Issue 95 – Regulatory and Tax Developments in August 2012

FUND NEWS August 2012 Investment Fund Regulatory and Tax developments in selected jurisdictions Regulatory Content Issue 95 – Regulatory and Tax Developments in August 2012 Ireland Irish regulator clarification on additional subscriptions and the KIID Page 1 Consultation Paper 59 Page 2 New draft AML legislation Page 2 Luxembourg Bill of law implementing AIFMD submitted to Parliament Page 2 Regulation on SIF Risk Management and Conflicts of Interest requirements Page 6 Malta SICAV Incorporated Cell Companies Regulations Page 6 Recognised Incorporated Cell Companies Regulations Page 6 Level playing field for Limited Partnerships and SICAVs Page 7 Regulatory News Ireland Irish regulator clarification on additional subscriptions and the KIID The Irish regulator, the Central Bank of Ireland, has issued the following guidance on the Key Investor Information Document (KIID) where investors make additional or new subscriptions:- 1. Existing investors: the most up-to-date version of the KIID must always be available on a UCITS’ or its management company’s website. However, there is no requirement to provide subsequent versions of the KIID to existing investors except as set out below. 2. Existing investors making a new subscription: the investor must be provided with a KIID unless the UCITS is aware that the investor’s current copy of UK FSA proposes ban on promotion of UCIS and similar products to retail investors Page 7 (2) Tax Content European Union VAT treatment of portfolio management services – the Deutsche Bank case Page 9 Ireland Ireland’s Double Taxation Agreement Network Continues to Grow Page 10 (8) Luxembourg Aberdeen E-Alerts Page 10 Turkey The Private Pension Savings and Investment System Law Page 10 Law 6322 to increase savings in Turkey Page 11 Fund News – August 2012 the KIID is the most up-to-date version. 3. Automatic re-investments: where additional subscriptions arise under contract, there is no need to provide an up-to-date KIID. 4. Regular savings schemes: as these are based on a single New draft anti-money laundering legislation A draft Criminal Justice (Money Laundering and Terrorist Financing)(Amendment) Bill 2012 has been published. The draft bill deals with a number of practical and technical issues which have arisen as a result of the implementation of the Third Anti- Money Laundering Directive. It is Luxembourg Bill of law implementing the AIFMD into Luxembourg law submitted to the Parliament On 24 August 2012, the draft law 6471 transposing the Alternative Investment Fund Managers Directive (AIFMD) into Luxembourg law (Directive 2001/61/EC) was submitted to the Chambre des subscription contract, the KIID anticipated that this draft bill will be Députés (Luxembourg Parliament). The need only be provided once. enacted quickly. However, if the subscription arrangements change and a new subscription form (i.e. a new contract) is completed then a current KIID must be provided. Consultation Paper 59 – Proposed changes to the regulatory reporting requirements of Irish authorized collective investment schemes The Central Bank has issued a consultation paper under which it proposes to make a number of changes to the regulatory reporting regime for Irish funds. As a result, reporting will be made through the new Online Reporting System (ONR system) for: draft law will be discussed in Parliament where it may be amended, and is expected to be voted into law before the end of 2012. The draft law is a ’framework law’ and sets out the rules applicable to Alternative Investment Fund Managers (AIFM). At the same time the laws governing Luxembourg regulated funds will continue to co-exist. The first part of the draft law (Chapters 1-11) will adopt a new piece of legislation that closely follows the wording of the AIFMD. The second part of the law (Chapter 12) updates various existing laws in order to ensure consistency with the AIFMD, and also introduces some new structuring options to modernize the legal framework. • Annual and interim financial statements and a short questionnaire. • Annual auditor statutory duty confirmation return and supporting documents. • Annual financial derivatives instrument report (UCITS only). • New annual sub-fund profile questionnaire. • New Regulatory Report. • Annual updated KIID. Update of the Fund laws Under Luxembourg law Alternative Investment Funds (AIF) may be set-up as Part II Undertakings for Collective Investment (UCIs) under the law of 17 December 2010, Specialized Investment Funds (SIF) under the Law of 13 February 2007, or an Investment Company in Risk Capital (SICAR) under the law of 15 June 2004. The draft law introduces the following amendments to 2 Fund News – August 2012 these pieces of legislation: • SICAR than financial instruments’. The criteria set down to be authorised as PFS • Part II UCIs Similar to the regime for SIFs the SICAR custodian are the following: All Part II