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European regimes for collectiveinvestments. The Dutch perspective‘              Dr. Hein Vermeulen      Amsterdam Centre f...
Agenda• The Dutch tax regime in general• Dutch solutions  – Fiscally transparent investment structures  – Special regimes ...
The Dutch tax regime in general• Three taxes are relevant    – Personal income tax        • Taxation of private individual...
The classical systemPrivate individual                                 Private                       Personal income      ...
The Dutch tax regime in general• The general nature of classical system leads to• One layer of taxation if investment is i...
Agenda• The Dutch tax regime in general• Dutch solutions  – Fiscally transparent investment structures  – Special regimes ...
The Dutch approach• Collective investment is beneficial for   – Governments (short money made long)   – Citizens (economie...
The Dutch approach Investor level                                                Corporate taxation at level of CIV is eli...
The Dutch approach• Taxation may not hinder collective investment• Principle of tax neutrality   – Taxation of the individ...
The Dutch approach• Elimination of tax at level of the CIV  – Fiscally transparent investment structures  – Special regime...
Agenda• The Dutch tax regime in general• Dutch solutions  – Fiscally transparent investment structures  – Special regimes ...
Fiscally transparent structures• CIV is not a corporate taxpayer   – CIV is neglected, disregarded      • Look-through, co...
Fiscally transparent structures• Three main consequences  – taxation of the investors is equal to the taxation to    which...
Fiscally transparent structure                                                Investors receive dividends, interest income...
Fiscally transparent structures• Three Dutch vehicles   – Common partnership   – Limited partnership   – Mutual fund (or f...
Fiscally transparent structures• Limited partnership  – Contractual arrangement  – Investors are limited partners  – Manag...
Fiscally transparent structures• Mutual fund (or fund for joint account)  –   Contractual arrangement  –   Investors are p...
Fiscally transparent structures• Contractual arrangement  – No legal personality• Need for a custodian (‘safekeeper’)  – T...
No legal personality Investor level                                           Economic ownership                          ...
Fiscally transparent structures• Conclusions fiscally transparent structures   –   Are not corporate taxpayers   –   Disre...
Agenda• The Dutch tax regime in general• Dutch solutions  – Fiscally transparent investment structures  – Special regimes ...
Fiscal Investment Institution• Fiscal Investment Institution = FBI• Part of Dutch law since 1970  – Successor of 1940’s CI...
Fiscal Investment Institution• Requirements, many!• Legal form (public limited liability company,  private limited liabili...
Fiscal Investment Institution• Gearing requirement  – Forbids excessive debt at level of CIV     • 60% tax book value real...
Fiscal Investment Institution• Main consequences  – taxation of the investors is ‘equal’ to the taxation    to which they ...
Fiscal Investment Institution                                                Investors receive dividend income and Investo...
Fiscal Investment Institution• Conversion of income  – Dividend income and capital gains/losses on    stocks at investment...
Fiscal Investment Institution can havelegal personality Investor level                                                Lega...
Fiscal Investment Institution• Upon dividend distribution Fiscal Investment  Institution must withhold Dutch dividend  wit...
Fiscal Investment Institution• Conclusions Fiscal Investment Institution   – Corporate taxpayer   – Dividend withholding t...
Agenda• The Dutch tax regime in general• Dutch solutions  – Fiscally transparent investment structures  – Special regimes ...
Exempt Investment Institution• Fiscal Investment Institution = VBI• Relatively new: August 2007• Designed to compete with ...
Exempt Investment Institution• Not subject to Dutch corporate income tax  – Hence its name Exempt Investment Institution• ...
Exempt Investment Institution• Requirements, not so many!  – No distribution requirement, no gearing requirement,    no di...
Exempt Investment Institution• Main consequences  – Exempt from corporate income tax  – Taxation of the investors is ‘equa...
Exempt Investment Institution                                                  Investors receive dividend income and Inves...
Exempt Investment Institution• Conversion of income  – Dividend income and capital gains/losses on    stocks at investment...
