Investment In Australian Real Estate - Netherlands and Luxembourg

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Investment In Australian Real Estate - Netherlands and Luxembourg

  1. 1. Investment in Australian real estate - Netherlands and Luxembourg Sydney, 9 February 2009 Bart Rubbens Peter Moons Matthijs Vogel
  2. 2. Topics <ul><li>Dutch investors and investment structures </li></ul><ul><li>Luxembourg investment structures </li></ul><ul><li>Recent developments </li></ul>
  3. 3. Dutch investors <ul><li>Pension funds </li></ul><ul><li>Taxable corporate investors </li></ul><ul><li>Investment funds </li></ul>
  4. 4. Dutch investors – pension funds <ul><li>Strictly regulated </li></ul><ul><li>Fully exempt from corporate income tax </li></ul><ul><li>Dutch perspective: treaty residents </li></ul><ul><li>Dutch tax considerations no structure driver </li></ul>
  5. 5. Dutch investors – pension funds Pension fund Pension fund 1 LPT Pension fund LPT Units Pension fund LPT Trust Unit linked notes 75% Pension fund 2 CV
  6. 6. Dutch investors – taxable corporate investors Corporate investor Corporate investor Trust Direct: Indirect: Exemption under treaty Qualification
  7. 7. Dutch investors – taxable corporate investors <ul><li>Investment in property trust </li></ul><ul><ul><li>Qualification </li></ul></ul><ul><ul><li>Compare to Dutch fund for mutual account </li></ul></ul><ul><ul><li>Two types: transparent and non-transparent </li></ul></ul><ul><ul><ul><li>If units only transferable to fund: transparent </li></ul></ul></ul><ul><ul><ul><li>If units only transferable with unanimous consent: transparent </li></ul></ul></ul><ul><ul><ul><li>In all other cases: not transparent </li></ul></ul></ul><ul><ul><li>LPT: not transparent </li></ul></ul><ul><ul><li>Wholesale fund: depends on the trust deed </li></ul></ul>
  8. 8. Dutch investors – taxable corporate investors <ul><li>Transparent: direct investment </li></ul><ul><li>Non-transparent LPT or wholesale fund: </li></ul><ul><ul><li>Participation exemption only if real estate company (90% test) - ruling </li></ul></ul><ul><ul><li>If no participation exemption: </li></ul></ul><ul><ul><ul><li>all dividends and gains taxed </li></ul></ul></ul><ul><ul><ul><li>if 25% or more interest: mark-to-market at year-end </li></ul></ul></ul><ul><ul><li>No credit for Australian WHT on profit distributions </li></ul></ul><ul><li>Stapled structure: </li></ul><ul><ul><li>No qualification issues for company site </li></ul></ul><ul><ul><li>Participation exemption for company </li></ul></ul>
  9. 9. Dutch investors – investment funds <ul><li>Dutch LP and transparent fund for mutual account </li></ul><ul><ul><li>Mainly pooling vehicle for institutional investments </li></ul></ul><ul><li>VBI (= tax exempt investment institution) </li></ul><ul><ul><li>Entity for collective investment </li></ul></ul><ul><ul><li>For investment in financial instruments </li></ul></ul><ul><ul><li>On a risk diversified basis </li></ul></ul><ul><ul><li>Full tax exemption (CIT and DWT) </li></ul></ul><ul><ul><li>No treaty protection </li></ul></ul><ul><ul><li>Not widely used (competition with Luxembourg) </li></ul></ul><ul><ul><li>Not for real estate investments </li></ul></ul>
  10. 10. Dutch investors – investment funds <ul><li>Dutch FBI (‘REIT’) – Corporation or non-transparent fund for mutual account with special tax status: </li></ul><ul><ul><li>0% CIT rate </li></ul></ul><ul><ul><li>15% DWHT rate </li></ul></ul><ul><ul><li>Financing limits and shareholders’ requirements </li></ul></ul><ul><li>Co-op – For pooling foreign investors </li></ul><ul><ul><li>25.5% CIT </li></ul></ul><ul><ul><li>Treaty protected </li></ul></ul><ul><ul><li>Participation exemption </li></ul></ul><ul><ul><li>No shares, no dividend WHT </li></ul></ul><ul><ul><li>CIT risk for holder of substantial interest: ruling practice or blocker </li></ul></ul>
