienced today requires to be reviewed to ensure compatibility with AIFMD framework, cor-

GIVEN THE ROLE OF LUxEMBOURG IN THE ALTERNATIVE INVESTMENT FUND INDUSTRy, THE BILL IMPLEMENTING THE AIFMD INTO LUxEMBOURG LAW (THE “BILL”) IS WIDELy ExPECTED AMONGST PROFESSIONALS. THE BILL SHOULD BE ENACTED By THE END OF JULy 2013.

AIFMs employees residents in Luxembourg. The Bill distinguishes between two structures of remu-neration: (1) carried interest paid to the managers under a carried interest agreement, this being separate or not from an employment contract and (2) carried interest structured as an investment in securities. Carried interest structured as incentive rights (1st alternative as mentioned above) benefit under certain conditions from a reduced tax rate at 25% of the progressive income tax rate (i.e.10,9%). Carry structured as an investment in securities (2nd alternative) qualify as capital gains. These gains are exempt if, upon disposal, the securities in the AIF have been held for a period of at least six months and the employee did not hold an important participation (a 10% shareholding or more).

conclUSionTax aspects are generally ignored when it comes to AIFMD. AIFMD compliance for AIF and AIFM may have major tax impact that cannot be ignored. While the Bill offers AIFMs eager to relocate in Luxembourg a favourable and safe tax environ-ment, the practical aspects of such relocation requires careful planning and monitoring.

By Jamal Afakir,Partner, Jamal.Afakir@atoz.luand Pierre-Régis Dukmedjian,DirectorPierreRegis.Dukmedjian@atoz.luaToZ

Jamal afaKiR

pieRRe-RéGiS dUKmedJian

© 3

60

Cro

ssm

edia

/Jes

sica

Th

eis

© 3

60

Cro

ssm

ed

ia/J

essi

ca T

hei

s

26 27

benelUX I NEThERLANDS

THe neTHeRlandS: TH e beST locaTion foR coRpoRaTe Head qUaRTeRS in eURopeTHE NETHERLANDS OFFERS A SOLID COMBINATION OF A STABLE ECONOMy, A RELIABLE TAx REGIME, AND A SOPHISTICATED, INTERNATIONALLy ORIENTED INFRASTRUCTURE. IN ADDITION, THE DUTCH ECONOMy IS NOTED FOR ITS STABLE INDUSTRIAL RELATIONS AND PLAyS AN IMPORTANT ROLE AS A EUROPEAN TRANSPORTATION HUB. THE GOVERNMENT STRONGLy SUPPORTS THAT THE LEGAL AND ECONOMIC ENVIRONMENT REMAINS ATTRACTIVE FOR MULTINATIONAL COMPANIES TO LOCATE THEIR CORPORATE HEADqUARTERS IN THE NETHERLANDS.

From a tax point of view, the main drivers are the participation exemption in com-bination with the extensive network of double tax treaties providing for low wit-

hholding rates, the EC Parent Subsidiary Directive and membership of the European Union. Further, the Netherlands has an extensive network of bila-teral investment treaties ("BITs").

an onGoinG aTTRacTive JURiSdicTionTraditionally, the Netherlands has been a highly appreciated location for the establishment of European headquarters and holding and financing companies. To a large extent this is caused by the international focus of the Netherlands. Numerous multinationals from various countries around the world acknowledge the advantages of the Netherlands as a sound and proven gateway to the world and are using Dutch holding and financing companies in the structuring and management of their activities. The Netherlands is also an obvious choice to locate all kind of (pan-European) operations, whether it is a European headquarter, a shared services or a distri-bution centre.The participation exemption is a key element of the Dutch corporate tax system and aims at avoiding double taxation of profits. This also includes the idea that businesses should compete in the market on a

level playing field; i.e. all competitors should suffer the same - domestic - tax burden. This facility allows the receipt of dividends and capital gains from sub-sidiaries that carry out business activities exempt from (additional) tax in the Netherlands. Unlike in other holding jurisdictions, there is no minimum

holding period requirement in the Netherlands.

Furthermore, profits (inclu-ding capital gains) from

branches are fully exempt from corporate income tax. Profits are calcula-ted based on OECD treaty principles.

The broad tax treaty network (more than 90

tax treaties), intended to prevent international double taxation also makes

the Netherlands very attrac-tive. Many double tax treaties

reduce withholding tax rates on dividends, interest payments and

royalties. Under domestic tax law there is no withholding tax on

outbound interest or royalty payments. The State

Secretary of Finance recently said not to consider to introduce the levy of a withholding tax on interest or royalties as this will generally constitute a real cost resulting in double taxation. Also, the Netherlands has an extensive network of BITs (over 90) that offers foreign investors the highest levels of investment protection in other contracting states around the globe. While the Dutch tax climate and legal infrastructure makes the Netherlands an attractive jurisdiction, the Dutch foreign investment policy, is also highly valued by investors worldwide. The Netherlands offer the possibility to discuss tax positions in advance with the Dutch tax authorities. These discussions can be formalized in agreements (Advance Tax Ruling or an Advance Pricing Agreement) with the tax authorities that provide cer-tainty in advance.Our stable tax climate has made the Netherlands attractive for expansion into Europe and various emerging markets around the world. Recent surveys show that around 20% of investments in fast-growing African economies are made through the Netherlands. This Dutch involvement in these struc-tures is obviously explained by the double tax trea-ties and BITs signed between the Netherlands and African countries. In addition, the Dutch system of unilateral avoidance of double taxation is very helpful.

RecenT developmenTS To STRenGTHen THe dUTcH inveSTmenT climaTeThe Netherlands is actively participating in the ongoing combat against tax fraud and tax evasion by supporting appropriate measures at the level of the EU and the OECD. It aims to maintain and innovate the features of its tax regime. However, no unilateral changes will be made to the Dutch tax regime which could affect the Dutch investment climate and thus its competitive position in attracting international investors. Only if its tax regime would be instrumen-

tal to tax fraud or tax evasion the Netherlands may seek to provide for further anti-abuse measures.It is fair to say that the Netherlands is still a premium location for structuring foreign investments and set-ting up operations. The Dutch government is aware of the necessity to improve the investment climate on an ongoing basis in order to attract foreign inves-tors and businesses to the Netherlands. On the tax side, the Netherlands aims at keeping a stable tax system.

By Rob Havenga,Tax Partnerr.havenga@houthoff.comsylvia Dikmans,Tax Counsels.dikmans@houthoff.comHouthoff buruma

© M

aar

tje

Gee

ls/H

H

© M

aar

tje

Gee

ls/H

H

28 29

benelUX I NEThERLANDS

RiSinG oppoRTUniTieS

The international pressure on tax havens is increasing. The Netherlands is consid-ered to be such a tax haven by the US and the UK. For example, The

Netherlands does not withhold any taxes on roy-alties and has a lot of treaties on the avoidance of double taxation. The Netherlands is therefore an attractive country to invest in and is used to structure subsidiaries all over the world. In com-parison with other so-called tax havens, The Netherlands has become even more attractive because of its stable financial and political climate.It is rather strange that the US and the UK con-sider The Netherlands to be a tax haven, because they have their own tax havens (Channel Islands and Delaware). Do they want The Netherlands to change its regulation to protect developing countries where the factories of multinationals are based or do they want to make sure that multinationals will look for another opportunity to pay less taxes?Then we have the funding of the government itself. If the tax regulations change and the mul-tinationals indeed leave The Netherlands to

other countries, the employment in the finan-cial sector in at The Netherlands will decrease. That at a time where the Dutch government acknowledges the fact that financial services are a big source for levying taxes. Not just corporate taxes, but also VAT and payroll taxes. Because of political pressure, governments all over the world are strengthening their supervi-sion on financial service providers like trust offices and accountancy firms. This creates more transparency. It also gives rise to opportu-nities for service providers who are willing to live up to the new regulations.It seems to be a simple reasoning. Governments now have instruments to take action against ser-vice providers who do not follow the new regula-tions. It will be necessary to go along with it or disappear.On the positive side, it means that service pro-viders that follow the new regulations will for, some of them, have a better position compared to the firms that do not implement the new regu-lations. The authorities will make sure that “bad firms” go out of business. The firms that live up to the new regulations will remain and grow.

By corney Versteden,International Tax Partnerc.versteden@hlb-van-daal.nland Aimée Mounier,Tax advisora.mounier@hlb-van-daal.nl Hlb van daal & partners n.v.

aimée moUnieR

coRney veRSTeden

TIMES ARE CHANGING, ALSO FOR FINANCIAL SERVICE PROVIDERS. CHANGE IMPLIES OPPORTUNITIES AND THREATS FOR ALL PEOPLE INVOLVED.

© L

ou

ren

s S

mak

201

1©

Dr

© s

bo

riso

v -

Fo

tolia

.co

m

30 31

benelUX I NEThERLANDS

neW TaX TReaTy beTW een THe neTHeRlandS an d cHinaON 31 MAy 2013, THE TREATy AND PROTOCOL WERE SIGNED, REPLACING THE OLD AGREEMENT FROM 1987. BOTH THE NETHERLANDS AND CHINA STILL NEED TO COMPLETE THEIR INTERNAL PROCEDURES NECESSARy FOR THE ENTRy INTO FORCE OF THIS TREATy. IT WILL ENTER INTO FORCE ON THE LAST DAy OF THE MONTH FOLLOWING THE LAST NOTIFICATION. ASSUMING BOTH STATES TAKE APPROPRIATE ACTIONS, IT IS POSSIBLE THAT THE TREATy WILL HAVE EFFECT FOR ANy yEAR BEGINNING ON OR AFTER 1 JANUARy 2014 AT THE LATEST (FOR INCOME DERIVED DURING TAxABLE yEARS).

chinese investors can benefit from this favorable Treaty by using the Netherlands as a hub for outbound structuring of its foreign investments.