Exempt Investment Institution• Is Exempt Investment Institution too good to be  true?• The catch is twofold  – Exempt Inve...
Exempt Investment Institution• Conclusions Exempt Investment Institution   – Not a Corporate taxpayer      • No credit ava...
Agenda• The Dutch tax regime in general• Dutch solutions  – Fiscally transparent investment structures  – Special regimes ...
Taxable structures• Use of CIV regime is not mandatory  – If requirements are met, CIV regime does not apply    automatica...
Taxable structures• Solution is taxable structure• Coop-structure   – Coop is corporate entity with legal personality   – ...
Taxable structure                   Institutional                 Institutional                      investor             ...
Agenda• The Dutch tax regime in general• Dutch solutions  – Fiscally transparent investment structures  – Special regimes ...
Comparative law overview• European systems• Generally, three types of CIV regimes  – Transparent structures  – Funds     •...
Comparative law overview• Transparent structures: no CIT nor WHT• All look like Dutch Mutual Fund  – Lux FCP (fonds commun...
UCITS• UCITS for retail market  – Undertakings for Collective Investment in Transferable    Securities• European law Direc...
UCITS• Open-end Collective Investment Vehicle  – Investor is entitled to request redemption of his    interest in the Coll...
Luxembourg SICAV• SICAV = Société d’investissement à capital  variable  – i.e. investment company with variable capital• N...
Luxembourg SICAV• No withholding tax on dividends• No distribution requirement• Treaty eligible under several Tax Treaties...
Luxembourg SICAV                               Investors receive dividend income and Investor level                capital...
Irish UCITS• Undertakings for Collective Investment in  Transferable Securities• Various legal forms  – Trust, partnership...
Irish UCITS• Dividend withholding tax• Treaty eligible under several Tax Treaties  – Dependent on legal form• Recognised b...
Irish UCITS                               Investors receive dividend income and Investor level                capital gain...
Dutch UCITS• Use of   – Dutch Fiscal Investment Institution   – Dutch Exempt Investment Institution• Distribution requirem...
REITS• Special fund regimes for investments in real  estate• Dutch REIT since 1970• UK REIT since 2007• German REIT since ...
REITS• Real estate is a special asset class• Different solutions chosen  – Housing only, rental income only, only listed  ...
REITS in an international context      Residence State      Source State                        Co   Which CS has taxing r...
European regimes for collectiveinvestments. The Dutch perspective‘              Dr. Hein Vermeulen      Amsterdam Centre f...
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Presentación hein vermeulen v26042012

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  1. 1. European regimes for collectiveinvestments. The Dutch perspective‘ Dr. Hein Vermeulen Amsterdam Centre for Tax Law (ACTL) University of Amsterdam 26 April 2012 Bogotá, Colombia Instituto Colombiano de Derecho Tributarion (ICDT)
  2. 2. Agenda• The Dutch tax regime in general• Dutch solutions – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Taxable structures• Comparative law overview
  3. 3. The Dutch tax regime in general• Three taxes are relevant – Personal income tax • Taxation of private individuals • All income: business income, labour income, investment income – Corporate income tax • Taxation of legal entities • All income: business income and investment income – Dividend withholding tax • Taxation of shareholder to be withheld by legal entity • Serves a prelevy for personal and corporate income tax • In the end, credited against personal and corporate income tax or refunded• No taxation at source for interest and royalties• Classical system
  4. 4. The classical systemPrivate individual Private Personal income Personal income tax individual tax at level of at level of private individual private individual Corporate income tax at Legal entity level of corporate entity No deduction from tax Stock Stock Company Company base for dividend Real estate Real estate distribution Stock or Stock or bonds bonds
  5. 5. The Dutch tax regime in general• The general nature of classical system leads to• One layer of taxation if investment is individual – Personal income tax• Two layers of taxation if investment is collective – Corporate income tax – Dividend withholding tax is credited or refunded• How to cope with two layers of taxation?
