File - Wildgen, Partners in Law

Wildgen’s Newsletter
January 2012
TABLE OF CONTENTS
TAX EXEMPTION OF FOREIGN PRIVATE EQUITY FUNDS IN
GERMANY: ALL GRIST TO THE MILL OF LUXEMBOURG LIMITED
PARTNERSHIPS?
2
QUELLES SONT LES DERNIÈRES INNOVATIONS DE L’INDUSTRIE
DES FONDS ?
4
ADDITIONAL INFORMATION FOR INVESTORS IN THE
PROSPECTUSES OF UCITS AND UCIS
6
ACTIVITY OF FAMILY OFFICES IN LUXEMBOURG
7
DTT LUXEMBOURG-RUSSIA - NOTE PROTOCOL
9
WILDGEN NEWS
10
TAX EXEMPTION OF FOREIGN PRIVATE EQUITY FUNDS IN
GERMANY: ALL GRIST TO THE MILL OF LUXEMBOURG LIMITED
PARTNERSHIPS?
By Gregor H. Berke, Director
A recent decision of the German High Tax Court ( Bundesfinanzhof, in short
BFH) is causing a major uproar among the German private equity houses and
is likely to have a substantial impact - far beyond the tax implications for
current fund structures - on the future of the German private equity business.
From a mere investor perspective the message of the court decision sounds
rather positive, as the BFH1 ruled that any income derived by German tax
resident investors in a UK-based private equity fund is exempt from German
taxation.
However, German-located private equity structures are adversely affected by
the court findings, as their current tax transparency is mainly based on the
non-commercial character of their activities, which in turn is key for investors
keen on avoiding tax leakage via withholding taxes and formalities like filing
tax returns to Germany authorities.
Due to the Alternative Investment Fund Manager Directive – better known as
“AIFM”2 –, to be implemented until mid-2013 in all EU/EEA member states,
the private equity industry across the European Union is currently revisiting
key questions such as alternative legal forms, outsourcing opportunities,
different regulatory regimes and - last but not least – the jurisdiction which is
best suited for their future AIFM-compliant fund business. The looming tax
burden for German fund activities as well as the tax exemption of foreign
private equity funds stated by the BFH may well be an important building
block in this strategic review of the private equity business in the Federal
Republic of Germany.
Background and findings of the BFH - decision
The BFH-case involved two German private limited companies ( Gesellschaft
mit beschränkter Haftung) which were invested as limited partners of a UKbased private equity fund. The UK-fund was set up under the legal form of a
limited liability partnership (LP). This LP held participations in a string of
portfolio companies for an average of four years each; the portfolio
1
2
Decision of first Senat of the Bundesfinanzhof dated 24 August 2011 – I R 46/10
Directive 2011/61/EU dated 1 July 2011 on alternative investment funds managers
Copyright © 2012 | Wildgen, Partners in Law
management and any further administrative tasks were delegated to a
separate UK management company, belonging to the same group, regulated
by the English financial authority and with offices, staff and technical
infrastructure.
[…]
Upshot and Outlook
The German private equity houses are currently fighting on several fronts, the
latest decision of the BFH adds to the difficulties to adapt their business
model to the future regulatory requirements under the AIFM Directive.
Luxembourg with its highly specialiSed fund industry, custodians and
securities service providers is well-positioned to offer efficient and AIFMcompliant solutions for the private equity world. The Société en commandite
simple, the Luxembourg-made limited partnership, already offers a flexible
and transparent legal framework for PE ventures and will be further improved
according to the needs and expectations of the PE industry. Tax advantages,
exemptions and alike considerations should by no means be the main reason
or trigger to relocate to Luxembourg; notwithstanding, the findings of the BFH
on the tax exemption of transparent foreign fund structures - such as UK
limited partnerships and SIF-SCS and SICAR-SCS - should be in any case
taken into due consideration when comparing and weighing pros and cons of
different jurisdictions best suited to do PE business in the future.
The full article is available on our website
WILDGEN, Partners in Law held a Fund Conference on 7 December 2011 for
the German-speaking fund community in Luxembourg, with Prof. Michel
Verlaine (ICN Nancy) presenting the latest developments in risk management
for funds and with Dr. Henning Starke LLM, a Frankfurt-based financial
markets partner at SJ Berwin, who - together with the author - presented the
impact of the upcoming AIFM directive for German PE and closed-ended fund
structures.
3
QUELLES SONT LES DERNIÈRES INNOVATIONS DE L’INDUSTRIE
DES FONDS ?
Par Giuseppe Cafiero, Junior Associate, Iya Martkoplichvili, Associate et Samia Rabia,
Partner
En ce début d’année, un bilan de l’industrie des fonds d’investissement
s’impose compte tenu des modifications et évolutions intervenues au cours de
l’année 2011.
