Tài liệu Issue 92 – Regulatory and Tax Developments in May 2012 docx

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FUND NEWS
May 2012
Investment Fund Regulatory and Tax developments in
selected jurisdictions
Issue 92 – Regulatory and Tax
Developments in May 2012

Regulatory News

European Union

ESMA publishes updated list of
measures adopted by competent
authorities on short selling

On 29 May 2012 the European
Securities and Markets Authority
(ESMA) published an update regarding
the measures taken by EU supervisory






authorities regarding short selling. This
update includes measures taken by
Austria and is available via the following
web link:
/>selling

done through a common Memorandum
of Understanding (MoU), which will


Regulatory Content
European Union
ESMA publishes updated list of measures
adopted by competent authorities on short
selling Page 1

Luxembourg
CSSF publishes Frequently Asked Questions
document on the KIID Page 2

CSSF signs new Co-operation Agreements
Page 2

Tax Content
EU
Advocate General’s Opinion that discretionary
portfolio management services are not
exempt services for VAT Page 2

The Netherlands
Tax treaty with Germany Page 3

UK
HMRC publish second round consultation
document on the future taxation of UUTs
Page 4

Luxembourg
Luxembourg and Germany sign new tax
treaty
Page 5
Aberdeen E-alert Page 6

Accounting content
IFRS for Investment Funds – Issue 4 -
Classification of Financial Assets under
IFRS 9 Page 6


Other news
KPMG European Responsible Investing Fund
Survey
Page 6
Fund News – May 2012

2


Luxembourg


CSSF publishes a Frequently Asked
Questions document on the KIID

The Commission de Surveillance du
Secteur Financier (CSSF) published a

Frequently Asked Questions document
on the Key Investor Information
Document (KIID) for UCITS. The
document is available via the following
web link:
/>dinvestissement/


CSSF signs new Co-operation
Agreements

In May 2012 the CSSF signed a co-
operation agreement with the China
Securities Regulatory Commission
(CSRC) on mutual assistance and
exchange of information in the areas of
securities regulation and securities
markets.
The CSSF also signed a co-operation
agreement with the Egyptian Financial
Supervisory Authority on mutual
assistance and exchange of information
in the areas of regulation, cross-border
asset management and financial
markets.

Tax News

European Union

Advocate General’s Opinion that
discretionary portfolio management
services are not exempt services for
VAT
On 8 May the Advocate General’s
(“AG”) Opinion (“the Opinion”) in the
Deutsche Bank AG case was issued. It
provides a number of interesting points
which could impact the provision of
wealth management and private banking
portfolio management. In the Opinion,
the AG concluded that portfolio
management services do not fall under a
relevant VAT exemption and are,
therefore, taxable. The Opinion also
states that where advice and execution
are provided under a single
arrangement, the entire package of
services ought to be taxed. The AG also

provided some comments on “fiscal
neutrality” arguments. The AG
suggests that use of this concept is, in
this case, limited given the fund
management exemption is specifically
limited to collective investment
schemes. A full European Court of
Justice (“ECJ”) judgement is expected
to follow within a few months.
Background
Deutsche Bank provided discretionary
portfolio management services. The
assets were shares and other securities,
and, within certain parameters,
Deutsche Bank was permitted to buy
and sell without requesting approval
from the client. It charged a total fee
based on 1.8% of the assets under
management, comprising 1.2% for
advisory services and 0.6% for
securities dealing activities.
The questions referred to the ECJ were
whether:
1) the portfolio management services
should be VAT exempt either as a
dealing in securities or as a service
which fulfils a function similar to fund
management services;
2) the package of services constitute a
single supply of services for VAT

purposes or not; and
3) whether European legislation
covering the place of supply of financial
services can cover services which fall
outside a relevant VAT finance
exemption.
Opinion
The AG decided that it would be artificial
to split Deutsche Bank’s services into
separately taxed components in that the
customer contracted for a single
portfolio management service, and the
split of fees between advice and
execution did not change this. To
benefit from exemption both the
advisory and execution elements taken
together would need to constitute a VAT
exempt financial service.
The AG characterised an exempt share
dealing service as one principally
concerned with the buying and selling of
instruments (i.e. the trade itself). In this
case the AG decided that the
customer’s key aim in engaging
Deutsche Bank was to receive its
Fund News – May 2012