  6. 6. Agenda• The Dutch tax regime in general• Dutch solutions – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Taxable structures• Comparative law overview
  7. 7. The Dutch approach• Collective investment is beneficial for – Governments (short money made long) – Citizens (economies of scales, risk spreading, expertise) – The financial system (stability)• Classical system leads to two layers of tax• Principle of tax neutrality at collective investment – Put collective investment at par with individual investment – Taxation may not hinder collective investment• In essence two ways – Eliminate tax at level of the CIV – Eliminate tax at level of the investor
  8. 8. The Dutch approach Investor level Corporate taxation at level of CIV is eliminated, so CIV level CIV only one layer of tax remains at the level of the investor Investment level Co Stock or Real estate bonds
  9. 9. The Dutch approach• Taxation may not hinder collective investment• Principle of tax neutrality – Taxation of the individual investors is equal to the taxation of a collective investment to which they would have been subjected had they invested directly in the investments of the Collective Investment Vehicle• European Commission – ‘… this mechanism puts the tax treatment of an investment in a [Collective Investment Vehicle, HV] at par with the taxation of direct investments by individuals in …’• Thus elimination of tax at level of the CIV
  10. 10. The Dutch approach• Elimination of tax at level of the CIV – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Aim: fiscal neutrality
  11. 11. Agenda• The Dutch tax regime in general• Dutch solutions – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Taxable structures• Comparative law overview
  12. 12. Fiscally transparent structures• CIV is not a corporate taxpayer – CIV is neglected, disregarded • Look-through, conduit, fiscally transparent – The income and the equity (both assets and liabilities) of the CIV are automatically allocated pro rata – on basis of their interest – to participating investors in the CIV without the need for a distribution declaration (or decision) by the CIV. • Hence, income and property taxed in hands of investors – Automatically, fiscal neutrality – Fiscal transparency results in no additional layer of tax at the level of the CIV • As such, fiscally transparent structures functions well as a CIV
  13. 13. Fiscally transparent structures• Three main consequences – taxation of the investors is equal to the taxation to which they would have been subjected had they invested directly in the investments of the fiscally transparent CIV – Type of income is not altered • No conversion of a type of income into another type of income – Investors are not bothered with each other’s tax status • e.g. pension funds can align with insurance companies
  14. 14. Fiscally transparent structure Investors receive dividends, interest income Investor level or rental income directly CIV is disregarded for tax purposes CIV level CIV Investment level Co Stock or Real estate bonds
  15. 15. Fiscally transparent structures• Three Dutch vehicles – Common partnership – Limited partnership – Mutual fund (or fund for joint account)• Common partnership – Contractual arrangement – Investors are partners – Co-ownership – External manager – Transparency through consent partners upon transfer and admittance new partners – Not suitable for large number of investors – Suitable for active investments
  16. 16. Fiscally transparent structures• Limited partnership – Contractual arrangement – Investors are limited partners – Manager is general partner – Co-ownership – Transparency through consent partners upon transfer and admittance new partners – Not suitable for large number of investors – Suitable for active investments
  17. 17. Fiscally transparent structures• Mutual fund (or fund for joint account) – Contractual arrangement – Investors are participants – Manager is external – Transparency through • Consent partners upon transfer and admittance new partners • Redemption clause – Suitable for large number of investors • Retail and institutional – Suitable for passive investments
  18. 18. Fiscally transparent structures• Contractual arrangement – No legal personality• Need for a custodian (‘safekeeper’) – To hold legal title of investments on behalf and account for the investors – ‘bankruptcy remote vehicle’• Need for an external manager – To manage the investments of the CIV • Unless LP, where GP is manager
  19. 19. No legal personality Investor level Economic ownership Legal ownership CIV level Manager CIV (legal title) Custodian Investment level Co Stock or Real estate bonds
