Offshore Tax Efficient Vehicles

Keeping Up To Date With The Growth Of Offshore Tax Efficient Vehicles 23 April 2008 INSTRUCTIONS Copy and Paste the divider slide as required using the slide sorter. View menu > Slide Sorter

What is Multinational Cross-Border Pooling? Pooling allows different entities (usually pension or investment funds) to realise economies and efficiencies by aggregating their separate portfolios into a single portfolio. Entities may be from the same or different clients or in the same or different countries. UK Pension/ Investment Fund Dutch Pension/ Investment Fund German Pension/ Investment Fund Portfolio 1 Portfolio 2 Portfolio 3 UK Pension/ Investment Fund Dutch Pension/ Investment Fund German Pension/ Investment Fund Pooling Vehicle Single Underlying Portfolio

Managing multiple pension plans and investment management strategies globally presents numerous opportunities and challenges for multinational organisations. Pooling of pensions and assets produces both quantitative and qualitative benefits for Trustees, Service Providers and Investment Managers The benefits of pooling are driven by the advantage of bringing together a much larger single set of assets under management. Moving from a situation where each fund has its own investment manager, custodian and administrator to a single pool in which each of the funds holds units clearly can bring cost and efficiency benefits. Many factors drive the benefits, including: Economies of scale Administrative standardisation Enhance scope for product flexibility Enhancement of risk management Benefits of multinational pooling

Tax efficiency shall be interpreted as minimisation of tax leakage/drag on investment returns (ie preservation of underlying commercial economic value without the distortionary effects of taxation) . Tax Efficiency Tax Opaque Investment Fund Investment Income $100 $80 + TC $20 $100 Income $20 Tax @ 20% $80 Distribution Tax Neutrality Source, character and timing - Modified Tax Transparent Pool Investment Income $100 $100 Tax Transparency Source, character and timing - Preserved

Types of Pooling Virtual Pooling Virtual pooling uses information technology and omnibus custody accounts to co-manage assets as it they were in a single portfolio. UK Pension/ Investment Fund Dutch Pension/ Investment Fund German Pension/ Investment Fund Virtual Pool Underlying Portfolio UK Pension/ Investment Fund Dutch Pension/ Investment Fund German Pension/ Investment Fund Underlying Portfolio Entity Pool – Opaque or Transparent Pensions and asset pooling may take two forms: Entity Pooling Entity pooling uses separate legal entities to perform the commingling of assets of participating funds. Pensions and Asset pooling

Pooling product should be easy to sell on a Cross-border basis – i.e. there needs to be fiscal and regulatory parity with domestic funds. EU approach has been very clear on this point and the courts have pressed home the point on withholding tax cases requiring member states to remove discriminatory taxes which favour domestic more favourably than other EU funds. Cross-border fund mergers enabling rationalisation of product ranges Cost Efficiency of fund vehicle – subscription taxes and other levies increase the TER and lower performance – comparison between US and European funds Investment flexibility and versatility – new investment strategies and instruments should be easy to bring on board (LDI strategies using derivatives, CDS, Long-short alpha extension) Open architecture – ‘best of breed’ philosophy prevails and need to be able to handle multi-manager platforms and also on investment administration/servicing side of the business (custody, fund administration, prime services-financing, transitions, securities lending) Other factors driving vehicular design

Asset pooling vehicles are not a new concept, they have been around for many years but it is only over the last few years that the complex systems have been developed by administrators to properly deal with a large scale pooling. Luxembourg, UK, Ireland, France, the Netherlands and Belgium have instituted vehicles which facilitate entity-based pooling: The Irish Common Contractual Fund (“CCF”), Unit Trusts and Variable Capital Investment Company (“VCIC” or “VCC”) The Luxembourg Fonds Commun de Placement (“FCP”) and SICAV/SICAF The Dutch Funds for Joint Account (“FJA” or “FGR”) The Belgian Organisation for Financing Pensions (“OFP”) or Institutional CIS These vehicles have the potential for a broad range of regulatory and fiscal authorities to acknowledge them as suitably transparent for pooling purposes. Entity Pooling – product choice