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investment expertise, rather than to
execute the underlying trades
themselves. Indeed, the Opinion
envisaged a situation where no trades
were required. On this basis, Deutsche
Bank’s services did not have
characteristics of an exempt financial
service and were taxable.
Deutsche Bank and the European
Commission argued that investments in
individual portfolios and in special
investment funds were sufficiently
similar that both should benefit from the
same VAT exempt treatment. The AG
rejected this on the basis that the fund
management exemption has been
drafted such that it only covers collective
investment schemes, which would not
include individual portfolios.
In answering the last question, which is
of limited application given the changes
to the VAT place of supply rules post 1
January 2010, the AG concluded that
whilst the services did not benefit from
exemption, they were nevertheless
governed by the same VAT place of
supply rules.
Summary
The AG’s Opinion raises issues for
investment mandates where a fee is

split between taxable advisory services
and exempt transaction fees. Taken at
its widest reading, it could mean that
exempt fees charged under split
mandates could, going forward, fall to be
taxable (on the basis they constitute
payment for a single taxable supply).
Where a business which has not yet
submitted claims for potentially over-
declared VAT to its local tax authority, it
should consider whether to do so now.
There needs to be a balance between a
provider’s need to protect itself from
claims from its customers for
overcharged amounts and the AG’s view
which strongly suggests any claim
would be unsuccessful.
The AG’s Opinion is available via this
web link:
/>cument.jsf?text=&docid=122541&pageI
ndex=0&doclang=en&mode=lst&dir=&o
cc=first&part=1&cid=565004

The Netherlands

New tax treaty with Germany
A new income tax treaty between the
Netherlands and Germany has been
signed. The new tax treaty will most
likely apply from 1 January 2014 and will
replace the tax treaty of 1959.
The maximum rates of withholding tax
on dividends are:
• 5% in case of a substantial holding
(a holding of at least 10% of the
capital);
• 10% in case of dividend payments
to a Dutch resident pension fund;
• 15% in all other cases.
No withholding tax is levied on interest
or royalties.
Furthermore, in the Protocol a stipulation
with regard to the tax treatment of a
Dutch closed FGR ('besloten fonds voor
gemene rekening') is included.
A closed FGR is treated as tax
transparent for Dutch tax purposes. This
implies that all income and gains derived
through such FGR are attributed to the

investors in proportion to their
participations in the FGR. FGRs are
frequently used for asset pooling by
pension funds and other investors.
In the Protocol the German tax
authorities confirm that a closed FGR
will also be regarded as tax transparent
for the application of the income tax
treaty concluded between the
Netherlands and Germany. This tax
transparency also applies to third
country investors in the closed FGR.
Previously, the Netherlands have
concluded similar special agreements
Fund News – May 2012

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(Competent Authority Agreements)
regarding the tax treatment of a closed
FGR with Canada, Norway, Denmark
and the United Kingdom. It is expected
that CAAs with other countries
(including the USA and Switzerland) will
follow.
The new income tax treaty is available
via this
link (in Dutch) and this link (in
German).

UK

HMRC publish second round
consultation document on the future
taxation of UUTs
On 24 May 2012 HM Revenue &
Customs (“HMRC”) published the
second round consultation document
relating to proposed changes to the
taxation of unauthorised unit trusts
(“UUTs”). The proposals aim to:
simplify; reduce burdens; and provide

greater certainty for investors in exempt
UUTs (“EUUTs”). Exempt UUTs are
UUTs all of whose investors are
themselves exempt from tax on
chargeable gains. The proposals also
seek to remove certain avoidance
opportunities identified by HMRC.
The proposals in the consultation are
that:
• EUUTs will remain subject to
income tax, but the requirement to
withhold basic rate income tax on
deemed distributions will be
removed. The accounting year will
become the basis period and
distributions will be deemed to have
been made at the end of each
accounting period. The EUUT will
be liable to income tax to the extent
that income is not distributed.
Transitional rules will be introduced.
• Further simplifications are proposed:
it is suggested that EUUTs will not
be subject to tax on trading profits if
investments are on a “white list”
(the paper is silent on whether real
estate is to appear on the “white
list”). It will be possible to invest in
non-reporting offshore funds in a
more tax-efficient way provided that