  20. 20. Fiscally transparent structures• Conclusions fiscally transparent structures – Are not corporate taxpayers – Disregarded – No conversion of income – Absence of dividend withholding tax – No requirement on investment level – Absence of legal personality • Thus legal flexibility – May be an administrative hassle – No tax treaty benefits, but Dutch Mutual Fund may act as an agent • Cf. § 6.28 Commentary to OECD MTC • Cf. § 2.2.1 and 2.4 Dutch Memorandum on Tax Treaty Policy 2011
  21. 21. Agenda• The Dutch tax regime in general• Dutch solutions – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Taxable structures• Comparative law overview
  22. 22. Fiscal Investment Institution• Fiscal Investment Institution = FBI• Part of Dutch law since 1970 – Successor of 1940’s CIV regime • Money needed after WWII – Oldest CIV regime in Europe• Fiscal Investment Institution in short – Corporate taxpayer – Corporate tax rate of 0% – Requirements
  23. 23. Fiscal Investment Institution• Requirements, many!• Legal form (public limited liability company, private limited liability company, MF) – Less legal flexibility• Strict shareholder requirements – Either listed on a stock exchange or not• Distribution requirement – Fiscal Investment Institution must distribute its profits promptly after year end • More or less immediate taxation in the hands of the investors
  24. 24. Fiscal Investment Institution• Gearing requirement – Forbids excessive debt at level of CIV • 60% tax book value real estate • 20% other investments• Activity requirement – Forbids to engage in a trade or a business • CIV regime only supports investment activities – Based on principle to treat individual investment equally with collective investment
  25. 25. Fiscal Investment Institution• Main consequences – taxation of the investors is ‘equal’ to the taxation to which they would have been subjected had they invested directly in the investments of the Fiscal Investment Institution – Type of income is altered • Conversion of all income into dividend income and capital gains/losses on shares in Fiscal Investment Institution
  26. 26. Fiscal Investment Institution Investors receive dividend income and Investor level capital gains/losses on their interest in the Fiscal Investment Institution Dividend withholding tax Fiscal Investment Institution = corporate taxpayer CIV level CIV Corporate tax rate = 0% All income is converted into profit of the Fiscal Investment Institution Investment level Co Stock or Real estate bonds
  27. 27. Fiscal Investment Institution• Conversion of income – Dividend income and capital gains/losses on stocks at investment level is profit at CIV level – Interest income and capital gains/losses on bonds at investment level is profit at CIV level – Rental income and capital gains/losses on real estate at investment level is profit at CIV level• This converted income may receive different tax treatment than the ‘original’ income
  28. 28. Fiscal Investment Institution can havelegal personality Investor level Legal ownership (legal title) CIV level and economic ownership at the level CIV of the CIV, if organized as a company NV (public limited liability company) or BV (private limited liability company) Investment level Co Stock or Real estate bonds
  29. 29. Fiscal Investment Institution• Upon dividend distribution Fiscal Investment Institution must withhold Dutch dividend withholding tax – Credit against personal income tax or corporate income tax – Refund for Dutch exempt entities (e.g. pension funds) • No tax leakage
  30. 30. Fiscal Investment Institution• Conclusions Fiscal Investment Institution – Corporate taxpayer – Dividend withholding tax• Regime for Fiscal Investment Institution provides for tax neutrality – Between individual investment – And collective investment – Suitable for large number of (retail, institutional) investors – Well appreciated internationally • Cf. § 6.12 Commentary to OECD MTC • Cf. § 2.2.1 Dutch Memorandum on Tax Treaty Policy 2011
  31. 31. Agenda• The Dutch tax regime in general• Dutch solutions – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Taxable structures• Comparative law overview
  32. 32. Exempt Investment Institution• Fiscal Investment Institution = VBI• Relatively new: August 2007• Designed to compete with other European fund regimes – Luxembourg and Ireland – Copycat of the Luxembourg SICAV – Background need for CIV regime without distribution requirement
  33. 33. Exempt Investment Institution• Not subject to Dutch corporate income tax – Hence its name Exempt Investment Institution• Its investors are not subject to Dutch dividend withholding tax• This is too good to be true, so there must be a catch?