A ce jour, les effets de la crise financière de 2008 ont engendré des
conséquences importantes sur les marchés. Dans ce contexte, le Luxembourg
et globalement l’Europe ont connu récemment une évolution importante au
niveau de la législation des Fonds. Cette évolution est principalement le fruit
de leçons tirées des conséquences de la crise financière de 2008, laquelle a
démontré la nécessité d’une protection renforcée des investisseurs face aux
risques auxquels ils s’exposent lors d’investissements dans des Fonds. A cet
égard, un certain nombre de textes ont été adoptés sur le plan européen afin
d’assurer à la fois une protection des investisseurs mais également une
certaine stabilité des marchés.
La Directive AIFM
La nouvelle directive sur les gestionnaires des fonds alternatifs 2011/61/UE
du Parlement européen et du Conseil du 8 juin 2011 (la « Directive AIFM »)
témoigne de la volonté de l’Union européenne de réglementer les fonds
alternatifs (private equity, hedge funds) considérés comme un des facteurs de
la crise dite des « subprimes ». La Directive AIFM est le résultat de longues
négociations sur le plan européen dont l’objet a consisté à déterminer dans
quelles mesures il était possible de réglementer l’activité liée aux fonds
alternatifs tout en conservant l’attractivité des places financières
européennes pour la gestion et la commercialisation de ce type de Fonds. […]
L’adaptation de la législation luxembourgeoise applicable aux FIS
A cet égard, le Luxembourg s’est une nouvelle fois montré réactif en
proposant un projet de loi n° 6318 portant modification de la loi relative aux
fonds d’investissement spécialisés immédiatement après la publication de la
Directive AIFM au journal officiel de l’Union européenne le 1 er juillet 2011. Ces
mesures visent à adapter la législation luxembourgeoise applicable aux fonds
Copyright © 2012 | Wildgen, Partners in Law
d’investissement spécialisés (les « FIS ») aux exigences de la Directive AIFM.
[…]
La promotion des Fonds socialement responsables
Un autre fait marquant de l’année 2011 a consisté en la promotion des Fonds
dits « socialement responsables ». De tels Fonds ont pour objet d’investir
dans des produits financiers dont les critères de sélection sont
principalement dictés par des considérations sociales et environnementales
et visent notamment des domaines d’investissement tels que l’agriculture
biologique ou les énergies renouvelables. […]
Le Luxembourg et la Finance Islamique
A l’instar des Fonds socialement responsables, d’autres types de Fonds ont
également pour objectif d’adopter une politique d’investissement dictée par
des considérations autres que financières. Ainsi, les Fonds islamiques se
doivent de poursuivre une politique d’investissement conforme à des principes
religieux et/ou moraux, tirés de la Sharia. […]
L'introduction de la Loi OPCVM IV et autres nouveautés
Enfin, il serait imprudent de conclure le présent article sans aborder un des
changements les plus notoires de l’industrie des Fonds, à savoir la
transposition en droit luxembourgeois de la Directive 2009/65/CE du
Parlement européen et du Conseil du 13 juillet 2009 par la Loi OPCVM IV. La
Loi OPCVM IV vise tant à renforcer la protection des investisseurs qu’à créer
un cadre plus harmonieux et favorable au développement des Fonds en
Europe. […]
Il découle de ce qui précède que la volonté d’adapter rapidement la législation
luxembourgeoise aux nouvelles normes européennes combinée à la
promotion d’une nouvelle génération de véhicules d’investissement devrait
permettre au Luxembourg de conserver son statut de référence en matière
d’administration de Fonds ainsi que d’attirer des capitaux étrangers
nouveaux.
L’article est disponible dans son entiereté sur notre site Internet
5
ADDITIONAL INFORMATION FOR
PROSPECTUSES OF UCITS AND UCIS
INVESTORS
IN
THE
By Iya Martkoplichvili, Associate and Gregor H. Berke, Director
In its Newsletter N°130 dated November 2011 the Luxembourg Financial
Sector Regulator (Commission de Surveillance du Secteur Financier , the
“CSSF“) requires the insertion of a paragraph in the prospectuses of UCITS
and UCIs (referred to as “UCI” or “UCIs”) newly created as of the date of
publication of this Newsletter (i.e. 23rd November 2011). For all existing UCIs,
this paragraph shall be introduced with the next update of the prospectus and
by 30 June 2012 at the latest.