sufficient information can be
obtained from the underlying funds.
Provided that interest is accounted
for on an accruals basis, the
requirement to comply with the
accrued income scheme may go.
• EUUTs will need to seek approval
from HMRC but more proportionate
rules will be introduced to address
the current “cliff-edge” risk to the
EUUT’s status where there are
inadvertent non-exempt investors.
• Authorised Investment Funds
(“AIFs”) will still be able to invest in
EUUTs (subject to FSA rules) but
this will affect the tax treatment of
the AF. The AF will pay corporation
tax at the main corporation tax rate
rather than 20 percent rate for AFs;
and it will not be permitted to make
an interest distribution.
• Non-exempt UUTs (“NEUUTs”) will
be within the charge to corporation
tax and any distributions would be
treated in the same way as
corporate dividends.
The consultation closes on 20 August
with draft legislation to follow in autumn
2012; proposed inclusion in Finance Bill
2013; and for the proposals to take

effect from the end of the 2013-2014 tax
year.
While the framework for EUUTs is
similar to before, the proposals are
significant and managers of EUUTs and
investors in EUUTs (predominantly
pension funds and charities) should
consider them carefully. In particular
those UUTs with a mix of exempt and
non-exempt investors should pay close
attention as there is a clear steer in the
paper that these should restructure.
• Exempt investors in a NEUUT may
begin to experience unacceptable
levels of tax leakage;
• there will be a clear divide between
EUUTs and NEUUTs; and
Fund News – May 2012

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• the UUT will become less attractive
as a vehicle for non-exempt
investors; however there may still
be a place for such an open-ended
unauthorised vehicle.
The second consultation document (32
pages) is available via this web link:
/>talWebApp/channelsPortalWebApp.porta

l?_nfpb=true&_pageLabel=pageLibrary_
ConsultationDocuments&propertyType=
document&columns=1&id=HMCE_PRO
D1_032081












Luxembourg

Luxembourg and Germany sign new
tax treaty
On 23 April 2012 Luxembourg and
Germany signed a new income and
capital tax treaty.
The new treaty generally follows the
OECD Model Convention and will, once
ratified by both countries, replace the
existing 1958 tax treaty.
Some important highlights are
summarized below:
• The withholding tax (WHT) rate on

dividends is reduced to 5% (from
10% before) where the beneficial
owner is a company of the other
Contracting State holding at least
10% of the capital of the paying
company (before a stake of 25% of
the voting shares was required).
• The new tax treaty provides (as the
previous tax treaty) a zero WHT rate
for interest and a 5% WHT rate for
royalty payments.
• Income paid on convertible and
profit participating bonds should
under the new tax treaty fall within
the interest provision (in the
previous tax treaty, this income has
been explicitly covered by the
dividend article). Accordingly, there
should generally be no WHT on
such payments (unless the
instrument is classified as equity in
the State in which the issuing
company is resident).
• According to the new tax treaty,
capital gains realized upon disposal
of shares in a company deriving
more than 50% of their value
(directly or indirectly) from
immovable property situated in a the
other Contracting State may under

the new tax treaty be taxed in the
state of the immovable property.
While under current Luxembourg
tax law, capital gains realized by
non-resident taxpayers upon
disposal of shares in resident
companies are generally not taxable
(unless the alienator had a
participation of more than 10% and
realized capital gains of speculative
nature), German tax law provides
under certain conditions for the
taxation of capital gains realized by
non-residents upon disposal of
participations in German companies.
• The new tax treaty limits the scope
of permanent establishments when
stating that building sites,
construction and installation projects
constitute a permanent
establishment provided that they
last more than 12 months (before
this period was set at 6 months).
• The new tax treaty provides for a
detailed article that allocates taxing
rights over different kind of pension
payments (for example, pensions
paid by a social security of a
Contracting State), thereby
increasing legal certainty in this

respect.
• While Luxembourg generally applies
the exemption method (with a
reserve for progression) and the
credit method in regard to income
that is subject to a limited WHT in
Germany (i.e. dividends, interest and
royalties), Germany adopted the
exemption method only where
certain conditions are met. For
example, business profits deriving
from a Luxembourg permanent
establishment or dividends paid by a
Luxembourg company are only tax
exempt if the income is derived
from active business as defined
Fund News – May 2012