Product choice – At a glance Irish CCF Lux. FCP Dutch FGR Belgium OFP Legal Established by a deed executed under seal by management company Governed by the law of contract. Has no separate legal personality . Investors hold co-ownership rights in assets as tenants in common Investor liability limited to amount contributed for units Two CCF distinct products – the ‘Multinational CCF’ and the ‘Investment manager CCF’ CCF authorised as a UCITS or non-UCITS. Contractual structure for collective investment created by management company Investors subscribe for units in the FCP which represents a portion of the net assets of the fund. Unitholders are only liable up to the amount contributed by them. Contractual structure for collective investment created by management company. is a contractual arrangement between the fund manager, the fund custodian and at least two participants. The participants in the FvGR have a pro rata economic interest in the FvGR’s assets held by the fund custodian, which is typically represented by ‘units’ issued by the FvGR to the participants. Separate legal entity (distinct from sponsoring undertakings) under Belgian home state legislation. Simple and flexible structure: ‘contractual freedom’ Easy set-up (adopting by laws), authorisation required by home-state supervisor (CBFA), short procedure. Regulatory Can be regulated as an UCITS or a non-UCITS. UCITS CCFs have a higher level of regulation which provides the CCF with the ability to ‘passport’ across the EU Non-UCITS CCF provides greater flexibility in relation to investment strategy without the same degree of regulation and restrictions. Standard regulation CSSF All FCPs must have a management company established under Lux. Law and which complies with the provisions for management companies of funds under 2002 Law. The Dutch investment fund market is regulated by the provisions of the Investment Institutions Supervision Act 1990 (IISA). ISSA prohibits the marketing of participants in investment funds unless the manager of the fund is licensed under IISA, or a safe harbour or exemption applies. Align investment strategy with characteristics of the pension plan and population. The prudential framework combines prudence and a high degree of flexibility for target funding. Tax The CCF is transparent for Irish taxation purposes. An FCP is considered to be a tax transparent entity in Luxemburg. Subject to a one-off capital duty of EUR 1,200 upon creation. An FvGR can be either structured as transparent or a non-transparent (‘opaque’) entity for Dutch tax purposes. OFP is subject to Belgian corporate income tax Taxable basis will be normally zero No capital gains tax No withholding tax on dividends

Belgium: The Royal Decree of 7 December 2007 provides the framework for the implementation of Law of July 2004, thereby introducing Institutional Collective Investment Schemes (“CIS”). The Institutional CIS can be structured as (a) common contractual fund, ie as a FCP, or (b) as a variable capital investment company, ie as a SICAV. Whilst there are some limitations on investment, these are expected to be lifted. The Institutional CIS can be tailored either as a tax transparent or as a tax neutral. The Belgian Asset Managers Association (BeAMA), main force behind this, makes a direct comparison with the Lux product suite. The Netherlands : The Dutch Government introduced, 1 August 2007, a new tax exempt investment fund regime (‘Vrijgestelde Beleggingsinstelling’). The BV will enjoy full exemption from corporate income tax and it is also exempt from dividend withholding tax on profit distributions. The purpose and activity of the investment fund are restricted to the collective investment of cash or other assets in qualifying financial instruments (such as shares, bonds, options and similar securities) and participations in investment funds. As a collective investment fund, it must have at least two investors. There is no limits on the leveraging of investments. There is no obligation to distribute any income. The BV must have the legal form of a public company (‘NV’), a fund for common account (FGR ‘fonds voor gemene rekening’) or comparable entities established under the laws of the Netherlands Antilles, Aruba, an EU Member State or a state with which The Netherlands has concluded a tax treaty that contains a non-discrimination clause. The BV must either be listed on the stock exchange or, if not listed, have a licence based on the Financial Supervision Act (‘Wet Financieel Toezicht’ or ‘WFT’).. This is intended to boost the interest of foreign investors to make use of the tax exempt investment regime as being an alternative for the Luxemburg SICAV regime on which still technically a yearly low amount of tax (tax d’abonnement). Luxembourg: The Luxembourg Act of 3 February 2007 relating to Specialised Investment Funds (“SIF”) introduces a more regulatory/compliance efficient regime. The SIF status can apply to the contractual form (FCPs) and corprate structures (SICAV and SICAF). United Kingdom: Recent budget introduced the concept of Funds of Alternative Funds (“FAIFs”) and Property Authorised Investment Funds (“PAIFs”). Pooling initiative in the form of PFPV. Entity Pooling – Recent developments