Many global companies use the Netherlands for tax structuring purposes because of its compe-titive (tax) system. Examples are the extensive Netherlands tax treaty network, the many investment treaties the Netherlands has concluded to guarantee protection from expro-priation, flexible corporate law and an attractive investment climate in the Netherlands which has significant tax benefits, such as the partici-pation exemption, under which dividends and capital gains from qualifying participations are fully exempt from corporate income tax in the Netherlands.

dividend WiTHHoldinG TaXProvided certain conditions are met the Dutch withholding tax on dividends at rate of 15%, or as the case may be the Chinese withholding of 10%, can be reduced to 5%. Such reduced a rate applies when the recipient is an entity (not being a partnership) which owns directly at least 25% of the capital of the company paying the divi-dends. Under Chinese domestic law, when applying for this reduced rate, there needs to be

a 12 months holding period with respect to the 25% ownership, i.e., one can not increase the ownership to 25% and then apply the Treaty provision. Typically, Chinese investors use a Netherlands Cooperative (“Coop”) for cross border invest-ments. A Coop is taxed similar as Netherlands limited liability companies and can also be incorporated with excluded liability for its inves-tors. One of the main advantages is that under Netherlands domestic law, dividends from the Coop to its investors may not subject to Netherlands dividend withholding tax when structured properly. Under the Treaty, the withholding tax rate on dividends is also reduced to nil when dividends are paid to certain qualifying receiving compa-nies. Generally speaking this nil rate applies when dividends are paid to the government, any of its institutions or any other entity whose capi-tal is (in)directly owned by the government. If the recipient is in the Netherlands, no mini-mum ownership or holding requirements exist (in this Treaty or under Netherlands domestic law) to fully exempt the income, both dividends and capital gains, received, making the Netherlands comparatively more beneficial than other countries.

WiTHHoldinG TaX on inTeReST and RoyalTy’S The Netherlands does not impose withholding tax on interest and royalties. The domestic with-holding tax rate on interest and royalty’s in China is 10%. According to the Treaty, the rate is reduced to 0% for interest on loans guaranteed or insured by the government or a local author-ity, the Central Bank, or a financial institution which is fully owned by the Netherlands. For royalties , the rate is reduced to 6% in the Treaty insofar the royalty relates to the use of, or the right to use, industrial, commercial or scientific equipment.

capiTal GainS TaX On the basis of the Treaty, capital gains are in principle taxed in the country of residence of the transferor of the asset. However exceptions apply for capital gains on immovable property situated in the other ’source’ state and capital gains realized upon the alienation of movable property attributable to a permanent establish-ment in the other ’source’ state. Capital gains, realized on the transfer of shares of a company that derives more than 50% of its asset value directly or indirectly from immovable property, may also be taxed in the country where the immovable property is situated. Capital gains derived by a resident of a contract-ing state from the alienation of shares in an entity resident in the other contacting state may be taxed in that other contracting state if the recipient owned (in)directly a participation of at least 25% in the capital of that entity at any time during the 12 months preceding the alienation.

anTi abUSe pRoviSion in THe TReaTy The reduced withholding tax rates on dividends,

interest and royalties do not apply if the main or one of the main purposes was to take advantage of the Treaty. It is also mentioned that both con-tracting states may continue to apply their domestic anti-abuse provisions, insofar as they do not give rise to taxation contrary to the Treaty.

miScellaneoUSThe Treaty states that services (including con-sultancy services) carried out for more than 183 days within a 12-month period could be deemed to to constitute a permanent establishment.

By Frederik Habers,China DeskFrederik.Habers@mazars.nland Yang Liu,China Deskyang.liu@mazars.nlmazars

© M

Ar

CE

L K

rIJ

GE

r

32 33

BENELUX I netherlands

A trUstEd jUrisdictioN for iNtErNAtioNAL joiNt vENtUrEsIn thIs global economy, many companIes are lookIng beyond the borders of theIr home jurIsdIctIon. growth and Investment opportunItIes are found In other countrIes and contInents. the Investments are often made together wIth one or more partners. when decIdIng on where to set up the vehIcle for an InternatIonal joInt venture, partIes often look for an Independent thIrd party jurIsdIctIon. the netherlands Is already the jurIsdIctIon of choIce for many joInt venture partners, that are attracted by the favourable tax clImate and flexIble corporate legIslatIon.

Business partners from different juris-dictions that are considering a joint investment often have very different expectations and business cultures.

In view of those differences, parties sometimes prefer not to incorporate the joint venture vehi-cle ("jv") in the other party’s jurisdiction. they will therefore look for an "independent" law to govern their relations. also, parties will want to make sure that they are structuring their invest-ment in a tax efficient way. In this article, we will explore some of the reasons why the netherlands is a good example of such trusted independent and tax efficient joint venture jurisdiction.

fLEXiBLE corporAtE LEgisLAtioN ANd rELiABLE coUrt systEm In the netherlands, there are several incorpo-rated and non-incorporated entities that can be used as jv: the besloten vennootschap or bv (private limited liability company) is the most widely used entity, but the co-operatie or coop (cooperative) and the non-incorporated entities commanditaire vennootschap or cv (limited partnership) and vennootschap onder firma or vof (general partnership) may also be feasible options, depend-ing on the wishes and needs of the joint venture partners.since 2012, the new "flex bv" rules enable even more flexible structuring possibilities. having voting and non-voting shares, and profit bearing and non-profit bearing shares is now possible. the minimum capital require-ments and the harsh capital protection rules (including financial assistance rules) have been abolished.

also, more matters can now be regulated (between parties) in the articles of association. In addition, the netherlands has a very reliable court system, with a specialized enterprise court with broad powers in case of misman-agement of the company. arrangements between shareholders (in the articles of asso-ciation or in a shareholders agreement) are fully enforceable in the dutch courts.

tAX EfficiENt strUctUriNg possiBiLitiEsIt is of course essential that profits earned by the joint venture can be distributed to the inves-tors in a tax effi-cient manner. In many cases, dutch tax law provides the opportunity to do so. dutch corporate income tax pay-ers benefit from a full exemption for dividend and capital gains income derived from qualifying equity interests in their operational subsidiaries, under the participation exemption regime. and although dividends distributed by dutch com-panies are in principle subject to withholding tax at a general rate of 15%, this rate may be sub-stantially reduced or even eliminated under the extensive dutch tax treaty network (approx. 85 treaties in force, including with the brIc coun-tries and mexico) and the eu parent-subsidiary directive. dividends paid out by dutch cooperatives are not subject to dividend with-holding tax at all, if structured correctly. the netherlands do not levy a withholding tax on interest or royalties.In addition, the dutch tax ruling practice is well established, enabling the jv to obtain certainty in advance with respect to its tax treatment.

BiLAtErAL iNvEstmENt trEAtiEs (Bits)the netherlands not only concluded over 85 double tax treaties, but also approx. 100 bilat-eral investment trea-ties (bIts). bIts have proven to be an effective protection of foreign investments against state intervention and asset protection through bIts can be a sound business reason for structuring the investment via the netherlands. they entitle investors to a fair compensation if assets are expropriated (awards can be enforced relatively easily). although very similar in form, bIts can have different features. key aspects are the method of applica-tion, scope of protection and enforceability through independent arbitration. the netherlands’ bIts are well known for their flexibility in those respects and a dutch holding company in the structure is often sufficient to obtain the bIt benefits.

thE NEthErLANds: A trUstEd joiNt vENtUrE jUrisdictioNIn summary, the combination of an efficient tax system, flexible corporate legislation, reliable court system, and extensive tax treaty and bIt network make the netherlands an attractive option as the place of establishment for joint venture vehicles. the netherlands may be a small country, but it offers great possibilities!

By Saskia Bijl de Vroe,saskia.bijldevroe@nautadutilh.comand Pedro Paraguay,pedro.paraguay@nautadutilh.comNautadutilh N.v.

© D

R

© W

iep

van

Ap

eld

oo

rn

sAskiA BijL dE vroE

pEdro pArAgUAy

Pochon Lawyers & Associates

Establishing your companyin Luxembourg? For a talented legal support,contact us.Brigitte Louise POCHON, Avocat à la Cour

CORPORATEDomiciliation of CompaniesCorporate LawIntellectual Property & Information TechnologyMaritime Law: Luxembourg FlagInvestments Funds

LITIGATION & DISPUTE RESOLUTIONCommercial LitigationCivil LitigationEmployment Law & BenefitsReal Estate Construction & Environment

Pochon Lawyers & Associates S.àr.l.18, rue Robert Stümper / L-2557 LuxembourgTél.: +352 26 44 591 / Fax: +352 26 44 07 99Email: contact@pla.lu

www.pla.lu

benelUX I NEThERLANDS

34 35

THe dynamicS of RanKinG SiTe SelecTion cRiTeRia

KPMG’s principal (bi-annual) publication titled “Competitive Alternatives” has gained a solid reputation because of its detailed comparison of business costs.

This study contains valuable information for any company considering international busi-ness location options.Competitive Alternatives 2012 compared busi-ness costs and other competitiveness factors in more than 110 cities in 14 countries.The study measures the combined impact of 26 significant cost components that vary by loca-tion, over a 10-year analysis horizon commenc-ing in 2012. The study compares 19 different business operations, including (sub-sectors of) Manufacturing, R&D and Corporate services.

While business cost comparisons are one impor-tant aspect of any site selection process, awide variety of other factors also influence the competitiveness of different locations. The Exhibit below illustrates a range of major factors that commonly influence the site location decision.

Of these criteria, some are known as being con-sistently high on the list of location selection deceision makers: eg Highway accessibility, Labor availability and-costs and Corporate Tax Rates.But the relative importance of cost and non-cost factors will vary by firm–even for similar firmsin the same industry–and will likely differ

depending upon whether a firm is e.g. consider-ing locations in mature markets or in high growth markets. Therefore, the results of sur-veys and published rankings of location selec-tion criteria need to be interpreted by individual companies in relation to their specific needs. Moreover, it is of interest not only to assess this relative importance at a given moment but also assess the changes in this importance over time.