  11. 11. Dutch investors – Co-op Dutch Co-op BV <ul><li>No Dutch DWHT if Co-op has no capital divided by shares </li></ul><ul><li>Netherlands Antilles to avoid Dutch CIT on substantial shareholding (dividends and capital gains) or ruling </li></ul><ul><li>Fiscal unity possible between Co-op and BV </li></ul><ul><li>Functional currency possible </li></ul><ul><li>Participation exemption </li></ul><ul><li>Dutch-Australian tax treaty contains information exchange clause </li></ul>Investors <5% SPV Netherlands Antilles Investors ≥ 5%
  12. 12. Dutch investors – investment funds <ul><li>Dutch BV held by Luxembourg fund </li></ul><ul><ul><li>Alternative foreign investor pooling platform </li></ul></ul>
  13. 13. Luxembourg funds overview <ul><li>Luxembourg track records </li></ul><ul><ul><li>N° 2 largest funds centre in the world </li></ul></ul><ul><ul><ul><li>3,371 registered investment funds </li></ul></ul></ul><ul><ul><ul><li>EUR bn 1,560 net assets under management </li></ul></ul></ul><ul><ul><li>N° 1 centre in Europe for Funds distribution in and outside Europe </li></ul></ul><ul><ul><ul><li>75% of worldwide distribution autorisations </li></ul></ul></ul><ul><ul><ul><li>75% of UCITS registered in at least 3 countries </li></ul></ul></ul>Figures as at December 31, 2008 – Source ALFI
  14. 14. Peru 93% Chile 78% Singapore 67% Japan 76% Hong Kong 72% South Korea 100% Switzerland 73% France 73% Germany 73% Sweden 80% Italy 78% Bahrein 77% Taiwan 72% Figures as at June 30, 2008 – Source ALFI Luxembourg funds overview Registered foreign funds worldwide, Luxembourg market share
  15. 15. Onshore versus offshore funds <ul><li>Globalization of alternative investments </li></ul><ul><li>‘ New’ (institutional) investors constrained to invest ‘offshore’ </li></ul><ul><ul><li>Marketability/reputation/policy guidelines </li></ul></ul><ul><ul><li>Supervision </li></ul></ul><ul><ul><li>Listing possibilities </li></ul></ul><ul><li>‘ Offshore’ funds constrained to invest in certain countries (e.g. Spain and Italy) </li></ul><ul><li>Other possible benefits of ‘onshore’ funds: </li></ul><ul><ul><li>Time-zone </li></ul></ul><ul><ul><li>Substance solutions (at the level of the fund and at the level of the holding vehicles) </li></ul></ul><ul><ul><li>Investors protection (regulatory framework, corporate governance, infrastructure/service providers etc.) </li></ul></ul><ul><ul><li>Investment protection with BITs </li></ul></ul><ul><ul><li>Tax efficiency </li></ul></ul>
  16. 16. Luxembourg fund model: pillars Investor Protection Authorisation Fund management Specialised Investors Supervision Custody Reporting Audit Tax Efficiency Income tax exemption No tax on distributions No exit tax SIF: 1 bp annual subscription tax Specific VAT exemption Structuring Flexibility Access Quick Start (SIF) Choice of vehicle All invest. policies No statutory diversification (But: CSSF Circular) No borrowing restrictions
  17. 17. <ul><li>UCITS (2002) </li></ul><ul><li>Undertakings for Collective Investment in Transferable Securities </li></ul><ul><li>SEPCAV/ASSEP </li></ul><ul><li>Luxembourg and potentially pan-european pension funds </li></ul><ul><li>SIF (2007) Specialized Investment Fund </li></ul><ul><li>SICAR (2004) Investment Company in Risk Capital </li></ul><ul><li>SV (2004) Securitization Vehicle </li></ul>Luxembourg investment regimes overview
  18. 18. Example of structuring of Luxembourg fund into Australian LPT <ul><li>Investors in Lux Fund </li></ul><ul><li>Information exchange country needed (Australian WHT reduction) </li></ul><ul><li>Luxembourg blocker entity to avoid WHT in information exchange country </li></ul><ul><li>Hybrid to avoid DWHT in Luxembourg (ruling) </li></ul>FUND FCP - SIF Investors Luxembourg SPV Luxembourg ManCo VAT exemption No tax on interest No tax on distributions Dutch SPV No tax on income/gains LPT Hybrid