Considerations in setting up a pooling vehicle Cost Barrier to greater participation. Usually multinationals have the means to set up these types of pooling vehicles. It is an investment of time and infrastructure to make it all work. Legal • Safeguarding property rights of all participants • Arrangements for co-management of assets by all participants Tax • Ensuring tax transparency defines the pooling structure Accounting • Multiple accounting standards (US GAAP, IFRS) • Multiple price points / pricing sources Regulation • Regulators for all pooled products must approve the concept Investment restrictions Participating funds are normally subject to specific investment restrictions as defined by the relevant regulatory authorities. When setting up a pension pooling vehicle, the expertise of specialists is needed to optimise the product from a regulatory, tax and operational point of view. The following service providers should assist both prior to and during the approval process and throughout the life of the pension pooling vehicle: Administrative agents ► Legal advisers Tax advisers ► Depositary banks Auditors ► Transfer agents

Considerations in finding the right vehicle What are the requirements? Pooling multiple asset classes, multi-investor and multi-manager Tax transparency/neutrality– minimise withholding tax Choice depends on country of investor and country of investment Identify markets where maximum tax savings can be achieved Is tax transparency required? No – Luxembourg SICAV, Irish IUT Yes – Luxembourg FCP, Irish CCF Multinationals need to consider certain features that vary according to location and could influence the choice of domicile. Some questions that may need to be asked: How adaptable is the legal entity to securities lending? Who can do the securities lending? When you have pooled assets in a tax transparent way, who owns those assets? How reclaimable is the VAT on administration, management and custodianship? Consider double taxation agreements the host country would have with other jurisdictions. It may not be practical or appropriate to try and change a cultural preference for domestic funds. The decision on location choice may be based on existing relationships.

Why select one over the other Key characteristics for pooling vehicle: A pension pooling vehicle must permit asset class pooling Each pool of assets should be separately managed. Pooling vehicle should be tax neutral. Aside from being considered tax transparent from a local perspective, care should be given to the acknowledgement of the tax transparency of the vehicle by the tax authorities of the pension funds home jurisdiction and the tax authorities of investment countries (which may levy withholding taxes on income and or/gains arising on investments held by the vehicle). The pension fund investors should be no worse off as a result of pooling their investments than if they had invested directly in the relevant investments. Consider the withholding tax consequences of investment in pooled vehicle and how vehicle is taxed. Need to consider local regulatory restrictions Consider any limitation on investments in legal structures and asset classes Regulatory and administrative hurdles must be overcome which combines human resources, treasury, accounting, tax and legal departments, and also external partners such as global custodians and investment consultants.

Future Trends Continuing competition between Luxembourg and Ireland products The vehicles in Luxembourg and Ireland are well established. Investment into Ireland and Luxembourg funds widely accepted by pension regulators throughout the world. Market has trended towards CCF/Ireland as product/domicile of choice The Dutch FGR is gaining traction as a tax-transparent alternative to the Luxembourg FCP and the Irish CCF. During the last few years, the Netherlands has increasingly positioned itself as a preferred location for investment funds. We are witnessing a dramatic increase in fund sponsors and asset managers setting up Dutch vehicles for holding international investments. As globalisation increases the importance of emerging markets, such as Asia, both as investment destination as well as sources of investment, tax and regulatory authorities in these markets will increasingly be asked to resolve their status with respect to pooling vehicles.