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under German tax law (i.e. so-called
active business test). Nevertheless,
the German participation exemption
regime should continue to apply in
these cases. If an exemption is not
granted, the income will be taxed in
Germany and the so-called tax credit
method be applied.
• According to the protocol of the

new tax treaty, SICARs, SICAVs and
SICAFs may benefit from the
reduced/zero withholding tax rates
provided in regard to dividends and
interest payments. If certain
conditions are met, these
withholding tax rates may also
benefit to Luxembourg FCPs.
Further details of the treaty will be
reported subsequently.
Aberdeen E-alert
The latest Aberdeen E-Alert (tax
newsletter focusing on withholding tax
reclaims based on the Aberdeen case
law) discusses the conclusions of the
European Court of Justice (ECJ) in
relation to the French withholding tax on
outbound dividends to foreign UCITS.
The full text of the e-alert is available via
the following web
link.





Accounting News
IFRS for Investment Funds – Issue 4 -
Classification of Financial Assets
under IFRS 9

This publication will guide you through
the practical application issues that
investment funds may encounter when
applying the classification requirements
of IFRS 9 Financial Instruments that is to
supersede IAS 39 Financial instruments:
Recognition and Measurement.
It discusses the key requirements and
includes interpretative guidance and
illustrative examples.

/>AndInsights/ArticlesPublications/ILine-of-
Business-publications/Pages/IFRS-
investment-funds-isse-4.aspx

KPMG European Responsible
Investing Fund Survey

How is Responsible Investing defined?
What is the size of the Responsible
Investing “RI” Fund Market in Europe?
What are the favoured domiciles of such
funds? The “European Responsible
Investing Fund Survey” carried out by
KPMG Luxembourg and commissioned
by the Luxembourg Fund Association
(ALFI) intends to answer these
questions by giving a snap shot of the
European Responsible Investing Fund
universe.

Whilst this study confirms that
Responsible Investment funds remained
a niche product in 2010, with EUR
129.49 billion, across a total of 1,236
investment fund vehicles, the survey
indicates that the sector, driven by
customers demand and policy initiatives
will encounter significant evolution in the
future.

For instance, this study confirms that
social entrepreneurship funds were
marginal in 2010 but with the EU
initiative on Social Entrepreneurship
funds, this picture could radically change
in the upcoming years.
Impact investment should also be
accelerated by the creation of new
investment vehicle options such as the
“société d’impact” currently discussed
within the Luxembourg framework.
There is no doubt that Responsible
Investing will evolve in the future and
this study is critical in order to be able to
track the progress of this growing sector
in the coming years. To read the full
report please click here and for a
podcast on the findings please click
here:.

Fund News – May 2012

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Contact us
Dee Ruddy
Senior Manager
T: + 352 22 5151 7369
E:


Audit
Nathalie Dogniez
Partner
T: + 352 22 5151 6253
E:
www.kpmg.lu


Publications


Tax
Georges Bock
Partner
T: + 352 22 5151 5522

E:

Advisory
Vincent Heymans
Partner
T: +352 22 5151 7917
E:





The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and
timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular situation.

© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of
KPMG International.
A Disputed
Proposal: An
Overview of the
Financial
Industry's
Response to the
Volcker Rule
here:
The evolution of
an industry –
2012
KPMG/AIMA

Global Hedge
Fund Survey
here:

Charles Muller
Partner
T: +352 22 5151 7950
E:





Dodd-Frank for
Foreign Financial
Institutions -
Geared up for
change?
here: