Luxembourg Investment Funds Withholding Tax Study 2011

Luxembourg Investment Funds Withholding Tax Study 2011 update July 2011 kpmg.lu Introduction On behalf of KPMG’s Funds Line of Business, we are pleased to introduce the 2011 Luxembourg Investment Funds – Withholding Tax Study. We are delighted to present to you the Luxembourg Investment Funds – Withholding Tax Study 2011 update, which is the fourth edition of this study. The report addresses the comparison of the competitive advantages of investing in different jurisdictions through a Luxembourg SICAV or Luxembourg FCP. The research includes a survey of 72 countries as well as an in-depth analysis of the stage of interest taxes, dividend taxes, capital gains tax and withholding rates applying to Luxembourg SICAVs and FCPs. In addition, we discuss the possibility for Luxembourg SICAVs and FCPs to reclaim withholding tax based on EU Law, the EU Commission’s actions as well as administrative and juridical decisions. We also outline the provisions within the newly introduced US withholding tax system (i.e. Foreign Account Tax Compliance Act ,FATCA) and their implications for the investment fund industry. We hope you find the material of interest and should you seek further information on the report we would be delighted to assist you in your queries. Please feel free to contact us if you have any questions or if you would like additional copies. Soft copies are also available from our website: www.kpmg.lu Finally, we would also like to thank all those who offered their valuable time to help complete the survey. Vincent Heymans Partner Gérard Laures Partner How to further reduce withholding tax based on EU Law? In the last 6 years, EU law has increasingly impacted the European tax environment and its consequences for the Luxembourg investment fund industry should no longer be underestimated. Recent ECJ case law (“Aberdeen Fininvest Alpha” C-303/07), EU Commission’s actions as well as local administrative and judicial decisions provide a solid basis for Luxembourg SICAVs and FCPs to reclaim unduly levied withholding taxes, in the EU Member States where they have made investments. As a consequence, the Withholding Tax Study 2011 now includes the amount of withholding tax that could be reclaimed in countries which, based on our analysis, may be in breach of EU law. In the majority of cases, this should allow the investment funds to further reduce the WHT rate to zero. However, we would like to draw your attention to the fact that the time limitation and the reclaim process may vary from country to country, as there is no common EU rule. • For the past, the reclaim should be filed with the competent tax authorities of the source state. • For the future, it may be possible to file so-called “top-up claims” in order to avoid the levy of a withholding tax upfront. KPMG Luxembourg has developed outstanding technical know-how in EU tax matters and is now filing claims on behalf of several Luxembourg investment funds in many countries, such as France, Germany, Poland, etc. Through these projects, our EU Tax team has gained experience in mobilizing and coordinating dedicated people and skills within the KPMG network to be able to quickly and efficiently respond to your needs. KPMG Luxembourg can assist you in filing claims in all countries that infringe EU law by applying a discriminatory tax treatment to cross-border dividend distributions. If you are interested in a tailor-made solution for your fund, or if you simply want to learn more about how to lodge a successful claim, we encourage you to contact: • Olivier Schneider T:+352 22 51 51 – 5504 E:olivier.schneider@kpmg.lu • Michèle Kimmel T:+352 22 51 51 – 5500 E:michele.kimmel@kpmg.lu • Gérard Laures T:+352 22 51 51 - 5549 E:gerard.laures@kpmg.lu • Claude Poncelet T:+352 22 51 51 - 5567 E:claude.poncelet@kpmg.lu According to our analysis, EU based claims may be viable in the following countries: WHT rates on dividend distributions to Treaty Jurisdiction Resident Non resident Non resident rate fund FCP SICAV Rate Reclaimable FCP SICAV Time limitation Belgium 25% refundable 25%/15% 25%/15% non n/a refundable refundable 25%/15% 25% 5 years refundable Denmark1 Estonia* Finland1 France 0%/15% 15% 0% 0% 0% 28% 0% 25% 15% 15%/5% 21% n/a 28% 15% 25% n/a 15% 15%/5% 3 years 0% 21% 3 years 28% 15% 5 years 25% 25% 2 years Germany1 26,35% refundable 26,35% non 26,35% non 15% refundable refundable 26,35% non 15% 4 years refundable Hungary Italy 0% 20% 20% n/a Substitute tax 27% 27% n/a 12.5% 20% 20% 6 years 27% 27% 4 years The Netherlands 25%/15% 25%/15% non25%/15% non refundable refundable refundable n/a 25%/15% non 25%/15% 5 years refundable Norway 0% Poland 0% 25% 25% n/a 19% 19% 15%/5% 25% 25% 3 years 19% 15%/15%**** 5 years Romania**1 10% 16% (10% as 16% (10% as corporate from 2009) from 2009) fund 0% contractual fund 10% 16% (10% as 10% 5 years from 2009) Spain***1 Sweden 18% refundable 0% 18% non refundable 30% 18% non refundable 30% 15%/10% n/a 18% non refundable 30% 15%/10% 4 years 30% 5 years * The discrimination only concerns the WHT rates as well as period prior to December 31, 2008 ** The discrimination only concerns the WHT rates as well as period prior to 2009 *** Exemption introduced in Spain with effect from January 1, 2010 but claims may be made for earlier years **** Because of the short decision period of the Polish tax authorities (60 days), a combined filing (DTT and Aberdeen claim) is recommended. Note that even if the Aberdeen tax reclaim is rejected, the tax authorities may grant a refund based on the reduced DTT rate. 1 For Denmark, Finland, Germany, Romania and Spain, we recommend claiming for a refund based on a reduced DTT rate. Then, we recommend filing an “Aberdeen” tax claim in order to obtain a refund of the remaining WHT (reduction up to 0%) Foreign Account Tax Compliant Act (FATCA) – Implications for Funds Overview of FATCA The U.S. government intends to combat tax evasion by U.S. persons more intensively. In that effort, the Foreign Account Tax Compliance Act (FATCA), which has been enacted into law on the 18 March 2010, will bolster the government’s arsenal and will make it more difficult for U.S. persons to hide income and assets. For investment funds, this translates into new withholding and reporting obligations which have the potential to dramatically change the way funds currently operate. FATCA provisions are applicable to a wide range of foreign financial institutions (FFIs), including investment funds, and require the documentation of all investors in order to identify those that are U.S. persons. Under FATCA, a 30% withholding tax is applied on any payment from U.S. sources (interest, dividend or sales proceeds) made to an investment fund, unless the fund enters into a disclosure agreement with the US Treasury whereby it agrees to: • Identify U.S investors; • Comply with verification and due diligence procedures; • Perform annual reporting; • Deduct and withhold 30% from any payment made by the fund to inadequately documented investors; and • Comply with requests for additional information. Notice 2010-60, Notice 2011-34 and Notice 2011-53 set forth the general framework for implementing FATCA. Further implementation guidelines are still to come. ... - tailieumienphi.vn