Pension Pooling Vehicles - Irish CCF Legal It is necessary to draft a Deed of Constitution (executed under seal by its proposed management company) which is the instrument that brings the CCF into being The legal advisors to the promoter will prepare the offering document and other legal documents for the CCF and make the required application to the Irish Financial Regulator to have the CCF authorised as a UCITS or non-UCITS. The legal advisors will also advise on all the necessary legal agreements eg, custodian agreement, investment manager agreement, administrator agreements etc Units in the CCF are redeemable, but are not freely transferable. Two CCF distinct products – the ‘Multinational CCF’ and the ‘Investment manager CCF’ A CCF does not have separate legal personality. Governed by the law of contract. Regulatory All CCFs are regulated by the Irish Financial Regulator. However there is flexibility in relation to the degree of regulation. A CCF can be regulated as an Undertaking for Collective Investment in Transferable Securities (UCITS) or a non-UCITS. UCITS CCFs have a higher level of regulation which provides the CCF with the ability to ‘passport’ across the EU whereas a non-UCITS CCF provides greater flexibility in relation to investment strategy without the same degree of regulation and restrictions. Regulatory Options UCITS III – UCITS investment and borrowing restrictions apply NonUCITS: » QIF: No investment restrictions imposed. » PIF: Derogations available from standard nonUCITS Tax CCF transparent for Irish tax purposes All income and gains arise to investors. Transparency should allow investors access to tax treaty reliefs Confirmation needed from each jurisdiction on transparency of CCF from an investor and investment perspective Transparency tests with certain countries of pension domicile and certain countries of investment have been completed

Pension Pooling Vehicles - Luxembourg FCP Legal Contractual structure for collective investment created by management company The FCP is not a legal entity, but a co-proprietorship of assets which is managed on behalf of the joint owners, by a management company. Investors subscribe for units in the FCP which represents a portion of the net assets of the fund. Unitholders are only liable up to the amount contributed by them. FCP is not subject to Luxembourg company law. The rights and obligations of the unitholders and their relationship with the management company are defined in the management regulations. The management company takes, on behalf of the FCP, all decisions relating to the investments and the operations of the FCP. Regulatory Standard regulation CSSF All FCPs must have a management company established under Lux. Law and which complies with the provisions for management companies of funds under 2002 Law. Tax An FCP is considered to be a tax transparent entity in Luxemburg. Transparency tests with certain countries of pension domicile and certain countries of investment have been completed A small number of live transparent pension pooling FCPs today Subject to a one-off capital duty of EUR 1,200 upon creation. No withholding tax exposure at fund level on income distributed by the FCP or on any capital gain realised by the unit holder upon sale of the units.

Pension Pooling Vehicles – Dutch FGR Legal Contractual structure for collective investment created by management company An FvGR is a contractual arrangement between the fund manager, the fund custodian and at least two participants. An FvGR resembles a unit trust as known in common law jurisdictions, although it is neither a body corporate nor a trust and has no legal personality of its own. Since the FvGR is not a legal entity, it cannot hold any rights or incur liabilities. The fund custodian has legal ownership of the investments effected by the fund manager as attorney-in-fact on behalf of the FvGR. The participants in the FvGR have a pro rata economic interest in the FvGR’s assets held by the fund custodian, which is typically represented by ‘units’ issued by the FvGR to the participants. Regulatory The Dutch investment fund market is regulated by the provisions of the Investment Institutions Supervision Act 1990 (IISA). ISSA prohibits the marketing of participants in investment funds unless the manager of the fund is licensed under IISA, or a safe harbour or exemption applies. Tax For Dutch tax purposes, two types of FvGRs can be distinguished. An FvGR can be either structured as transparent or a non-transparent (‘opaque’) entity for Dutch tax purposes. Opaque form used for retail investment funds Tax transparent for income and capital gain once shares are issued by and re-purchased by the FGR Tax transparency is achieved by providing for prior written consent by all partners with respect to the transfer of units by an investor. It is also possible for an FvGR to be treated as a transparent vehicle from a Dutch tax perspective if the units may only be redeemed by the fund. In that case, prior consent of the other investors is not required. A transparent FvGR is not subject to corporation taxation in the Netherlands. Instead, the income is taxed in the hands of the participants (to the extent that these investors are either Dutch tax resident or opaque through a Dutch PE.