UCIs will be qualified as AIFs and are subject to the AIFMD regime. Each AIF will have to appoint an AIFM, or be self-managed and require authorisation as an AIFM, and comply with the remaining AIFMD provisions. Law will be divided into two parts: the first regulating SICARs that are not considered as AIF, and the second including specific provisions for SICAR that will fall under the definition of AIF. Introduction of a new professional of the financial sector (PFS) status: • Have a legal personality • Minimum share capital requirement of EUR 500,000 • Not subject to additional own funds requirements based on the volume of assets under custody • SIFs ‘’Professional Custodian of Assets other than Financial Instruments’’ Modification of the Management Company regimes available in Luxembourg updated the SIF law in March 2012 and introduced new requirements for regulatory approval of the SIF before the launch of activities, new rules on risk management and conflicts of interest, and the possibility to cross-invest between sub-funds in the same umbrella structure. The set-up of an appropriate risk management framework and conflicts of interest procedures had to be put in place by 30 June 2012. The draft AIFMD implementing law will amend the SIF law and distinguish between SIFs managed by an AIFM and SIFs managed by a non-AIFM with only those managed by an AIFM subject to the SIF regime. Luxembourg has decided to authorize the appointment of an entity that is neither a credit institution nor an investment firm as depositary of a certain category of AIFs. These AIF will offer no redemption rights exercisable during a period of five years from the date of the initial investments and generally do not invest in assets that must be held in custody or generally invest in issuers or non-listed companies to potentially acquire control over such companies. A new status of PFS will be created: ’professional custodians of assets other Luxembourg The law of 17 December 2010 on UCIs contains two Management Company regimes, a UCITS licensed Management Company (Chapter 15), and a non-UCITS Management Companies (Chapter 16). The draft AIFM law provides for the set-up of an AIFM under chapter 2. The draft law allows a UCITS Management Company to ask for an extension of its license to be approved and recognized as an AIFM. The UCITS Management Company will have to submit an application file to the CSSF. 3 Fund News – August 2012 The UCITS Management Company will have to comply with Chapter II of the draft law and provide additional information to the CSSF regarding: modified. The reform will further increase the flexibility and provide for a full tax transparency and tax neutrality. The new Luxembourg LP will be aligned 3 Introduction of a new special limited partnership (“Société en Commandite Spéciale” or “SCSp”) • the AIF it intends to manage. • a program of activity setting out the organizational structure of the UCITS Management Company, including information on how it will comply with operating conditions with models existing in England, Scotland, Jersey, Guernsey and other common law jurisdictions and will be tailor-made for alternative investment fund raising and for carried-interest structuring. The SCSp will be a brand new type of vehicle in Luxembourg, profiting from the same flexible company law regime as the SCS. The originality is the SCSp having no legal personality, thus creating a new choice between a Luxembourg LP with legal personality (SCS, similar to and reporting obligations. • Information on remuneration policy which has to be compliant with the 2 Modernisation of the existing common limited partnership (“Société en Commandite Simple” a Scottish LP) and a Luxembourg LP without legal personality (SCSp, similar to an English LP). AIFMD. • Information on the delegation of tasks. • How it will comply with the share capital and own fund requirements set out in the AIFMD. or “SCS”) The SCS will remain governed primarily by the limited partnership agreement (“LPA”), but with an extended contractual freedom to fulfil any business needs of the fund managers 4 Full tax transparency and tax neutrality The SCS is currently treated as transparent for corporate income tax (“CIT”) and net worth tax (“NWT”) Once the approval is granted, the UCITS Management Company will be recognized as AIFM-compliant and will benefit from the AIFMD passport. A Chapter 16 Management Company will also be able to seek authorisation to act as an AIFM. Main Tax Changes and investors, while safeguarding the confidentiality required by the alternative investment fund market. The Luxembourg company law applicable to the SCS will be modernised and will include the following interesting features: • possibility of contributions in industry (services, know-how) by general partners (“GPs”) and limited purposes. The same treatment will apply to the future SCSp. If the GP(s) taking the form of limited company(ies) hold(s) less than 5% of the partnership interests, the income of the Luxembourg LP will no longer be deemed to be a business income. Moreover, if the activity of the SCS and SCSp is limited to private wealth management (which generally From a tax point of view, the implementation of AIFMD in Luxembourg will engender several changes, which are summarized below. 