Useful data in this respect are provided by the Corporate Surveys of Area Development

Magazine, which periodically surveys the opin-ion of US Business Executives regarding the relative importance of site selection factors. Assessing the changes in ranking of the criteria over time shows some interesting results. For example, a comparison between the 2011 and 2009 surveys show some significant changes and some similarities in the ranking of these site selection factors:

Highway availability and labor costs contin-ued to be the top ranked considerations of USexecutives.

Availability of skilled labor, ranked 6th and 7th in 2009 and 2010, was tied for 2nd in 2011,indicating an increased focus on business opera-tional considerations and growing concernsabout accessing skilled talent as labor markets gradually strengthen again following the 2009recession.

Proximity to major markets, ranked 15th and 17th in 2009 and 2010, moved up to become the9th most important factor in 2011, likely reflect-ing the effects of increasing energy andtransportation costs.

The availability of advanced ICT services had dropped from 9th in 2009 to 13th in 2011, likelyreflecting the growing ubiquity of such services, even in smaller cities.

Rankings for the quality of life site selection factors tend to be more stable than those for thebusiness-related factors.

These points illustrate that the relative impor-tance of location selection criteria are not per se static, but can also be (higly) dynamic, depending on changes in economic and social circumstances. Therefore it is, for any location consultant important to be aware of the fact that the relative importance of site selection criteria not only vary by sector or firm, but also over time.

By Elbert Waller,Head High Growth Markets Practice KPMG netherlands waller.elbert@kpmg.nlKpmG netherlands

coST facToRS oTHeR Key facToRS

Business business costsLand/building/officeLabor wage/salary/benefitsTransportation and distributionUtilitiesFinancingFederal/regional/local taxes

business environmentLabor availability and skillsAccess to markets, customers and suppliersRoad, rail, port, airport infrastructureUtility and telecom/internet service reliabilitySuitable land sitesRegulatory environment

Personal cost of livingPersonal taxesCost of housingCost of consumer products and serviceshealthcare costsEducation costs

quality of lifeCrime rateshealthcare facilitiesSchools and universitiesClimateCulture and recreation

© H

erm

an W

ou

ters

3736

benelUX I NEThERLANDS

bepS and aTp: WHeRe THe neTHeRlandS STand

International organizations and countries have addressed this question and have undertaken action in order to find solutions to these concerns, more specifically with

regard to base erosion and profit shifting (BEPS) and aggressive tax planning (ATP).

THe diScUSSion in THe neTHeRlandSThe international initiatives, such as OECD’s BEPS Project, the EU Action Plan and various G8/G20 communiqués, have been the object of many questions and discussions in the Netherlands (NL). Dutch Parliament and NGOs have also been key participants in these discus-sions. The BEPS and ATP discussion in NL has, to a certain extent, been commingled with com-ments on the use of ’mail box’ companies and the responsibility of NL towards developing countries in its tax treaty policy. The following important elements to the debate in the Dutch Parliament should be mentioned. • On 15 November 2012 a motion by members

of the Lower House of the Dutch Parliament, was adopted, to request the Dutch Government to take action to eliminate the possibilities of using NL to avoid taxation.

• On 17 January 2013 the Dutch State Secretary of Finance, Frans Weekers, addressed the sub-ject of the international (tax treaty) policy of NL in a letter to the Lower House. He con-cludes that BEPS is an international phenom-enon that can only be effectively solved in the international arena. He takes the position that NL should not resolve the issue on its own. If NL were to take unilateral action against it, this could have a negative impact on the coun-try’s competitiveness in general and on the Dutch MNEs in particular. He therefore prefers NL to actively participate in the international

CURRENTLy THERE IS INCREASED MEDIA ATTENTION ON CORPORATE TAx AFFAIRS OF MULTINATIONAL ENTERPRISES (MNES). GOVERNMENTS AND CITIzENS ARE qUESTIONING WHETHER MNES PAy THEIR “FAIR SHARE” IN TAxES.

initiatives to analyse the problems concerned in order to find lasting and balanced measures in cooperation and coordination with other countries based on a level playing field and ’hard law’ solutions.

• On 9 April 2013 two additional motions were adopted by the Lower House of the Dutch Parliament. In one, Parliament instructs the Dutch Government to present a plan to “fight (…) the notion that the Netherlands is a tax haven and that too little tax is imposed on companies that do not do anything here but only pass through money flows”. Just before that, a motion was adopted calling on the Dutch Government to maintain its existing good tax infrastructure (tax treaty network, rulings practice, participation exemption and reliable tax authorities).

In the meantime, Mr. Weekers maintains his position, insisting that NL should not take any step unilaterally and should proceed in close cooperation with the OECD, EU and G20 efforts. After the European Council meeting of 22 May 2013, the Dutch Prime Minister, Mark Rutte, also publicly took this stance.

inSiGHT in fiGUReSA problem in NL is that the media and several political parties, together with NGOs, have mostly been trying to make their point based on a moral appeal, but without any foundation on actual figures. In view hereof, Stichting Economisch Onderzoek was requested to pre-pare an unbiased report (SEO Report) on the nature, size, economic importance, risks and effects of the sector. The SEO Report was presented on 11 June 2013 and it provides a detailed insight in facts and figures. According to the SEO Report, there are 12,000 Dutch Special Financial Institutions (SFIs), together they contribute annually between EUR 3 and 3.4 billion to the Dutch economy. Moreover, they provide (directly and indirectly) between 8,800 and 13,000 (full time equivalent) jobs for financial service providers. It shows that, among the total income earned by Dutch SFI’s, dividends constitute by far the larg-est category (65%), followed by interest (25%) and royalties (10%). Another important conclu-

sion is that approximately 50% of all interest expenses are in respect of third party loans and bonds issued to the market. In 2010, the rele-vant amounts totalled to EUR 153 billion (inbound) and EUR 125 billion (outbound). On 13 June 2013 a public technical briefing over the SEO Report was held in the Lower House; following which the media attention intensified and NGO’s started to cherry pick from the report to benefit their cause. SEO stands by its report.

WHaT’S neXT?Following up to the parliamentary motions of 9 April, Mr. Weekers will present his ’action plan’ before the end of August. This will coincide with the reaction to the SEO Report. It is widely expected that the Dutch government will keep its current position in anticipation of further devel-opments in the EU and OECD and will promise to actively participate in the EU proposal for exchange of information and transparency. A hearing and follow up debate in Dutch Parliament will take place in September. The outcome of this debate will certainly help to define the measures that NL may or may not take.

By Bartjan R. Zoetmulder,Tax partnerbartjan.zoetmulder@loyensloeff.comand Mónica sada Garibay,Tax partnermonica.sadagaribay@loyensloeff.comloyens & loeff n.v.

© D

r

© D

r

39

belGian HoldinG companieS (STill) RUle

Despite the harsh economic climate and the increasing international will to tackle tax avoidance, there are still plenty of tax incentives for entrepre-

neurs or investors who wish to optimise their return on investment in or via Belgium. One of the most tax attractive planning and structuring tools is and remains the Belgian holding com-pany. Under the participation exemption these companies benefit from a very tax efficient treatment of received dividends and capital gains realised on shares.

Until recently, there were virtually no require-ments (besides a “subject-to-tax” test for the subsidiary) to benefit from the exemption for capital gains on shares. This unconditional exemption regime was firstly amended last year to tackle short selling. If the holding company does not own the shares for at least one year, capital gains shall be taxable at a separate tax rate of 25.75%, unless tax attributes are availa-ble for set-off.

A second amendment was recently introduced that aims at levying a minimum corporate income tax on capital gains on shares realised by large companies at a separate rate of 0.412%.

Despite the foregoing, Belgium remains a very attractive place for structuring acquisitions or any other types of investments, due to numer-

ous other tax incentives and measures which, in combination with one another, could lead to an effective tax rate close to zero.

In a nutshell, other favourable tax measures worth mentioning are the Belgian domestic withholding tax exemption for dividend pay-ments to corporate shareholders in a treaty country, various withholding tax exemptions or reductions in tax treaties (over 95 treaties), the absence of capital duty on contributions upon incorporation of a Belgian company, an advanta-geous thin-capitalisation rule (debt-equity ratio of 5 to 1 whereby only intra-group debt is taken into account), as well as the notional interest deduction which allows companies to reduce their taxable basis on the basis of their equity funding. From an R&D perspective the patent income deduction can result in an effective tax rate of only 6,8%. In combination with the exemption for wage withholding taxes for quali-fying researchers and the investment deduction or R&D tax credit, the effective tax rate of an R&D centre can further be reduced.

By Wouter claes,Tax Partner wouter.claes@eubelius.comand Kim Van de Velden,Tax Associatekim.vandevelden@eubelius.com eubelius brussels

Kim van de velden

WoUTeR claeS

38

benelUX I BELGIUM

© L

ud

mila

Sm

ite

- F

oto

lia.c

om

© F

red

erik

Van

Den

Bro

eck

© D

r

40

benelUX I BELGIUM

bRenT SpRinGael

© D

r

HoW mUcH SUbSTance iS TaX SUbSTance?DUE TO THE ECONOMIC DOWNTURN GOVERNMENTS ARE FACING BUDGET PRESSURE AND INSTRUCT THEIR TAx ADMINISTRATION TO TARGET STRUCTURES AIMING TO REDUCE TAx REVENUE. MORE PARTICULARLy: STRUCTURES THAT TAKE ADVANTAGE OF COUNTRIES WITH LOW(ER) EFFECTIVE TAxATION. A KEy CONSIDERATION FOR SUCH LEGAL STRUCTURES TO SURVIVE IS THAT THEy ARE BACKED By “TAx SUBSTANCE”. BUT WHAT DOES IT MEAN?

In first instance, tax substance means that a company avails of sufficient eco-nomic substance to be recognized as a resident of a certain country for tax pur-

poses. A logical question is therefore to know what it takes for tax authorities to cer-tify that a company is indeed a tax resident in their “own” country.

