Issue 95 – Regulatory and Tax Developments in August 2012 doc

1

FUND NEWS
August 2012
Investment Fund Regulatory and Tax developments in
selected jurisdictions
Issue 95 – Regulatory and Tax
Developments in August 2012

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
(1)
(2)
(3)

(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)

Regulatory Content
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

UK
FSA proposes ban on promotion of UCIS and
similar products to retail investors Page 7

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

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

2


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
subscription contract, the KIID
need only be provided once.
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:
• 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.


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
anticipated that this draft bill will be

enacted quickly.
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
Députés (Luxembourg Parliament). The
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.
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
Fund News – August 2012

3


these pieces of legislation:
• Part II UCIs
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.
• SIFs
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.







• SICAR
Similar to the regime for SIFs the SICAR
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:
‘’Professional Custodian of Assets

other than Financial Instruments’’
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







than financial instruments’. The criteria
set down to be authorised as PFS
custodian are the following:
• 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
Modification of the Management
Company regimes available in
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.








Fund News – August 2012

4

The UCITS Management Company will
have to comply with Chapter II of the
draft law and provide additional
information to the CSSF regarding:
• 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
and reporting obligations.
• Information on remuneration policy
which has to be compliant with the
AIFMD.
• Information on the delegation of
tasks.
• How it will comply with the share
capital and own fund requirements
set out in the AIFMD.
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
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
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
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.
2 Modernisation of the existing
common limited partnership
(“Société en Commandite Simple”
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
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
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.


3 Introduction of a new special limited
partnership (“Société en
Commandite Spéciale” or “SCSp”)
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
a Scottish LP) and a Luxembourg LP
without legal personality (SCSp, similar

to an English LP).
4 Full tax transparency and tax
neutrality
The SCS is currently treated as
transparent for corporate income tax
(“CIT”) and net worth tax (“NWT”)
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
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.
Fund News – August 2012

5

The tax treatment of SCS set up before
the new law enters into force will
remain unaffected by the new rules.
5 Management of investment funds –
Recast of the scope of the VAT
exemption
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
European Union regulated fund would
be VAT exempt if located in
Luxembourg.
To remedy this situation, the bill would
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
Member States and subject to
supervisory bodies similar to the CSSF
or the CAA.
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.
6 Carried interest
The draft law also introduces a carried
interest regime. The provisions cover
the taxation of gains realized by the
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
carried interest.
The provision applies to employees of
alternative investment fund managers or
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
has been enacted. Neither do the
provisions apply to carried interest
where prepayments have been made.

Fund News – August 2012

6


7 AIF managed out of Luxembourg
Non resident AIFs are not subject to
Luxembourg direct taxation by the mere
fact that they are effectively managed in
Luxembourg.
The implementing law is available, in
French only, via the following web link:

CSSF Regulation n°12-01 on Risk
Management and Conflicts of
Interests for SIFs
On 13 August 2012, the Commission de
Surveillance du Secteur Financier (CSSF)
issued a new Regulation laying down
detailed rules relating to risk
management and conflicts of interests
for SIFs.
1. Risk management
The Regulation explains that the risk
management function has to implement
and maintain an adequate and
documented risk management policy
intended to detect and manage
appropriately the exposure to the risks.
It also has to ensure compliance with
the SIF’s risk limitation system.
Furthermore, the risk management

system has to be adopted by the
directors of the SIF and has to be
subject to a review on a regular basis.
Any material change that could occur
has to be notified to the CSSF.
The Regulation clearly states that the
risk management function has to be
hierarchically and functionally
independent from operating units.
Nevertheless, a derogation from this
requirement is foreseen if justified by
the nature and scale of activities.
SIFs may also delegate all or part of their
risk management to third parties only in
cases where the third party has the
necessary skills to perform it in a reliable
and efficient manner. Moreover, the
delegation will not, in any case, relieve
the directors of SIFs of their
responsibility.
2. Conflicts of interest
The Regulation specifies that SIFs have
to implement and maintain an effective
conflicts of interest policy requiring a
written policy, appropriate to the size
and organization of the SIF and the
nature, scale and complexity of its
business. SIFs will also have to
implement and maintain a policy in order
to prevent each relevant person (defined

in Article 6) from entering into personal
transactions which may give rise to a
conflict of interest. They will have to
prevent or manage each conflict of
interest resulting from the exercise of
voting rights attaching to the
instruments held. SIFs will also have to
prove their independence in terms of
management of conflicts of interest
according to specific criteria.
Finally SIFs will have to keep update on
a regular basis a record of the types of
collective portfolio management
activities in which a conflict of interest
may arise or has arisen.
The Regulation will enter into force on 1
September 2012. The CSSF Regulation
n°12-01 is available (in French only) via
the following
link:

Malta

SICAV Incorporated Cell Companies
Regulations
The Companies Act (SICAV Incorporated
Cell Companies) Regulations extend the
Maltese legislation applicable to cell
companies, first introduced in the
insurance sector, to the fund sector. In

terms of these regulations, each
Incorporated Cell of an Incorporated Cell
Company (ICC) has separate legal
personality and is treated as a separate
company forming part of the ICC
Scheme. Incorporated Cell Companies
and Incorporated Cells share the same
registered office and at least one
common director. The Regulations also
allow for the relocation and expulsion of
Incorporated Cells and the
transformation of an Incorporated Cell
Company or an Incorporated Company
into a non-cellular company and vice-
versa. It is also possible to redomicile or
shift the legal seat of an Incorporated
Cell Companies and Incorporated Cells
in terms of the Companies Act
(Continuation of Companies)
Regulations.
Recognised Incorporated Cell
Companies Regulations
The new Recognised Incorporated Cell
Companies (RICCs) framework
introduces a specific set of conditions
which are separate from those applying
to the ICC SICAV regime. The
Companies Act (Recognised
Incorporated Cell Companies)
Regulations provides promoters with a

flexible Incorporated Cell Company (ICC)
structure that may be used as a vehicle
to achieve various objectives including
Fund News – August 2012

7


the setting up of a fund platform. Under
these regulations, a limited liability
company may be formed or constituted
as a recognised incorporated cell
company to establish incorporated cells
and to provide such incorporated cells
with administrative services. In order to
provide such administrative services, a
recognised incorporated cell company
requires a Recognition Certificate issued
by the Maltese Financial Services
Authority.
Level playing field for Limited
Partnerships and SICAVs
By virtue of the Companies Act
(Amendment of the Tenth Schedule)
Regulations, Limited Partnership
structures have been brought on a level
playing field with investment companies
with variable share capital (SICAV).
Therefore, Limited Partnerships will
benefit from more structural and

operational flexibility under the
Companies Act. It will be possible for
Limited Partnerships to be formed either
as a multi-class partnership or as a multi-
fund partnership. The multi-fund
partnership may moreover elect for the
segregation of assets and liabilities
between separate funds. In addition, it is
also possible for Limited Partnerships to
be set up with capital that is not divided
into shares.




UK
The FSA proposes to ban the
promotion of UCIS and similar
products to retail investors
On 22 August the Financial Services
Authority (“FSA”) published its latest
proposals to increase consumer
protection through banning the
promotion of Unregulated Collective
Investment Schemes (“UCIS”) and
similar products to the majority of retail
investors. The details are in consultation
paper (“CP 12/19”) which follows on
from its Product Intervention discussion
paper (DP 11/1) issued in January 2011.

The FSA’s conclusion is that such
products must be restricted to
sophisticated investors and high net
worth individuals that are properly
assessed and are aware of the risks if it
is to mitigate the risks and reduce the
level of miss-selling that the FSA has
observed in the market.
The FSA assesses that current
regulation does not provide sufficient
protection to “ordinary” retail investors.
It has gathered evidence that only one in
four advised sales of a UCIS to retail
customers was suitable. In addition it
concludes that other products, with
similar risks to UCIS, which are not
covered by the rules on the marketing of
UCIS, can be widely promoted in the
retail market. The FSA is concerned that
failures of non-mainstream pooled
investments in recent years have lead to
a total investment losses for customers.
Overall the conclusion of the FSA is that
promotion of UCIS and similar products
can fall substantially short of the
standards required and that it must take
action to protect ordinary retail
customers from unsuitable products and
potentially large losses. It highlights that
since 1 September 2010 it has issued 22