  19. 19. Example of structuring of Luxembourg fund into Australian LPT <ul><li>Optimisation before 2011: intercompany interest deductions? Interest withholding rate lower than dividend withholding </li></ul><ul><li>Need tax treaty country for reduced Australian interest withholding tax rate </li></ul>FUND FCP - SIF Investors Luxembourg SPV Luxembourg Management Company VAT exemption No tax on interest No tax on distributions Dutch SPV No tax on income/gains LPT Lending through SPV Hybrid
  20. 20. Example of structuring of Luxembourg fund into Australian LPT <ul><li>For which investors? </li></ul><ul><ul><li>Exempt investors </li></ul></ul><ul><ul><ul><li>E.g. sovereign wealth funds </li></ul></ul></ul><ul><ul><ul><li>Fund of funds </li></ul></ul></ul><ul><ul><ul><li>Offshore funds </li></ul></ul></ul><ul><ul><ul><li>Pension funds (but better of investing directly) </li></ul></ul></ul><ul><ul><li>Corporate Investors in tax treaty country </li></ul></ul><ul><ul><ul><li>Potentially through tax-optimised feeder vehicle (mostly debt financed) </li></ul></ul></ul>FUND FCP - SIF Exempt Investors Luxembourg SPV Luxembourg ManCo VAT exemption No tax on interest No tax on distributions Dutch SPV No tax on income/gains LPT Lending through SPV Treaty country corporate investor Feeder
  21. 21. Example of structuring of Luxembourg fund into Australian LPT <ul><li>For which investors? </li></ul><ul><ul><li>Exempt investors </li></ul></ul><ul><ul><ul><li>E.g. sovereign wealth funds </li></ul></ul></ul><ul><ul><ul><li>Fund of funds </li></ul></ul></ul><ul><ul><ul><li>Offshore funds </li></ul></ul></ul><ul><ul><ul><li>Pension funds (but better of investing directly) </li></ul></ul></ul><ul><ul><li>Corporate investors in EU country </li></ul></ul><ul><ul><ul><li>Could invest into Dutch SPV if they hold at least 5% </li></ul></ul></ul>FUND FCP - SIF Exempt Investors Luxembourg SPV Luxembourg ManCo VAT exemption No tax on distributions Dutch SPV LPT Lending through SPV EU country corporate investor >=5%
  22. 22. Example of structuring of Luxembourg fund into Australian LPT <ul><li>For which investors? </li></ul><ul><ul><li>Exempt investors </li></ul></ul><ul><ul><ul><li>E.g. sovereign wealth funds </li></ul></ul></ul><ul><ul><ul><li>Fund of funds </li></ul></ul></ul><ul><ul><ul><li>Offshore funds </li></ul></ul></ul><ul><ul><ul><li>Pension funds (but better of investing directly) </li></ul></ul></ul><ul><ul><li>Corporate Investors in tax treaty country </li></ul></ul><ul><ul><ul><li>Corporate investors look (generally) through Luxembourg FCP </li></ul></ul></ul><ul><ul><ul><li>Withholding taxes not applicable to redemptions of classes of shares </li></ul></ul></ul>FUND FCP - SIF Exempt Investors Luxembourg SPV Luxembourg ManCo VAT exemption No tax on distributions Dutch SPV LPT Treaty country corporate investor 1 - 8
  23. 23. Example of structuring of Luxembourg fund into Australian LPT <ul><li>Alternative structure through a SICAR </li></ul><ul><ul><li>Exempt investors </li></ul></ul><ul><ul><ul><li>E.g. sovereign wealth funds </li></ul></ul></ul><ul><ul><ul><li>Fund of funds </li></ul></ul></ul><ul><ul><ul><li>Offshore funds </li></ul></ul></ul><ul><ul><ul><li>Pension funds (but better off investing directly) </li></ul></ul></ul><ul><ul><li>Corporate investors </li></ul></ul><ul><ul><li>SICAR only open to investments ‘with a view to launch, develop or IPO a business’ </li></ul></ul>Exempt Investors No tax on distributions Dutch SPV LPT Until 2011 lending (bonds) through SPV corporate investor Lux SICAR
  24. 24. Recent European developments <ul><li>Property values decreasing </li></ul><ul><ul><li>Divestments </li></ul></ul><ul><ul><li>Stronger focus on real estate transfer tax and VAT </li></ul></ul><ul><ul><li>More asset deals </li></ul></ul><ul><li>Further limitation of interest deductions </li></ul><ul><ul><li>Closing of loopholes in thin cap rules </li></ul></ul><ul><ul><li>Thin cap rules replaced by earnings stripping rules </li></ul></ul>

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