However, the economic substance is equally important to determine whether a company is also a true beneficial owner when receiving payments (e.g. dividends, interest or royalties). Hence, a company must also meet certain substance criteria from “other” countries, where payments are being made from: usually in order to be able to benefit from exemptions or rate reductions in those other countries.

In most cases, tax authorities will rely on the same "tax substance" criteria both for tax residency purposes as for the qualification of beneficial ownership or the non-abusive nature of international payment structures.

But the million dollar question remains: how much substance is tax substance? Companies can walk a relatively safe way by complying, as much as possible, with the guidelines and recommendations put for-ward by the OECD, at the level of (i) the com-pany (adequate human and financial

resources, statutory seat), (ii) the manage-ment (majority of local resident directors, directors’ professional knowledge, important decisions taken locally) and (iii) the adminis-tration and bookkeeping (local bank account, compliance with local accounting principles, tax compliance).

However, it is certainly advisable to also verify domestic rules or guidelines. Some countries may indeed have developed a par-ticular practice.

For instance, in Belgium, guidelines have mainly been developed through tax rulings. Although generally in line with the OECD guidelines, particular items have been added for specific activities. For example, the pro-hibition to have automatic dividend re-distri-butions or to exclude the local directors’ liability. And even though tax rulings are – officially - without any precedent value, they nevertheless constitute an important source of inspiration both for taxpayers as for tax authorities.

In the Netherlands, most of the substance criteria have been established by case law or the ruling practice. For example, a company must have a minimal level of equity that fits the functions it performs, taking into account assets used and risks borne.

In Luxembourg, the only criterion for a com-pany to be resident was to have its statutory seat or its central administration in Luxembourg. In 2011, following numerous requests from foreign tax authorities to con-firm the local presence, Luxembourg intro-duced, by circular letter, a minimum list of substance criteria for financing companies. The criteria are established in order to verify a "real presence" in Luxembourg when a company only needs a "light" presence to conduct its financing activities. Although not targeted by the circular letter, it is common sense to try and meet most (if not all) of those criteria also for other activities that similarly only need a "light" presence to conduct their business (such as licensing).

Conclusively, when engaging into tax plan-ning strategies (whether it is for holding par-ticipations, for financing, or for licensing IP rights), proper allocation of substance – eval-uated from all relevant jurisdictions and not only the country of residence – are of the utmost importance. In today’s tax world, the empty letterbox companies are long gone history…

By Brent springael,Brent.Springael@twobirds.combiRd & biRd

Luxembourg expertise with international reachWe offer a one-stop shop for global players and leading international institutions focusing on the following practice areas:

• Corporate & M&A• Banking & Finance• Investment Funds & Asset Management Services

Contact us for more information at: d.lawFindel Business CenterComplexe B, Building C2Route de TrèvesL-2632 Findel+352 270 477 00

www.dlaw.lu Corporate banking & finance - Law firm

42 43

benelUX I BELGIUM

© J

ur

GE

N D

OO

M

© J

ur

GE

N D

OO

M

© J

ur

GE

N D

OO

M

belGian coRpoRaTe TaX RefoRm: HiGHeR TaX on liqUidaTion pRoceedSFOR qUITE SOME TIME, LIqUIDATION PROCEEDS HAVE BEEN TAxED AT A REDUCED RATE, UNAFFECTED By PREVIOUS REFORMS. NOW, HOWEVER, IT APPEARS THAT THE GOVERNMENT HAS FINALLy SET ITS SIGHTS ON CHANGING THIS SITUATION.

paScal faeS fRançoiS HeRbecq

Indeed, the December 2012 tax reform introduced a number of rate increases. For instance, the withholding tax on most investment income (dividends,

interest, etc.) was increased from 15-21% to 25%. Only liquidation proceeds still remained subject to a reduced tax rate of 10%.Faced with budget shortfalls, however, the government has decided to tighten the noose. A bill adopted on 27 June 2013 by the House of Representatives provides, amongst other measures, for the alignment of the tax treatment of liquidation proceeds with that of other forms of movable income. Thus, effec-tive 1 October 2014, liquidation proceeds will be subject to withholding tax at a rate of 25%, provided the bill is approved by the Senate.

25% TaX on liqUidaTion pRoceedS aTTRibUTed oR paid aS fRom 1 ocTobeR 2014The bill makes it clear that only liquidation proceeds "attributed or paid" as from 1 October 2014 will be subject to withholding tax at a standard rate of 25%. In practice, this means that proceeds resulting from the liq-uidation of a company can still benefit from the 10% tax rate if they are attributed or paid by 30 September 2014.In this regard, the date on which the com-pany is actually dissolved is irrelevant. Thus, a company dissolved before 1 October 2014 but wound up after this date will not be able to benefit from the 10% tax rate.

no need To HURRyIn order to prevent companies from being liquidated too hastily, the government has proposed a transitional system which allows shareholders to continue to benefit from the

10% tax rate on liquidation proceeds even after 1 October 2014. This system was notably introduced in the hope of avoiding certain unwanted side effects of the tax increase, such as the overly hasty liquidation of small and medium-sized enterprises (SMEs) by owners approaching retirement age, before the effective date of the rate hike, which is certainly not what the government had in mind. On the contrary, the government is keen to extend the retire-ment age.

The transitional system works as follows:First, companies can distribute taxed reserves, as dividends, at a reduced rate of 10%. Such distributions must be approved by the company’s general meeting of share-holders no later than 31 March 2013.Subsequently, shareholders must reincorpo-rate the amounts received in the company’s capital by means of contributions, during the last financial year closing before 1 October 2014. For companies whose financial year mirrors the calendar year, incorporation must occur by 31 December 2013. The re-contrib-uted amounts will be considered paid-in capital.Thereafter, the company must maintain its capital (i.e. it may not reduce its capital) for a minimum period of time. For large compa-nies, this period is 8 years as from the capital increase. For SMEs, this period is shortened to 4 years.After expiry of this period and upon liquida-tion of the company, reimbursements of capital corresponding to the amounts initially distributed as dividends (and taxed at a rate of 10%) are not subject to tax. Indeed, the reimbursement of paid-in capital is tax neu-tral. Thus, ultimately, the 10% withholding tax

initially paid upon distribution of the taxed reserves becomes the final tax. However, if the abovementioned period is not respected and the capital is reduced, the reduction will be treated as a dividend and an additional withholding tax will be levied, ranging from 5-15%, depending on whether the reduction occurs at the end or beginning of the period.

Finally, please note that the legislation con-tains an anti-abuse measure designed to prevent companies from unfairly taking advantage of the transitional rules. Companies that engage in abusive practices will be subject to a separate, non-deductible tax of 15%, based on a specific calculation method.

conclUSionIt was obviously only a matter of time before the tax on liquidation proceeds was increased. However, alongside this measure, it is important to note that the government plans to reintroduce preferential tax treat-ment for SMEs. Indeed, the bill provides for the reintroduction of reduced tax rates of 15% and 20% on dividends distributed by SMEs. This is certainly welcome news in the present economic climate and given the need for investment in SMEs.

By Pascal Faes,Partner pascal.faes@nautadutilh.com and François Herbecq,Lawyerfrancois.herbecq@nautadutilh.comnautadutilh bvba/SpRl

Protect your Reputation and be fully Compliant.

Know Your Customers

Luxembourg Switzerland Cyprus www.sqope.lu info@sqope.lu

Sqope S.A. offers independant premium information reports on

individuals and companies worldwide to allow its clients to

develop their business in full respect of Anti-Money Laundering,

Anti-Terror Financing and Anti-Corruptions laws.

Sqope your customers

Global I INTERNATIONAL

44 45

THE CONCEPT OF SUBSTANCE COMES INTO PLAy IN A NUMBER OF AREAS OF TAx LAWS, SUCH AS BENEFICIAL OWNERSHIP, TRANSFER PRICING, PERMANENT ESTABLISHMENT (PE) AND THE ATTRIBUTION OF PROFITS TO A PE, GENERAL ANTI-AVOIDANCE RULES, LIMITATION ON BENEFITS CLAUSES IN TAx TREATIES, RESIDENCy TESTS, ETC. MORE RECENTLy, THERE IS A CLEAR TENDENCy THAT TAx-EFFECTIVE STRUCTURES WITH INSUFFICIENT SUBSTANCE ARE MORE FREqUENTLy CHALLENGED.

THe impoRTance of SU bSTance in inTeRnaTional TaX planninG

This short article will only give flavor of the most commonly seen problems, mainly when it comes to questions in relation to residency and beneficial ownership.

ReSidency and beneficial oWneRSHipAn entity should be managed from the country where it is incorporated. Nevertheless, many intermediate holding companies, subsidiaries, affiliates or any other special purpose vehicles (SPVs) are effectively managed from abroad, usually from the - high-tax - jurisdiction where the main operations of the business are. In such case, the company risks losing its fiscal resi-dency in the - low tax - jurisdiction where it is incorporated.

To give a few examples: on an EU level, subs-tance requirements are not as strict as elsewhere around the world. Since the Cadbury Schweppes (2006) decision and the development of the notion of “wholly artificial arrangements”, only highly abusive structures such as the use of let-terbox companies are targeted. In the UK, cor-porate residency can only be established, if directors effectively take decisions and not just merely rubber-stamp decisions taken in another jurisdiction (Wood v. Holden (2006)). In

when looking at the recent and ongoing work of the OECD, whether it is the attribution of profits to a permanent establishment and the autho-rized OECD approach (AOA) outlined in there, the new chapter IX on the transfer pricing gui-delines of business restructurings as well as the revised draft on the clarification of beneficial ownership concept, the people functions, risks and assets cannot be separated in practice. Hence, an internationally operating company will not be able to separate its tax strategy from its business strategy.