Final Notices and four Decision Notices
in relation to UCIS failures and
summarises these on its website:
/>rm_type/financial/investment/ucis-
enforcement-notices.shtml
The FSA identifies such investments as
being esoteric; potentially illiquid; and
susceptible to catastrophic loss of value.
Examples of esoteric investments
include: traded life policies; fine wines;
crops; unlisted shares; timber; and UCIS
and other schemes investing in such
assets. In addition securities in special
purpose vehicles which have similar
risks should also be restricted on their
promotion. The FSA proposes that firms
should only promote these products to
people for whom a UCIS or similar is
more likely to be appropriate.
The FSA draws attention to the fact that
it has issued warnings to investors
concerning UCIS, including the
protections available and not available
when investing in a UCIS:
/>tion/product_news/saving_investments/
ucis
but clearly considers it must now go
further in meeting its statutory objective
and making rules and guidance that
protect retail investors.

In what many may consider to be a
controversial move (and notably one
ranked as a three star consultation by
Fund News – August 2012

8


the FSA) the effect of these proposals,
should they come into force as drafted,
would be:
• The introduction of glossary
definitions for certified high net
worth investor, certified
sophisticated investor, sophisticated
investor and non mainstream pooled
investment to restrict and align
current eligible investor criteria,
removing the existing firm discretion
in assessing investor sophistication.
• Implementation of specific
marketing restrictions including
mandatory risk discloses which aim
to create a level playing field
between different types of
investment product and to provide
some protection against retail
investors being inappropriately
classified.
• Requirements for firms to document

and maintain records of the precise
basis on which they make each
promotion to a retail client, including
setting out the basis on which the
client meets the marketing
exemptions.
• Requirements for Individuals
responsible for the Compliance
Oversight Function within affected
firms to confirm the compliance of
each financial promotion with the
marketing restriction rules.
In addition, the proposals include:
• Handbook guidance: to clarify that
personal recommendations (i.e. the
provision of advice) generally
amount to financial promotion and
therefore are subject to the relevant
marketing restrictions; and
• updating of the definition of retail
investment product under the Retail
Distribution Review to clarify that
UCIS and similar products do not
necessarily have to be considered
as ‘substitutable’ investments when
firms/advisers are evidencing
independence of advice.
It is important to note that execution
only sales and incoming cross-border
financial promotions of these

investments are not affected by the
proposals.
The consultation is for three months to
the 14 November after which the FSA
will publish a Policy Statement and its
finalised Rules and Guidance in quarter
one 2013.
CP 12/19 (92 pages) is available via this
web link in which the FSA provides a
summary of why it is consulting at this
time:
/>012/12-19.shtml
Tax News
European Union

VAT treatment of portfolio
management services – the Deutsche
Bank case

On the 19 July the European Court of
Justice (ECJ) released its Judgment in
the “Deutsche Bank case” (C44/11).
The Judgment confirmed the Advocate
General's Opinion that discretionary
portfolio management services are
subject to VAT and are not exempt
either as a dealing in securities or,
alternatively, as a service similar to fund
management.
Background

Deutsche Bank provided discretionary
portfolio management services, the
relevant portfolio assets being shares
and other securities. Subject to certain
parameters, Deutsche Bank bought and
sold assets without requesting approval
from the client. It charged a total fee
based on 1.8 percent of the assets
under management. This comprised 1.2
percent for advisory services and 0.6
percent for securities dealing activities.
Deutsche Bank sought clarification from
the ECJ on whether:
1. Portfolio management services
should be VAT exempt either as a
dealing in securities or as a service
which is similar to fund
management;
2. The bundle of advisory and
execution services constituted a
single supply for VAT purposes or
Fund News – August 2012

9


not; and whether
3. Previous European legislation
covering the place of supply of
financial services covered services

which fell outside the VAT finance
exemption.
The Judgment
The ECJ’s Judgment follows the
Advocate General’s Opinion and
confirms that:
1. Portfolio management represents a
single, taxable supply for VAT
purposes. In reaching this view, the
ECJ held that Deutsche Bank’s
execution and advisory elements
ought to be placed on an equal
footing and, taken together, they
form a single, inseparable supply
which it would be artificial to split.
This being the case, the ECJ
considered whether the package of
services fell to be exempt or not.
The ECJ held that portfolio
management services clearly do not
fall within the exemption for the
management of special investment
funds.
2. Turning to the exemption for
transactions in securities, the ECJ
noted that this exemption covers
transactions to “create, alter or
extinguish” rights in relation to
securities. The ECJ stated that as
this was only part of the overall

service and because of the
requirement to strictly interpret the
scope of EU VAT exemptions,
Deutsche Bank’s services must fall
to be taxable. It was also noted that
if the exemption for transactions in
securities already covered the
management of those assets, there
would have been no need for EU
VAT legislation to provide for a
separate fund management
exemption.
3. On the last question, the ECJ
confirmed that, prior to the
introduction of the VAT Package in
2010, EU VAT legislation governing
the place of supply of financial
services was not limited to supplies
which fall within a relevant
exemption. As such, discretionary
portfolio management services fell
under this heading and, in a
business-to-business context, were
taxed according to the customer’s
location.
Implication
Whilst the ECJ’s decision follows the
VAT treatment applied by a number of
investment managers and private banks,
many institutions (particularly in the UK)

have historically split their mandates
such that a separate exempt fee is
charged for execution services. The
extent to which this treatment can
continue is now in doubt, albeit the
Judgment does acknowledge that
advisory and execution services may be
separately engaged for, depending on
the customer’s underlying aims and
profile.
These judgments, considered together,
suggest that investment management
comprises a spectrum of activities, with
exempt execution and introductory
services at one end and taxable
discretionary management at the other.
Quite where services such as execution
with advice would sit is not wholly clear
and may require further case law or
guidance.
National responses to the ECJ’s
Judgment and, in particular, whether
institutions can continue to exempt
execution fees are awaited. Institutions
should also assess the status of any
protective claims they may have
submitted. Where the tax collector does
not reject a claim there is merit in
maintaining that exemption can apply.
Prior to the introduction of the new

place of supply rules on 1 January 2010,
a number of jurisdictions viewed certain
taxable financial services (such as non-
exempt fund management and
investment management services) as
being taxed according to the supplier’s
location. Businesses which have
incorrectly been charged VAT on cross-
border supplies of these services
should, therefore, consider whether to
revert to their supplier for a refund.
Double taxation will have arisen where
the supplier has charged local VAT and
the business has simultaneously self-
accounted for home state VAT under the
reverse charge. Clearly, whether a
refund is appropriate would depend on a
range of factors including complex time
limitation issues in each relevant
jurisdiction.
If you have any questions about this
case and its implications for your
business, please contact your usual
KPMG VAT adviser.


Fund News – August 2012

10

Ireland

Ireland’s Double Taxation Agreement
Network Continues to Grow
Ireland has recently agreed DTAs with
Egypt, Qatar and Uzbekistan in addition
to those signed with Albania, Bosnia &
Herzegovina, Hong Kong and
Montenegro last year.
This continued focus on Ireland’s DTA
network has significantly increased the
number of DTAs within the Irish
network. To date Ireland has signed
comprehensive DTAs with 68 countries.
Ongoing negotiations with several other
jurisdictions will see the network
continue to grow.
Ireland has DTAs with most of the major
investment markets. The agreements
cover direct taxes, which in the case of
Ireland are income tax, corporation tax
and capital gains tax.
A comprehensive DTA network is
important for international financial
services businesses and is of particular
interest to investment funds where
withholding taxes on dividends and
interest have a direct impact on
investment yields. Moreover for

investment countries that impose capital
gains tax on nonresident investors (or
where there is uncertainty in relation to
the application of capital gains taxes),
having access to a DTA network is
important to help reduce such taxes and
exposures.
The text of the Ireland’s DTAs can be
found on the Irish Revenue
Commissioners website
here:
Luxembourg

Aberdeen E-alert
The Aberdeen E-Alert Issue 2012-11 (tax
newsletter focusing on withholding tax
reclaims based on the Aberdeen case
law) discusses the abolishment in
France of WHT on dividend payments to
foreign investment funds The full text of
the e-alert is available via the following
web
link::
The Aberdeen E-Alert Issue 2012-12
(here) looks at new guidance from the
German Ministry of Finance regarding
the competence of tax offices Risk in
case of an omission to file WHT reclaims
based on the ECJ decisions in the
Aberdeen and in the Santander case in

Germany.

Turkey

The Private Pension Savings and
Investment System Law
The Law numbered 6327 amended the
Private Pension Savings and Investment
System Law and various other Laws has
been enacted by the Parliament and put
into effect on 28 June 2012 upon being
published on the Official Gazette. The
Law introduced new provisions on how
to attract more participants to the
pension system and to tax gains from
the system. One of the major incentives
to attract more people in to the system
is “State contribution”.
State contribution
• The law removed the existing
advantages in the current system
regarding the exemptions at the exit
and availability of wage tax
deductions for the individuals
whereas it intends to bring long
term incentives through employer
contributions and state
contributions. The state will also be
contributing an amount equivalent to
25% of the contributions made to

the system for an individual
(employee or employer
contributions) although such
contribution will still be capped at
the gross minimum wage per
annum. It is expected that more
participants will be joining the
system and thus the pension fund
market will be developed.
• The law removed an uncertainty and
after August 29, 2012, the
withholding taxes on gains at exit
from the system will only be
applicable over the yields but not
the principal amounts invested into
the system. The individuals will be
able to access to the principal
amount of contributions and their
returns depending on their duration
of stay in the system. The schedule
is as follows:
a) The employee will be accessing
to 15% of principal and return if
he/she stays in the system for
minimum 3 years.
b) The employee will be accessing
to 35% of principal and return if
he/she stays in the
system for
minimum 6 years.

c) The employee will be accessing
to 60% of principal and return if
Fund News – August 2012

11


he/she stays in the system for
minimum 10 years.
d) Full access to the principal and
returns in the case of retirement or
leave from the system due to death
or disability.
Law 6322 to increase savings in
Turkey
The Law numbered 6322 has been
enacted by the Parliament and put into
effect on 15 June 2012 upon being
published on the Official Gazette. The
Law introduced new provisions as
follows and these provisions have been
related to some incentives to create
more employment and increase savings
in Turkey.

Incentives for Venture Capital
Investment Funds
The venture capital funds established
under the Capital Market Law are
intended to be incentivized through the

upcoming changes. The corporate
taxpayers will be available to get an
allowance from their corporate tax base
with respect to the funds that that will
be set aside to be invested into the
Turkish venture capital investment
partnerships or funds which should not
exceed 10% of their taxable profits and
20% of their shareholders equity. Those
funds will be kept under special fund
accounts in their balance sheets, and
which needs to be allocated to venture
capital investment partnerships or funds
until the end of the year in which the
funds are left aside.
In addition to this, the dividend income
received from these venture capital
investment funds and companies are
also exempted from corporate taxes.
Safe harbor for non-resident
investment funds
Current government has a vision and
project for Istanbul, which is “making
Istanbul a new financial centre”.
Therefore, there is a newly introduced
exemption. The portfolio management
companies, governed under the rules of
Capital Markets Law and enabling the
non-resident investment funds to carry
portfolio transactions in regulated or

non-regulated financial markets through
their intermediary activities, will not be
deemed to constitute PE for the non-
resident investment funds if the
following conditions are fulfilled
together:
• Portfolio management is among the
ordinary activities of the portfolio
management company in Turkey.
• The relations between the
investment funds and portfolio
management company are
determined on arm’s length basis
parallel to the relations between
independent third parties.
• The fees are determined on arm’s
length basis and this is supported
with a transfer pricing report to be
submitted to Revenue
Administration Directorate within
the deadlines for filing the corporate
tax return by the portfolio
management company.
• Neither the portfolio management
company nor the persons affiliated
to that company holds any rights in
excess of 20% in the non-resident
investment funds.
Income Derived by Asset
Management Companies

The income derived by the asset
management companies through the
issuance of financial instruments is
covered in scope of withholding taxation
under Temporary Article 67 of Turkish
Income Tax Code. However, a
distinction is introduced for the income
derived through the purchase-sale and
holding of financial instruments issued
abroad and taxation in relation to such
instrument is being parallel to the
Treasury bonds issued abroad.
Fund News – August 2012

12



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:






Charles Muller

Partner
T: +352 22 5151 7950
E:





The evolution of
an industry –
2012
KPMG/AIMA
Global Hedge
Fund Survey
here:
Analysis of
UCITS IV tax
implications –
updated version
here:






Evolving
Investment
Management
Regulation

here:






We have launched
a new channel
“Fund Views”
on our KPMG TV
platform. In
regular videos we
outline the latest
regulatory
developments
affecting
European Asset
Managers.

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.