  34. 34. Exempt Investment Institution• Requirements, not so many! – No distribution requirement, no gearing requirement, no dividend withholding tax• Transferrable Securities requirement – Stock, securities, bonds, options, swaps, derivatives• Risk spreading requirement• Investment Institution – Dutch Financial Markets Supervision Act• Variable capital requirement – Investors may ask for refund of their capital invested
  35. 35. Exempt Investment Institution• Main consequences – Exempt from corporate income tax – Taxation of the investors is ‘equal’ to the taxation to which they would have been subjected had they invested directly in the investments of the Exempt Investment Institution – Type of income is altered • Conversion of all income into dividend income and capital gains/losses on shares in Exempt Investment Institution • Note the difference with transparent vehicles
  36. 36. Exempt Investment Institution Investors receive dividend income and Investor level capital gains/losses on their interest in the Exempt Investment Institution Exempt Investment Institution ≠ corporate taxpayer CIV level CIV Exempt from corporate tax rate All income is still converted into (commercial) profit of the Fiscal Investment Institution Exempt Investment Institution may only invest in Investment level Co X Transferable Securities, (stock, bonds, futures, options et cetera) but not in Dutch real estate Stock or Real estate ≠ bonds transferable security
  37. 37. Exempt Investment Institution• Conversion of income – Dividend income and capital gains/losses on stocks at investment level is profit at CIV level – Interest income and capital gains/losses on bonds at investment level is profit at CIV level• This converted income may receive different tax treatment than the ‘original’ income
  38. 38. Exempt Investment Institution• Is Exempt Investment Institution too good to be true?• The catch is twofold – Exempt Investment Institution cannot credit any (e.g. dividend) withholding tax suffered on its investments – Exempt Investment Institution is not recognized as person under Double Tax Treaties • Cf. § 6.12 Commentary to OECD MTC • Cf. § 2.2.1 Dutch Memorandum on Tax Treaty Policy 2011
  39. 39. Exempt Investment Institution• Conclusions Exempt Investment Institution – Not a Corporate taxpayer • No credit availability for underlying source taxation • Not recognized as a person under Tax Treaties – No Dividend withholding tax – Suitable for large number of investors • Either listed or non-listed – Not suitable for investments that attract WHT• Regime for Exempt Investment Institution provides for tax neutrality – Between individual investment – And collective investment
  40. 40. Agenda• The Dutch tax regime in general• Dutch solutions – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Taxable structures• Comparative law overview
  41. 41. Taxable structures• Use of CIV regime is not mandatory – If requirements are met, CIV regime does not apply automatically• Why not use of the general tax system?• Disadvantages CIV regimes – Activity requirements – Gearing restrictions – Asset allocation restrictions – Unavailability of tax facilities – Administrative hassle – Uncertainty treaty application
  42. 42. Taxable structures• Solution is taxable structure• Coop-structure – Coop is corporate entity with legal personality – Corporate taxpayer – In principle, not a taxable subject for Dutch dividend withholding tax • Its distributions do not trigger Dutch dividend withholding tax – Use of Dutch participation exemption to circumvent economic double taxation – Income and capital gains from domestic or foreign shareholdings are not taxed in the Netherlands – In the end no Dutch tax leakage at Fund (Coop-BV- combination) level
  43. 43. Taxable structure Institutional Institutional investor Institutional investor No Dutch dividend withholding tax investorsROWNL Corporate Coop tax entity Use of participation exemption BV Corporate Use of participation exemption tax entityROW Sub Sub Sub
  44. 44. Agenda• The Dutch tax regime in general• Dutch solutions – Fiscally transparent investment structures – Special regimes for Collective Investment Vehicles • The Fiscal Investment Institution • The Exempt Investment Institution• Taxable structures• Comparative law overview
  45. 45. Comparative law overview• European systems• Generally, three types of CIV regimes – Transparent structures – Funds • UCITS – REITS