In order to substantiate a business, companies must move some of their key functions (inclu-ding decision-making staff), risks and assets permanently moved to a tax beneficial location if they engage in international tax planning. Furthermore, the move to another jurisdiction should not primarily be motivated by tax rea-sons. The proximity to customers, the reduction of management costs, administrative and legal efficiency, and access to outstanding infrastruc-ture, centralizing of certain group wide func-tions in one location or the envisaged listing at a public stock exchange may be just some of the good reasons for a company to relocate.

conclUSionThere will be always jurisdictions trying to create an attractive investment climate, part of which is competitive tax rates. Currently, juris-dictions with a wide double tax treaty network allowing for onshore operations, in other words where companies can not just incorporate but also produce real and value-adding activities are in pole position. If jurisdictions focus on certain industries, they might even attract new busi-nesses or at least retain existing ones.

On the other hand, companies will be well advised not to engage in any aggressive tax plan-ning schemes, since this may be a short term and cost efficient solution but may prove very costly in the long term, not only from a finan-cial, but also from a reputational perspective. It goes without saying that putting more substance into a company in the form of outsourcing cer-tain (key) functions to a jurisdiction will result in an additional financial burden and operatio-nal challenges for companies.

By Thomas Hanzély,Managing Directorthomas.hanzely@bbd-e.combbd bahrain financial Harbour

THomaS HanZély

Laerstate BV vs. HMRC (2009) a Dutch company qualified as a UK resident, because its board of directors acted on instructions from a British person without receiving the minimum infor-mation necessary to make educated decisions.

The concept of beneficial ownership is less of a concern at present compared to the notion of tax residence. One major problem is that this concept, often used to challenge transactions, particularly in the context of treaty shopping, lacks international consensus on its fiscal mea-ning. The simplified assumption is that if a com-pany as a recipient of passive income such as dividends, royalties or interest, has genuine business operations in a jurisdiction and has a certain degree of authority to dispose over this passive income, it may qualify as the beneficial owner. Companies engaging agents or nominees will most likely not qualify as beneficial owners and according to the general view, such entities will be regarded as mere flow-through or conduit entities, since they are entirely controlled by a third party in another jurisdiction and are only artificially interposed.

HoW To cReaTe SUfficienT SUbSTance?There is no one-fit all solution. Having said that,

© D

r

© r

aym

on

d T

hill

- F

oto

lia.c

om

46 47

Global I UNITED kINGDOM

INTERNATIONAL TAx HAS NEVER HAD SO MUCH ExPOSURE. IN THE UK THE MEDIA HAS BECOME OBSESSED WITH COMPANIES NOT PAyING THEIR “FAIR SHARE” OF TAx. A MEANINGLESS NOTION, BUT ONE THAT HAS GAINED CONSIDERABLE ATTRACTION.

laTeST developmenTS in THe onGoinG TaX debaTe

The primary focus has been on a number of US multinationals (MNCs) (Google, Starbucks and Amazon). There is a real danger that MNCs are being demonized

by agenda-biased campaigners, the media and politicians alike. An example of this is Margaret Hodge MP’s absurd assertion that Google “does evil”.

The core sentiment is that the international tax system is not fit for purpose; that the arm’s length principle, on which the OCED Transfer Pricing Guidelines are based, allows MNCs to manipulate profits out of high tax jurisdictions into low tax ones. Two jurisdictions have come under the microscope more than others: Ireland and Luxembourg, both of which play central roles in the tax structures of Google, Amazon, Apple, Vodafone etc.

The vilification of Ireland and Luxembourg and the MNCs it attracts is not, however, justified. The relationship between the parties is symbi-otic; each needs the other and both co-exist harmoniously. Both jurisdictions have adopted similar tax policies centered on strong service sectors. Both understood (long before this debate started) that competitive tax policies attract inward investment and are more inter-ested in employment and the benefits this brings

(income tax and social security) than corporate tax take. Their headline tax rates tell only half the story: domestic provisions allow profits to be swept out of jurisdiction leading to a very low effective corporate tax rate.

Balancing corporate transparency and tax com-petition is not easy. There are several solutions that have been proposed, all of which are worthy of consideration.

UniTaRy TaXaTionUnitary taxation has been touted as a panacea to the current issue of multinational tax avoid-ance on the basis that a one can fairly allocate global profits according to an agreed formula taking account of where the economic activity occurs.

There are three critical elements to any unitary taxation system:• the taxable unit would need to be defined (i.e.

defining which entities form part of the group or ’unit’);

• the profits would need to be measured; and• a formula would need to be agreed (whether

by reference to sales, payroll, headcount, expenses or a combination of these factors).

Theoretically, unitary taxation works; but for the following reasons we are unlikely to see it gaining much more momentum:• it would take years for agreement on an appro-

priate formula (i.e. to allocate costs/assets/payroll /sales to each of the relevant jurisdictions);

• it would require a re-write of all current dou-ble tax agreements (DTA’s) without which dou-ble taxation or double non-taxation would result;

• companies would likely restructure accord-ingly and simply move functions/costs; and

• countries would also respond by reducing taxes on certain activities to attract investment.

mUlTilaTeRal TReaTieSThe recent G8 meeting in Enniskillen, Northern Ireland produced various proposals to tackle tax abuse, most of which were aimed at corporate transparency. However, transparency of itself will not work. One of the critical aspects of any MNC structure is the management of cross bor-der permanent establishment (PE) exposure. Amazon’s business model is a perfect example of the way in treaty benefits are engaged. The OECD Members could agree a collective and extended PE definition that would be adopted into the network of DTA’s in one fell swoop. Such multi-lateral activity is unprecedented and would take years to negotiate, again due to the number of competing interests.

doUble TaX aGReemenTS (dTa)The OECD Model Convention is designed to allow MNCs to trade internationally without cre-ating multiple taxable presences. In other words, the basic premise is the prevention of double taxation.

The clash of domestic and DTA provisions cre-ates tax arbitrage (entity classification, mis-matches and hybrids) leading to aggressive tax avoidance through base erosion and profit shift-ing. This has recently been recognised by the OECD in its Base Erosion and Profit Shifting Report.

Assuming the global tax system is not going to be overhauled and a unitary approach adopted,

it is possible that states will attempt to renegoti-ate DTAs (and in cases where there is dispropor-tionate bargaining power, even abrogate their treaty obligations), especially in cases of per-ceived abuse.

The adoption of US style Limitation on Benefits provisions is another area where we can expect to see significant activity and this does not need the force of G8 or G20 behind it. Such collective actions certainly help but it is down to individ-ual states to enforce their rights and protect their tax base.

By Miles Dean,Miles@milestonetax.commilestone Tax

© D

r

48 49

Global I UNITED kINGDOM

tion. It remains to be seen how the courts will deal with the interplay between the GAAR and the existing Ramsay doctrine, and leaves a large area of uncertainty for taxpayers.In addition to understanding the relevant legisla-tion, a taxpayer will also need to consider policy objectives underlying the legislation. In other words, they must be able to interpret the inten-tions of Parliament (which can be difficult enough at the best of times for judicial bodies) when consi-dering the efficacy of their tax arrangements.

final THoUGHTSThe UK Government has recently taken a num-ber of steps (including reductions in the rate of corporation tax and the introduction of new tax reliefs) to promote an open for business agenda in the hope of increasing the UK’s attractiveness to inbound foreign investors. To balance this, the Government has also focussed on ways to mini-mise the ’tax gap’. The GAAR, no doubt, will play a part in this, but at what cost to the simplicity, certainty and predictability of the UK’s tax system. The GAAR, however, is really only one piece of the puzzle: international transparency is on the G8 agenda; the OECD is reviewing its approach to base erosion and profit shifting; and nations are increasingly implementing novel tax legisla-tion (such as FATCA in the US) and entering into novel agreements (such as the Switzerland/UK Tax Cooperation Agreement). Tax, now more than ever, is a fluid topic.

1. WT Ramsey v Inland Revenue Commissioners (1982) 54TC 101

sandy Bhogal,Head of Tax, Londonsbhogal@mayerbrown.commayer brown international llp

THe UK’S neW GeneRal anTi-abUSe RU leT

he UK’s new General Anti-Abuse Rule (“GAAR”) is, at the time of writing, pas-sing through Parliament, coming into effect with the Financial Act 2013.

Following announcement that the UK’s coalition government was considering bringing in a general anti-avoidance rule in June 2010, a study group led by Graham Aaronson QC concluded that the UK would benefit from a rule aimed at abusive arrangements. Conceptually, this represented a shift away from a broad general anti-avoidance rule (which the study group advised may harm the UK’s reputation and attractiveness as a business/financial centre) to a provision targeted at abusive and artificial schemes. Following consultation, draft legislation was published in the Finance Bill 2013. The GAAR includes some novel features, including the much-discussed ’double-reasonable-ness’ test, and there is uncertainty about its poten-tial impact on UK taxpayers.

THe TaRGeTS (and non-TaRGeTS) of THe GaaRThe aim of the GAAR is to deter taxpayers from entering into abusive tax arrangements and to deter promotion of aggressive tax avoidance schemes. The GAAR is not intended to counte-ract arrangements where the law has given the taxpayer a number of legitimate choices, one of which the taxpayer has opted to use.Interestingly, the GAAR is unlikely to apply to certain types of tax planning carried out by large multinational companies that have led to recent public debate. These arrangements frequently make use of the provisions of double tax treaties, and are legitimate courses of action, prescribed by law. However, where tax arrangements seek to exploit provisions of double tax treaties, or the ways in which they interact with UK domestic law, the GAAR could be applied.

HMRC’s guidance on the GAAR sets out 41 examples, based on case law, current practice and disclosures to HMRC, setting out HMRC’s view on whether they are abusive. Although these examples may offer some assistance to tax-payers, each case depends on its own facts, so it will be difficult to draw wider conclusions. The examples should not be taken as an indication of HMRC’s blanket approach to similar transac-tions or arrangements, nor do they restrict HMRC’s ability to seek to counteract such arran-gements under other rules.