1 New Luxembourg limited partnership – a very flexible fund raising vehicle The company law and tax regime applicable to the Luxembourg limited partnership (‘LP’) will be significantly partners, • contractual freedom to allocate profits or losses, • full flexibility to define voting rights, • publication of the LPA limited to excerpts to safeguard the confidentiality of the identity of the limited partners and of sensitive information. corresponds to the activity of private equity and real estate funds), the income of the SCS and SCSp should not be classified as business income. Consequently, no permanent establishment should be recognized, especially for municipal business tax (“MBT”) purposes. The new provisions will allow a full tax transparency and tax neutrality of both the SCS and SCSp in Luxembourg. 4 Fund News – August 2012 The tax treatment of SCS set up before the new law enters into force will remain unaffected by the new rules. recast Article 44, 1, d) VATL to include within the scope of the VAT exemption the management of investment funds located in other European Union disposal of units, shares or other securities issued by an alternative investment fund in the framework of a carried interest as well as the mere 5 Management of investment funds – Recast of the scope of the VAT exemption Member States and subject to supervisory bodies similar to the CSSF or the CAA. carried interest. The provision applies to employees of alternative investment fund managers or Bill 6471 includes changes to Article 44, 1, d) of the Luxembourg VAT law covering the investment funds management services exemption. Art. 206 of the bill is the consequence of a recent Luxembourg case-law according to which subcontracted investment management services received by a Luxembourg investment manager for the benefit of a SICAV established in an European Union Member State other than Luxembourg should not benefit from the VAT exemption of Article 44, 1, d) of the Luxembourg VAT law (“VATL”). Indeed, in its current wording the exemption applies only to the management of investment funds subject to the supervision of the Luxembourg regulatory authority (the CSSF or the CAA) and not to another European Union regulatory authority. This leads to a situation where a management company can incur input VAT on subcontracted investment funds management services without any recovery possibility considering that the management services it renders to an The enactment of this bill should reach its aim to avoid a situation where a management company would have incurred non-recoverable input VAT on subcontracted investment funds management services. It should be noticed that the bill also includes within the scope of the VAT exemption the management of alternative investment funds (“AIF”), whatever their place of establishment. The impact of this provision should be threefold. First, the supply of management services to a Luxembourg AIF should be VAT exempt. Second, subcontracted AIF management services received by a Luxembourg manager should also benefit from the exemption. And third, in return for this exemption, the input VAT recovery right of a Luxembourg AIF manager would have to be carefully monitored, even if the AIF managed is established outside the European Union. The interpretation of those provisions, if enacted as such, could be further detailed in a Grand Ducal Decree or in a Circular from the Luxembourg VAT authorities. alternative investment fund management companies. Capital gains realized upon sale of units, shares or securities covered by the present draft law are tax free if held for more than 6 months except if the individual holds or held a substantial participation. Carried interest not represented by units, shares or other securities are taxed as extraordinary income at a quarter of the global tax rate (around 10%). The tax provisions qualify the income of carried interest as other income (not as income of salaried activity) and limit the tax regime to individuals that became tax resident in Luxembourg during the year or the 5 subsequent years of the introduction of the present law. The provisions do only apply for income realized within 10 years after the year the individual took its functions in Luxembourg. They do, however, not apply to individuals that have been tax residents or taxed on professional income in Luxembourg anytime during the 5 last years before the year the law European Union regulated fund would 6 Carried interest be VAT exempt if located in has been enacted. Neither do the provisions apply to carried interest Luxembourg. ... - tailieumienphi.vn