  46. 46. Comparative law overview• Transparent structures: no CIT nor WHT• All look like Dutch Mutual Fund – Lux FCP (fonds commun de placement) • Subscription tax is levied • Also French FCP and Belgian FCP – Irish CCF (common contractual fund) – UK unit trust – German Sondervermögen• Different techniques to create transparency• No legal personality, externally managed
  47. 47. UCITS• UCITS for retail market – Undertakings for Collective Investment in Transferable Securities• European law Directives since 1985 – To harmonize European market from a regulatory point of view – In ‘parts’: now UCITS IV Directive• License in Resident State• European passport for marketing in all other Member States after notification• Investor protection
  48. 48. UCITS• Open-end Collective Investment Vehicle – Investor is entitled to request redemption of his interest in the Collective Investment Vehicle• Requirements at fund level – Prospectus requirement – Subject to supervision of Market Authority• Requirements at investment level – Transferable Securities only • Stock, securities, bonds, options, swaps, derivatives – Risk spreading, limits on seize of investment
  49. 49. Luxembourg SICAV• SICAV = Société d’investissement à capital variable – i.e. investment company with variable capital• No corporate taxpayer – Annual ‘taxe d’abonnement’ • Payable on a quarterly basis and assessed on its net asset value at the end of each quarter• No shareholder requirements• Limited requirements on investment level
  50. 50. Luxembourg SICAV• No withholding tax on dividends• No distribution requirement• Treaty eligible under several Tax Treaties – Specifically negotiated by Lux Authorities • Cf. § 6.12 Commentary to OECD MTC • Cf. § 2.2.1 Dutch Memorandum on Tax Treaty Policy 2011• Recognised by foreign Market Authorities – Hong Kong, et cetera• Combination of regulatory law and tax law is essential – Arbitrage in respect of residency of CIV
  51. 51. Luxembourg SICAV Investors receive dividend income and Investor level capital gains/losses on their interest in the SICAV SICAV = exempt from corporate tax rate CIV level CIV All income is still converted into (commercial) profit of the SICAV SICAV has no requirements for investments Investment level Co Stock or bonds
  52. 52. Irish UCITS• Undertakings for Collective Investment in Transferable Securities• Various legal forms – Trust, partnership or company• No corporate taxpayer – Only exit tax for Irish investors• No distribution requirement
  53. 53. Irish UCITS• Dividend withholding tax• Treaty eligible under several Tax Treaties – Dependent on legal form• Recognised by foreign Market Authorities• Requirements on investment level equal to UCITS Directive
  54. 54. Irish UCITS Investors receive dividend income and Investor level capital gains/losses on their interest in the Irish UCITS Irish UCITS = exempt from corporate tax rate CIV level CIV All income is still converted into (commercial) profit of the Irish UCITS Irish UCITS may only invest in Transferable Securities as listed in UCITS Investment level Co Directive Stock or bonds
  55. 55. Dutch UCITS• Use of – Dutch Fiscal Investment Institution – Dutch Exempt Investment Institution• Distribution requirement depends on choice of CIV• Tax treaty status depends on choice of CIV• Key is recognition by foreign Fin’l Market Authorities – Especially outside Europe • Visits to other country by Dutch Financial Market Authority• Combination of regulatory law and tax law is essential
  56. 56. REITS• Special fund regimes for investments in real estate• Dutch REIT since 1970• UK REIT since 2007• German REIT since 2007• French REIT (SIIC) since 2003• Italian REIT (SIIQ) since 2007• Spanish REIT (SOCIMI) since 2009
  57. 57. REITS• Real estate is a special asset class• Different solutions chosen – Housing only, rental income only, only listed companies eligible, etc.• Principle of source state taxation – i.e. Source State has unlimited taxing right• This functions well in domestic context• Problems arise in international context
  58. 58. REITS in an international context Residence State Source State Co Which CS has taxing right?
  59. 59. European regimes for collectiveinvestments. The Dutch perspective‘ Dr. Hein Vermeulen Amsterdam Centre for Tax Law (ACTL) University of Amsterdam 26 April 2012 Bogotá, Colombia Instituto Colombiano de Derecho Tributarion (ICDT)
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