Pension Pooling Vehicles – Belgian OFP Legal Separate legal entity (distinct from sponsoring undertakings) under Belgian home state legislation. Simple and flexible structure: ‘contractual freedom’ Easy set-up (adopting by laws), authorisation required by home-state supervisor (CBFA), short procedure Regulatory Align investment strategy with characteristics of the pension plan and population. The prudential framework combines prudence and a high degree of flexibility for target funding. Prudence – taking into account the ‘specific’ characteristics of the pension plans and the plan participants. Minimum = vested rights (according to the host country social and labor legislation or pension rules). Flexibility – surpluses in the PF could result in a higher risk budget for more dynamic portfolios, lowering pension cost in the long run. More effective use of company’s working capital. Taxation OFP is subject to Belgian corporate income tax (eligible for double tax treaty network) Taxable basis will be normally zero, No capital gains tax No withholding tax on dividends Benefits from very extensive double tax treaty network. Higher ‘net’ dividends vs most other EU countries. Exempt from VAT on investment management fees and dedicated management/ operational fees. No other indirect taxes like stamp duty tax, subscription taxes etc…

Process for establishing vehicle – at a glance Irish CCF Lux FCP Dutch FGR Belgium OFP Step 1 : Have a suitable promoter (which may be the same entity as the investment manager) approved for the proposed fund. The Financial Regulator will assess the promoters suitability to promote an Irish authorised fund based on criteria such as the promoters own regulation together with the level and depth of its experience in the investment fund area. The approval process normally takes approx. 4 weeks. Once obtained, this approval is valid for any further funds established in Ireland. The investment manager of the proposed fund must also be approved by the Financial Regulator and the approval procedure is similar to that for the promoter. Step 2 : Gain approval for the fund itself. A prospectus, trust deed/custodian agreement and individual questionnaires in respect of each director are submitted for review. The Financial Regulator will quite often run the fund approval process in parallel with the investment manager/promoter approval process, with the time to fund launch from the start of as little as 6-8 weeks. A new immediate approval process is available for QIFs. Under the 2002 Law: All UCIs to be set up must obtain prior authorisation from the CSSF. The draft documents and information are to be submitted to the CSSF for their approval. Authorised UCIs are entered by the CSSF on a list which is published in the Official Gazette. Under the SIF Law: No prior authorisation from the CSSF is required to set up a FCP. However constitutional documents, choice of custodian and information regarding the directors and officers must be submitted to the CSSF within one month of the formation of the fund. The management company is required to draw up an issuing document which must include the information necessary for investors to be able to make an informed judgement about the investment proposed to them. The issuing document must be communicated to the CSSF. An FCP must be managed by a management company established under Lux law and which complies with provisions for management companies of funds under the 2002 Law. The FGR is created by agreements between the parties involved: the manager, the trustee and the participants (that is, the investors). The manager is the main party. It is mostly the originator of the FGR or a party fronted by the sponsor. The contractual arrangement usually comes about by creating terms and conditions (to some extent comparable to the articles of association of a company). These terms and conditions will, among other things, impose obligation both on the trustee and the manager and will form the contract between the trustee and the manager on the one hand and each participant on the other hand. This contractual arrangement could be supplemented by the terms of a subscription agreement (often containing participant representations and warranties) and the fund's prospectus. Trustees of contractual funds do not require a separate licence under the IISA but are required to comply with certain rules. Easy set-up (adopting by-laws) Authorisation required by home state supervisor (CBFA) Short procedure