SimpliciTy, ceRTainTy, pRedicTabiliTyOne hope has been that the GAAR might lead to simplification of the UK’s long and complex tax code, as it potentially obviates the need for many of the targeted anti-avoidance rules (“TAARs”). However, it is not widely anticipated that this will occur. The GAAR is designed to counteract abu-sive arrangements that would otherwise achieve a tax advantage. There is a middle-ground of tax planning that is not abusive (i.e. not within the remit of the GAAR), but is equally not ’accep-table’ to HMRC. If such tax planning is prohibited under a TAAR then HMRC will not need to rely on the GAAR. The TAARs are still therefore both relevant and necessary.In parallel with the increasing numbers of new TAARs introduced by successive UK govern-ments, the courts have developed their own doc-trine, from a line of cases starting with Ramsay1. Under the Ramsay doctrine, the courts do not take a strict, literal interpretation of tax law, but take a more purposive view and decide whether the facts of the matter are compatible with the legislation. The GAAR does not expressly over-rule these court-derived principles, rather it requires the courts to go further and deduce the underlying rationale for introducing the legisla-

Sandy bHoGal

© M

ast

erL

u -

Fo

tolia

.co

m

© li

gh

two

rkp

ho

tos

50 51

Global I RUSSIA

duced; including a simplified tax treatment, the abi-lity to start a business on a notification basis, flexible labor laws, and guaranteed access to public contracts.New laws and amendments to the Code, overall legal improvements are essential tools to address and achieve such priorities. If the new legal wind will be really effective, it will surely transform the common perception of Russia as a restrictive and burden-some regulatory environment. This new wind will boost confidence to expand significantly Russia’s attractiveness to foreign investors and thus trigger a dynamic economic development.

Luxembourg is continuing to co-operate in this direction with the Russian Federation undoubtedly bringing benefits to both countries.

By David Moscato,STEP Luxembourg Board Committee Memberand H.E. Dr. Mark Entin,Russian Ambassador to the Grand Duchy of LuxembourgSource: Embassy of the Russian Federation in the Grand-Duchy of Luxembourg

RUSSIA CLOSER TO BENELUX ThAN EvER

lUXemboURG STandS o UT foR encoURaGinG THe SHaRinG of KnoWH oW and co-opeRaTion WiTH THe RUSSian bUSi neSS commUniTy

into Russia. As at June 30th 2012, accumulated investments from Luxembourg into Russia reached USD 36.7 bn (including direct investments of USD 1.1 bn.). The volume of Russian investments in Luxembourg on July 1st 2012 was of USD 6.2 bn (including direct investments for USD 2.4 bn). The established mechanism which facilitates the deve-lopment of bilateral economic relations between the 2 countries is the Joint Commission on Economic Cooperation between the Russian Federation and the Belgium-Luxembourg Economic Union. The annual direct foreign investments into Russia amount to circa USD 46 billion; by 2018 the Russian Government intends to bring said volume to USD 70 billion a year. Since Russia became a WTO mem-ber, the government is improving the country’s busi-ness framework starting from the harmonization of its internal Legal system with OECD standards and multilateral conventions and agreements.

Its policy priorities up to 2018 are i.a.:• increase Russia’s ranking in the World Bank ease

of doing business index from N° 120 to N°50 by 2015 and N° 20 by 2015;

• improve the corporate regulatory environment; • expand access to loans and government

guarantees;• increase access to heating infrastructure;• improve its tax and labor laws, protection of inves-

tors’ rights;• increase transparency of financial activities also

by means of avoiding tax avoidance thru the use of shell and offshore companies;

About the authors: David Moscato, an inter-national wealth advisor and Luxembourg Board Committee Member and Branch liaison officer of the Society of Trust and

Estate Practitioners/STEP BENELUX organized May 14th 2013 a lecture about the “Recent Improvements in the Legal Environment for Doing Business in Russia” with the Russian Ambassador to Luxembourg, H.E. Dr. Mark Entin. Dr. Entin is not only a distinguished diplomat but also an outstan-ding academic, author of over 300 publications, a Member of the Council on International Law of the Ministry of Foreign Affairs of the Russian Federation, of the Russian Public Council for International Cooperation & Public Diplomacy and of the Scientific Expert Council of the Institute of Energy & Finance.

STEP BENELUX represents professional members from Luxembourg, Belgium and the Netherlands and belongs to the eponymous Society, the leading global professional body for practitioners of trusts, estate planning and related issues. STEP members help families plan their wealth future, facilitating good stewardship and their financial planning across generations. The first aim of the event was to speak about the Russian legal environment and bring together Benelux representatives interested in investing into Russia. Moreover it was targeting pro-fessionals willing to improve services and solutions for their existing Russian clientele.

Luxembourg is one of the biggest foreign investors

• improve sanitary and veterinary supervision, licensing and oversight procedures regarding the establishment and operation of hazardous manu-facturing facilities;

• increase the participation of SMEs in procurement by infrastructure monopolies and state controlled companies, and the participation of said enter-prises in government contracting under the fede-ral contract system by holding preliminary public discussion for any public procurement worth more than a bn. Rubles;

• promote competition and improve anti-monopoly policies;

• create a national system of skills and qualifica-tions and a system for cooperation between entre-preneurs and the public executive branch;

• facilitate dispute resolution by way of arbitration and improve the rights of shareholders to get infor-mation about corporate dealings through the new Civil Code introduction

• complete the transition to international accoun-ting standards;

• promote measures to bring transactions between Russian businesses back to Russia.

Efforts to improve legislation preventing unwar-ranted criminal prosecution of individuals engaged in economic activity will also be promoted. Law enforcement and judicial practices should be freed from one-sided assessments of economic activity as crime. Evidence of the innocence or lesser liability of indicted individuals must not be ignored: special measures to help small business will hence be intro-

© D

r

definiTion dURaTion ReGiSTRaTion leGal peRSonaliTy

cReaTion iniTial conTRibUTion

manaGemenT aSSeTS benefiT conTRol fidUciaRy obliGaTionS

malta Trusts The trust is a relationship created through a private writing, where a trustee holds and controls assets for the benefit of beneficiaries. The trustee is entrusted with the property settled on trust in managing assets which are legally under the ownership of said trustee, but subject to the provisions of the trust instrument.

Cannot be created for a period longer than 100 years.

Instrument of trust is, with certain exceptions, not registered and is kept with the trustee.

The trust is a relationship and does not have a separate legal personality.

The trust is established by the settlor who passes on full ownership of the property to the trustee and who should not be involved in the administration of the trust property. he may however write a letter of wishes addressed to the trustee in which he sets out his wishes in relation to the trust property and the trustee would keep those wishes in mind when exercising his powers.

On the creation of a trust there must be a transfer of ownership of money or property, however there is no minimum amount of property that must be transferred from the settlor to the trustee.

The trustee holds the property in the trust in his name and administers same for the benefit of the beneficiaries. The trustee is answerable to the beneficiaries for his actions and must therefore exercise a high degree of care and skill in carrying out his functions.

A trustee must keep the assets held in trust segregated from his personal assets. In this way the trust assets would not be subject to the claims of creditors of the trustee and the trustee’s assets would not be subject to the claims of creditors of the trust.

The benefit in a trust is personal to the beneficiary and as a result the beneficiary may exercise enforcement powers. however, such a benefit terminates on the death of the beneficiary and does not devolve on his heirs.

Beneficiaries in trusts cannot instruct the trustee how he should administer the property, however the beneficiaries may have enforcement powers against the trustee.

Trustee has fiduciary obligations which need to be abided by.

foundations under malta law

A foundation is an organisation. It can be regarded as an autonomous legal entity which belongs to itself.

Cannot be created for a period longer than 100 years.

A public deed creating a foundation must be registered. however, in practice although a foundation needs to be registered, very little information in relation to a private foundation is available to the public therefore retaining the confidentiality which is a crucial element when foundations are created for the benefit of private individuals.

The foundation obtains a separate legal personality upon its registration.

A foundation is established by the founder through a public deed drawn up by a notary. The founder may retain a significant degree of control in the administration of the foundation. The founder may supervise the acts of the administrators and may even be an administrator himself or may decide to be the top organ of the foundation.

In the case of a private foundation a minimum of €1,164.69 in money or property must be transferred to the foundation in order for it to be validly created.

A foundation is run by administrators who also exercise their functions in the interests of beneficiaries - when we are talking of a private foundation, while in the case of a purpose foundation the assets would be administered in the interest of the particular purpose for which the foundation is created.

A foundation has a distinct personality with a patrimony of its own and would have the same effect as a limited liability company in this sense - with creditors of the foundation having no recourse over the assets of administrators and vice versa.

The benefit in the foundation is personal to the beneficiary and as a result the beneficiary may exercise enforcement powers. however, such a benefit terminates on the death of the beneficiary and does not devolve on his heirs.

Beneficiaries in foundations cannot instruct the administrator on how he should administer the property, however the beneficiaries may have enforcement powers against the administrators.The amount of control given to the founder of a foundation in a number of areas exceeds that given to the settlor of a trust.

The administrator has fiduciary obligations which need to be abided by.

MALTA TODAy HAS BECOME A VERy IMPORTANT FINANCIAL CENTRE IN THE E.U. AND ITS UNIqUENESS LIES, NOT ONLy IN ITS TAx EFFICIENCy, BUT ALSO By BEING BASICALLy THE ONLy JURISDICTION THAT IS BASED ON BOTH THE NAPOLEONIC CODE BUT WITH A STRONG INFLUENCE OF ENGLISH COMMON LAW.

TRUSTS and foUndaTi onSadvanTaGeS and diSa dvanTaGeS

With regards to Trusts and Foundations, our legal system has thus been able to absorb both legal concepts, which are in themselves based on the different

legal systems. Malta thus has the Trust law as well as the Foundations law. The former was enacted in

52 53

Global I MALTA

1998 and the latter, ten years later in 2008. We will therefore illustrate below a comparison between a Trust and a Foundation under Malta law.