Investment Funds In Luxembourg – at a glance LEGAL and REGULATORY Commercial Company Law of 1915 (SOPARFI) Subject to part II of 2002 Law 2002 and new 2007 Law Law of June 15, 2004 Dutch VBI Type of vehicle / regime SOPARFI FCP SICAV SIF SICAR Legal form SA, Sàrl, SCSA, SCA Fund & Management company SICAV: SA SICAF: SA,Sàrl, SCSA,SCA See FCP, See SICAF SICAV: see SICAF SA, Sàrl, SCSA,SCA SCS NV, fund for joint account, comparable EU entity, comparable Netherlands Antilles entity, comparable non-EU entity if treaty contains non-discrimination clause Investors Private Public Public Institutional, Qualified Institutional, Qualified At least two shareholders / participants Min. Capital SA: € 31,000 Sàrl: € 12,400 At least € 1,250,000 6 months delay At least € 1,250,000 6 months delay At least € 1,250,000 12 months delay At least € 1,000,000 12 months delay € 45,000 for a NV, no requirement for FJA Regulation CSSF No Standard Standard Light Light YES, unless an exemption applies. Use of Sub Funds No Yes Yes Yes No Yes Investment diversification N/A Yes Yes Just the risk spreading principle to be applied. N/A but risk capital Yes Indebtedness restrictions 15/85 (holding activity) Limited, max 50% of net assets Limited, max 50% of net assets No No No

Investment Vehicles In Luxembourg – at a glance TAX SOPARFI FCP SICAV SIF SICAR Dutch VBI Tax transparency NO YES NO YES / NO YES / NO YES / NO depending on legal form Corporate taxes YES NO NO NO NO / YES but can be 0 effectively NO, exempt from Dutch CIT Capital Duty 1% (Draft Budget Law - 0.5% 2009, Abolished in 2010) € 1,250 € 1,250 € 1,250 € 1,250 NO NWT 0.5% of the unitary value Exemption and reduction possible NO NO NO NO NO WHT Dividends 15% NO NO NO NO NO Interest (beware of EUSD) NO NO NO NO NO NO Liquidation NO NO NO NO NO NO Annual subscription tax NO 0.05% NAV Reduction to 0.01% and exemption possible 0.05% NAV Reduction to 0.01% and exemption possible 0.01% NAV Exemption possible NO NO DTT access Yes N/A Limited N/A / Limited NO / YES NO (if treaty access is required it can use a Dutch coop as a subsidiary of the VBI) EU Commission Questions State Aid? NO

Investment vehicles in the Netherlands – at a glance High-comparison between the different types of investment vehicles and tax regimes in the Netherlands. INSTRUCTIONS Apply a pattern fill to text slides created with a grey background by changing the design template. How to change design template: Format menu > Slide Design… > Design Template Choose the desired design and use the dropdown option to select Apply to Selected Slides . PATTERNS SHOULD NOT BE USED WITH THE WHITE BACKGROUND Update the Presentation title and Date from the Header and Footer… option from the View menu. Features/Tax regime Regular Transparent FII EII 1 Eligible entities BV, NV, Coop, ICVC, opaque CV, opaque FJA Transparent CV, transparent FJA BV, NV, ICVC, opaque FJA NV, ICVC, opaque FJA 2 Subject to CIT 25.5% but full exemption for income and capital gains from qualifying equity investments Not applicable 0% Exempt 3 Subject to dividend WHT 15% but reduced under tax treaty or domestic exemption (EU corporate entities and pension funds) Coop is exempt Not applicable 15% but reduced under tax treaty or domestic exemption Exempt 4 Eligible for tax treaties Yes No Yes No 5 Transferability of interests Some transfer restrictions for BVs Membership interests of the Coop may not be freely transferable Prior written consent of all investors regarding admission or substitution of an investor Some transfer restrictions for BVs 6 Distribution obligation None None Disputable profits (excluding capital gains) must be distributed within 8 months after year end of tax year No 7 Shareholders requirements None None Yes, see section 3.3.3 None 8 Subscription tax or capital duty None None None None

Recognition of Irish CCFs - Tax Transparency Major Markets Country Transparent Non Transparent Australia Yes? Austria Yes Belgium Yes Canada Yes France Yes? Germany Yes Italy No? Japan No? Norway Yes Spain No Switzerland Yes The Netherlands Yes U.K. Yes U.S. Yes

Thank you For Your Attendance 23 April 2008

Offshore Tax Efficient Vehicles

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