By Francis J. Vassallo ,Chairman, francis@fjvassallo.comfJv fiduciary limited, member of francis J. vassallo & associates Group of companies

© D

r

54 55

Global I PORTUGAL

CREATED IN 2009 AND REGULATED IN 2012, THE NON-HABITUAL TAx RESIDENTS REGIME (“NHTRR”) HAS PROVEN TO BE A VERy ATTRACTIVE TOOL TO ENHANCE THE INTERNATIONAL COMPETITIVENESS OF PORTUGAL.

PORTUGUESE NON-hABITUAL TAX RESIDENT REGIME

THe beST eU impaTRiaT eS ReGime

Mainly focused on attracting highly skilled professionals for high value-added activities, the NHTRR is also of significant interest for high net worth

individuals who wish to move their tax residence to Portugal for retirement or long-term leisure purposes as it entails an advantageous Personal Income Tax (“PIT”) regime for non-habitual tax residents.Collecting inspiration in an assortment of similar of existing regimes across Europe, the NHTRR is akin to regimes existing in the United Kingdom and in Switzerland as far as passive income is concerned, while following France, Spain and The Netherlands regarding non-passive income.The features of the NHTRR in terms of PIT taxa-tion, combined with the absence of Portuguese wealth taxes and an exemption from inheritance and/or gift taxes on transfers to spouses, descend-ants and ascendants, have been determinant in the growing success of and adherence to the NHTRR in the last couple of years.In fact, within the European Union (“EU”), the freedom of movement provides adequate protec-tion for individuals that wish to establish their residence in Portugal. For non-EU nationals, the newly approved Golden Visa regime grants easy access to special residency permits grating their holders the right to family regrouping, access to permanent residence permit, and ultimately to Portuguese citizenship if so desired.

eliGibiliTy & dURaTionThe non-habitual tax resident status is granted to those individuals who (i) become resident for tax purposes in Portugal in a given year and (ii) have not had such status in the 5 preceding years.The tax resident status exists, notably, where an individual stays for more than 183 (consecutive or not) days in Portugal in a given civil year or, if such threshold is not achieved, if an individual has, on the 31st December of a given year, a house in such conditions that allow to presume the intention to hold and occupy it as the place of habitual abode.The NHTRR is valid for a 10-year period, after which the standard PIT regime applies. The right to be taxed under the NHTRR is acquired in the year in which the relevant individual becomes tax resident in Portugal.

paSSive incomeUnder the NHTRR, most foreign source passive income (including, inter alia, interest, dividends, income on units of investment funds, non-real estate capital gains and property lease income) is exempt from taxation in Portugal.In fact, no taxation applies if under the terms set-forth in the Double Tax Treaty (“DTT”) entered into between Portugal and the source state such income may be taxed at the source state.Where no DTT is in force, said income is exempt if (i) it would be taxable in the source state under the OECD Model Convention on Income and on Capital rules, as interpreted according to the Portuguese reservations and observations (“OECD Model Convention”), (ii) it is not consid-ered to be obtained in Portugal under the PIT territoriality rules, and (iii) the source state is not included in the Portuguese tax havens list (“Blacklisted Jurisdiction”).In both scenarios, no effective taxation in the

source state is required for exemption purposes: the exemption applies if the mere possibility of taxation exists.Domestic source passive income is generally sub-ject to a 28% flat rate.

acTive incomeDomestic source employment and independent personal income derived from high value-added listed activities is subject to a 20% flat rate.Foreign source employment income is exempt from taxation in Portugal provided that it is taxed at the source state (either under the applicable DTT or, if no DTT is in force, under the source state domestic provisions).Foreign source independent personal income obtained in high value-added listed activities is also exempt from Portuguese taxation if under the applicable DTT such income may be taxed at the source state or, if no DTT applies, (i) it would be taxable in the source state under the rules of the OECD Model Convention, (ii) it is not consid-ered to be obtained in Portugal under the PIT territoriality rules, and (iii) the source state is not in a Blacklisted Jurisdiction. Conversely to for-eign source employment income, no effective taxation is required for exemption purposes.

penSion incomeForeign source pension income is exempt if it is either taxed at the source state or not deemed to be obtained in Portugal (i.e. not paid by or with its cost allocated to Portuguese tax resident entities).

conclUSionSThe NHTRR, combined with the absence of wealth taxes and with the existing inheritance and gift tax exemptions, offers a unique opportu-nity for foreign individuals who wish to establish their residence in Portugal as properly structured

investment structures allow achieving very low or even zero rate taxation in Portugal for PIT purposes.

By Tânia de Almeida Ferreira,Associatetania.ferreira@cuatrecasasgoncalvespereira.comand Ana Helena Farinha,Associateanahelena.farinha@cuatrecasasgoncalvespereira.comcuatrecasas, Gonçalves pereira, Rl

ana Helena faRinHa

Tânia de almeida feRReiRa

© a

nyai

van

ova

- F

oto

lia.c

om

© D

r©

pau

lo A

lexa

nd

rin

o

56 57

Global I GERMANy

GERMANy’S NEw INvESTMENT TAX ACT

cHallenGeS foR alTeR naTive inveSTmenT fUndS oR neW oppoRT UniTieS?T

he German legislator implemented the AIFM Directive into national law via the Capital Investment Act (Kapitalanlagegesetzbuch - CIA) and took

the opportunity to not only introduce required regulations on Alternative Investment Fund Managers but also to establish a wide range of regu-lations covering the fund products themselves, i.e. UCITS and Alternative Investment Funds (AIF), so that all types of funds are basically subject to the CIA. Amongst others, a new investment vehicle in the form of an investment limited partnership was introduced in order to especially allow the closed-end fund industry to continue using such vehicle under the new regime. In light of this, the German regulations on the tax treatment of funds as set out in the Investment Tax Act (Investmentsteuergesetz - ITA) also have to be amended.Originally the amendments of the ITA were planned to become effective by 22 July 2013, i.e. simultaneously with the CIA. Since 26 June 2013 the schedule has changed insofar the German con-ciliation committee (Vermittlungsausschuss) has not been able to agree on a final version of the new tax provisions; these will hence become defini-tively effective only after 22 July 2013. Therefore, Germany will introduce the CIA as intended by 22 July 2013 but its provisions will not be supported

by an amended investment tax regime for the time being. The Federal Ministry of Finance intends to issue an official circular which presumably will provide for regulations for a transitional period according to which the provisions of the current ITA may still be applicable on all investment funds formed in compliance with the provisions of the former Investment Act, irrespective of whether they were formed until or after 21 July 2013.

WHaT aRe - and moST pRobably Will be - THe cHanGeS and cHallenGeS caUSed by THe diScUSSed neW TaX pRoviSionS?Under the new ITA, subject to certain grandfather-ing provisions, for any AIF two new categories of fund structures will be introduced for German tax purposes: investment partnerships and investment corporations (whereas UCITS and similar open-end investment funds will be treated as so-called “investment funds” which will then be treated as tax transparent, subject to compliance with par-ticular criteria of the new ITA). Under the CIA pro-visions any non-UCITS fund qualifies as AIF.Investment partnerships (Personen-Investitionsgesellschaften) will, for German tax purposes, be treated as tax transparent entities. German and foreign investment partnerships need to prepare and file a German partnership tax

return if at least two German tax resident investors hold an interest in such investment partnership.Investment corporations (Kapital-Investitionsgesellschaften) which include any German and non-German AIFs that are either legally structured as a corporation or in a contrac-tual format (e.g. a Luxembourg FCP) will be treated for German tax purposes as separate taxable enti-ties. In principle, German investors will therefore only be taxed upon any distributions made by such investment corporation.To avoid investment corporations being used for tax deferral purposes (i.e. for structures in which income will be retained and re-invested at the level of the fund vehicle and therefore not be taxed at the level of German investors until distribution), the German Bundesrat suggested introducing a yearly minimum tax charge for such fund struc-tures. This concept which was included in the ini-tial draft bill of the German Ministry of Finance (but has been removed in the draft bill by the German Federal Cabinet) would lead to an annual minimum taxable income of 6% of the year end NAV (or if higher 70% of the annual increase of the NAV). This proposal - highly criticized by the fund industry - was the key point why the conciliation committee could not find a compromise. In fact, it would create a penalty tax for German investors in

aleXandRa WeiS

dR. aXel ScHildeR

such AIFs which do not provide for a regular annual distribution of at least 6% of its NAV, which would particularly affect investments in funds in the pri-vate equity and real estate industry structured in a corporate (or contractual) format (e.g. a Luxembourg SICAV or Irish PLC). Certain infra-structure funds, however, may be able to provide for such regular annual distributions.

WHaT aRe THe neW oppoRTUniTieS?In particular for the closed-end fund industry, the CIA and - whatever they will look like in the end - the new ITA provisions will open a “new world of products” and provide the opportunity to broaden the portfolio. Subject to the formation of an invest-ment company (Kapitalverwaltungsgesellschaft) each (traditional) initiator of closed-end funds may also issue “open products” as from 22 July 2013. What does this mean in fact? The competition will expand both nationally and internationally.

By Dr. Axel schilder,PartnerASchilder@KSLAW.comand Alexandra Weis,Senior AssociateAWeis@KSLAW.com King & Spalding llp, frankfurt am main

© D

r©

Dr

© T

he

ph

oto

s -

Fo

tolia

.co

m

5958

Global I FRANCE

IN TIMES OF CRISIS AND UNCERTAIN FISCAL POLITICS MULTINATIONAL COMPANIES WITH FRENCH INVESTMENTS OFTEN THINK ABOUT A CHANGE OF BUSINESS MODEL OR BUSINESS RESTRUCTURING. IN VIEW OF TWO RECENT DECISIONS OF FRENCH COURTS BUSINESSES SHOULD PAy PARTICULAR ATTENTION TO TRANSFER PRICING ISSUES.

fRance: TaX manaGem enT of bUSineSS ReSTRUcTURinGS in Un ceRTain TimeS

bUSineSS ReSTRUcTURinGContrary to other countries, such as Germany France’s transfer pricing regulations do not (yet?) explicitly rule on the tax consequences of transfer of functions abroad. However both the theory of the abnormal act of management and the general trans-fer pricing regulation (Sec. 57 of the French Tax Code, “FTC”) enable the French tax authorities to control and challenge international business restructurings.In a recent decision (February 5th, 2013, Nestlé Finance International, No 11PA02914 and 12PA00468) the Administrative Court of Appeal of Paris has indirectly judged on such an issue.The plaintiff was a French subsidiary of the Nestlé group who transferred to a Swiss affiliated corpo-ration some fits cash pool management functions. This transfer was challenged by the French tax authorities, according to which such transfer of functions triggered an indirect transfer of profits under Sec. 57 FTC. The French subsidiary should hence have received an appropriate consideration for this transfer. The tax authorities have added-back the amount of such fictitious remuneration to the taxable basis and submitted it to both corporate income tax and withholding tax. Additionally late interests and penalties were levied.The remuneration was estimated on the basis of comparable cash pooling transactions of 3 listed companies. The arm’s length consideration was hence set at 0,5% of the cash pool amounts of the

last 2 tax years. The court of first instance approved of the add-backmechanisme, in principle, but set the arm’s length remuneration at 0,3325%. In appeal the taxpayer won. Unfortunately the Court of Appeal did not explicitly take position on the question whether a transfer of a group internal function has per se a value to be compensated. But the judges made clear that the onus probandi lies on the tax authorities and as they had not detailed the comparable data (particularly name of compa-nies, comparability of the functions and informa-tion on the type and level of guarantees granted) they failed to prove the comparable test.Even if the taxpayer won in this case, business res-tructurings should be carefully monitored. A trans-fer of functions abroad (e.g. transfer of a production activity) is often controlled by the tax authorities and may make necessary to indemnify the entity which is deprived of some functions.

cHanGe of bUSineSS modelIn times of crisis multinational companies often seek light in a slender distribution structure in order to optimize both internal resources and glo-bal tax rate, to go by switching from a buy-sell to a commissionaire structure (under which the distri-bution company sells the products in its own name but for the account of the principal, thus reducing both functions and risks of the commission agent and hence its taxable remuneration).The Administrative Court of Appeal of Paris has

recently stated (December 13th, 2012, Ballantine’s Mumm Distribution, No 10PA00748) that such a change of business model does not lead to a taxable transfer of clientele. The tax authorities have howe-ver appealed.In the “Ballantine’s” case the tax authorities were of the opinion that the change from buy-sell to commis-sionaire distribution structure leads to a taxable transfer of goodwill including clientele (“fonds de commerce”) under Sec. 57 FTC. This opinion was validated by the Court of first instance but the Court of Appeal approved instead of the taxpayer’s position. For the Court of Appeal a change to a commissionaire structure cannot legally lead to a transfer of clientele, as the owner of the clientele remains the commission agent (contrary to a change to a mere agent structure under which the agent sells the products in the name and for the account of the principal). Furthermore in the case-at-hand the change of business model led to an increase of the French company’s turnover and to a bigger profit. The Court of Appeal noticed that under the new structure the profit margin matched the new functions and the risks assumed.The Court’s analysis is in line with the OECD Transfer Pricing Guidelines on business restructu-rings (OECD July 22nd, 2010 §9.103). It should also be noted that under French tax law the payment of an indemnity in case of a transfer of goodwill triggers a 5% transfer tax (Sec. 719/720 FTC). In the case-at-hand the tax authorities had however not challenged this issue.

By Guillaume Rubechi,Avocat au barreau de Paris, Rechtsanwalt, Partnergrubechi@lpalaw.comand Jacques-Henry de Bourmont,PartnerJhdebourmont@lpalaw.comlefèvre pelletier & associés, francfortwww.lpalaw.com

GUillaUme RUbecHi

© M

arti

n M

30

3 -

Fo

tolia

.co

m

© W

aoo

Imag

e -

2013

SGG: We SUppoRT yoUR ambiTionS!

60 61

EuRoPELuxembourg | The Netherlands | Switzerland | Belgium | Cyprus | Malta | Liechtenstein

AMERIcAsUSA (NyC) | Curacao | Panama | BvI

AsIAIndia (Mumbai) | China (hong kong & Shanghai )

AFRIcA & ocEANIANew Zealand | Mauritius

Panama

curaçaoBVI

New-York

Malta

Mauritius

New Zealand

china (Hong Kong)

china (shanghai)cyprus

switzerlandLiechtenstein

Mumbai

The Netherlands

BelgiumLuxembourg

follow us

www.groupsgg.com

ifa 2012

62 63

SGG booth and evening event for clients animated by SGG (L): Serge Krancenblum, Christoph Kossmann, Luca Gallinelli, Ewa Gutfrind; FAcTS (L): Geoffrey Henry; ANT (NL): Sara Douwes, Heather Jewitt, Hans van de Kimmenade, Dedde zeelenberg; SGG (USA): Bassem Pierre Daher; ANT (Curaçao): Bas Horsten and FJV (Malta) as co-partner of the evening event (Francis Vassallo, Steffan Vassallo).

ifa annUal confeRence boSTon30 SEPT. 2012 TO 4 OCT. 2012,BOSTON USA

© p

ierc

e H

arm

an p

ho

tog

rap

hy

© D

r©

Dr

© D

r

amSTeRdam GUide

64 65

ReSTaURanTS&Samhoud placeswww.samhoudplaces.com/osterdokseilandvinkleswww.vinkeles.comkeizersgrachtZuid Zeelandwww.zuidzeeland.nl/home.cfmherengracht 413de belhamelwww.belhamel.nlRestaurant De Belhamel is located on the Brouwersgracht in Amsterdam, where this canal crosses the herengrachtBrouwersgrachtbord’eauwww.leurope.nl/bord-eauOne of the top restaurants in Amsterdam. (Nieuwe Doelenstraat 2-14)antoinewww.restaurantantoine.nl(kerkstraat 377h)Segugiowww.segugio.nl(Utrechtsestraat 96)

l’invitéwww.linvitelerestaurant.nl(Bloemgracht 47)la Rivewww.restaurantlarive.comProfessor Tulpplein 1le Zinq… et les autreswww.lezinc.nl(Prinsengracht 999)boleniuswww.bolenius-restaurant.nlGeorge Gershwinlaan 30

ciel bleuwww.cielbleu.nlFerdinand Bolstraat 333The oyster clubwww.theoysterclub.nlOlympisch Stadion 35 | 1076 DE | Amsterdam

mUSeUmRijksmuseumwww.rijksmuseum.nlRijksmuseum Museumstraat 1, 1071 XX AmsterdamStedelijk museumwww.stedelijk.nlMuseumplein 10, 1071 DJ Amsterdam

HoTelSThe dylanwww.dylanamsterdam.com(keizergracht 384)canal Housewww.canalhouse.com(keizersgracht 148)conservatoriumwww.conservatoriumhotel.comvan Baerlestraat 2college Hotelwww.thecollegehotel.com(Roelof hartstraat 1)amstel Hotelwww.amstelhotel.nl

The Tax Lawyers’ favourite addresses

Vinkles Rijksmuseum The Dylan

© D

r

© r

oel

ru

ijs

© Iw

an B

aan

© D

r

Fran

ck W

idlin

g ©

ssu

apho

to/D

R

VIDEO

FUN, FAST, FREE

BE THE PUBLISHER!

Crossmedia

Crossmedia

QuadriC100 M75 J0 N0

Pantone286 C

360_PUB_2013_FT20x28_vIFA.indd 1 22/07/13 01:52

yinparty

VEGA HOUSE

OF MUSIC

COPENHAGEN

AT 8.30pm

WEDNESDAY

28TH

AUGUST

www.groupsgg.com

Dive into the heart of the hustle, bustle and recklessness of the 1950’s , in the atmosphere of pin-ups and jukebox music. This exceptional evening will put the Fifties in the spotlight. Join in and let the 50’s dress code be the preferential passport to gain access to this memorable party ! …but we will forgive those who join with a 21st century outfit.

Many surprises

are awaiting for you :

an iPad is to win !

Des

ign:

ww

w.c

omqu

est.l

u - P

ictu

res:

© A

ndre

y Ki

sele

v, F

otol

ia.c

om

Back to the fifties… and prepare the future.

66

YOUR SGG CONTACTSAT IFA COPENHAGEN

Serge KrancenblumCEO Groupserge.krancenblum@sgg.lu+352 621 491 501

André NagelmakerCEOa.nagelmaker@ant-trust.nl+31 681 08 56 83

Luca GallinelliPartner, PE Leaderluca.gallinelli@sgg.lu+352 621 294 779

Christoph KossmannPartner, RE Leaderchristoph.kossmann@sgg.lu+352 621 502 315

Christian MognolPartner, Corporate Leaderchristian.mognol@sgg.lu+352 621 288 418

Valérie EmondPartnervemond@facts.lu+352 691 360 407

Johannes R.M. van de KimmenadeCorporate Lawyerh.vandekimmenade@ant-trust.be+31 643 78 11 71

Heather JewittMarketing Directorh.jewitt@ant-trust.nl+31 650 65 88 01

Roberta Saulini

roberta.saulini@sgg.lu+352 4 661 116 340

SGG LUXEMBOURG FACTS LUXEMBOURG

SGG BELGIUM

SGG NETHERLANDS

ww

TRUST-SGG_COPENHAGUE_v3_imp.indd 66 25/07/13 09:41

etPi er Jan Stegeman

p.stegeman@ant-trust.nl+31 6 250 143 92

Director Account Team

ING Luxembourg, Société Anonyme – 52, route d’Esch L-2965 Luxembourg – R.C.S. Luxembourg B.6041

ING.LU

Your Private Equity and Real Estate clients have exclusive banking needs

which require speed, reliability and expertise.

That’s why, at ING Luxembourg, we have a team of specialists dedicated to them…

Contact our Professional Intermediaries team at +352 4499 9714 or at psf@ing.lu

ING_TrustAd_200x280.indd 3 27/06/13 15:47