Such mandatory paragraph is worded as follows:
« The [investment company, FCP, UCI(TS)/management company] draws the
investors’ attention to the fact that any investor will only be able to fully
exercise his investor rights directly against the UCI(TS), [notably the right to
participate in general shareholders’ meetings - for UCI(TS) incorporated in
form of an investment company] if the investor is registered himself and in his
own name in the shareholders’ register [for UCI(TS) incorporated in form of an
investment company] / in the unit holders’ register [for UCI(TS) incorporated
in form of an FCP] of the UCI(TS). In cases where an investor invests in the
UCI(TS) through an intermediary investing into the UCI(TS) in his own name
but on behalf of the investor, it may not always be possible for the investor to
exercise certain shareholder rights [for UCI(TS) incorporated in form of an
investment company] or unit holder rights [for UCI(TS) incorporated in form of
an FCP] directly against the UCI(TS). Investors are advised to take advice on
their rights. »
This new requirement is based on article 151(1) of the law dated 17 December
2010 relating to undertakings for collective investment (the “UCITS IV Law”),
the provisions of which require the inclusion in the prospectuses of necessary
information enabling the investors to make an informed judgment of the
proposed investment and, particularly, of the risks attached hereto.
Background and purpose of the new paragraph
The new paragraph relates to the services offered by intermediaries to
investors and namely nominee services. As a reminder, the circular 91/75 has
Copyright © 2012 | Wildgen, Partners in Law
already authorised the use of nominee services and defined the conditions
thereto. A nominee, as defined by the CSSF in its circulars 91/75 and 02/77, is
an intermediary who intervenes between the investors and the UCI of their
choice and acts on behalf of the investor of a UCI by appearing as shareholder
or unitholder of the UCI and exercising the rights attached to such quality. The
name of the underlying investor will consequently not be revealed to the UCI,
which will handle directly with the nominee. However, the investor will remain
the ultimate beneficial owner of the shares or units of the UCI and will act
through the nominee providing appropriate information to and
soliciting instruction by the respective investor.
Similar to the circular 91/75 which requires the mention in the prospectus of
the right of the investor to deal directly with UCI of their choice for placing the
subscriptions and redemption orders despite of using the services of a
nominee, the CSSF demands henceforth that the investors be informed of the
possible limitations to their rights as shareholders or unitholders of the UCI in
which they intend to invest, with a view to enhance the protection of the
investors as well as of the UCI.
In fact, pursuant to circular 91/75, where nominee services are organised by
the UCI, the promoter must ensure the compliance with the requirements of
this circular, namely the insertion of a termination clause in the nominee
agreement, the description of the role of the nominee in the prospectus and
the insertion of provisions in the prospectus regarding the possibility of the
investors to directly invest in the UCI without having recourse to a nominee.
In this context, the new paragraph to be inserted in the prospectus will draw
the attention of the investors to limitations in the ongoing exercise of their
shareholder/unitholder rights and thereby helps preventing potential conflicts
or misunderstandings on the part of the investors; ultimately the UCI are also
likely to benefit from the enhanced prospectus disclosures, not least as this
heads-up may help preventing potential contestations and legal proceedings.
The full article is available on our website
7
ACTIVITY OF FAMILY OFFICES IN LUXEMBOURG
On 17 November 2011, the Ministry of Finance and Budget presented a draft
bill n° 6366 relating to the activity of Family Office in Luxembourg. Once this
draft bill shall be enacted as a law (presumably in the course of 2012),
Luxembourg will become the first European jurisdiction to implement a
specific legal regime for this activity. Outside Europe, only the USA recently
added this activity to their legislative arsenal pursuant to the Dodd-Frank Act
(July 2010).
The raison d’être of the draft bill is self explanatory. As everyone knows,
Luxembourg is eager to be proactive and at the vanguard of the evolution in
the field of financial services. In addition to the well established private
banking activities, funds’ industry, private equity servicing, M&A structuring
and other more recent developments (IP/IT regime, Islamic finance), the
Family Office market, although having already been active in practice for
decades in Luxembourg, lacked a specific and coordinated legal and
regulatory framework. On the one hand, such specific clients are looking for
more transparency and are in need of a global service and independent
advisors. On the other hand, the current Luxembourg Family Office offer is
fragmented and relatively heterogeneous in terms of know-how.
There is therefore clearly an opportunity for Luxembourg to stand upfront on
this specific niche market by offering a tailor-made legal and regulatory
regime which may be attractive and competitive vis-à-vis long-standing
jurisdictions of choice (Switzerland, UK, USA, Singapore).
The main guidelines of the draft bill are true to the standard Luxembourg
legislative approach, i.e. combining a strict legal and regulatory framework
with a businesslike flexible approach. This approach applies to both the
definition of “Family Office activities” in the meaning of the draft bill and to the
scope of professionals admitted to provide Family Office activities and
services.
[..]
Foresight: the promising future of Family Office in Luxembourg
Luxembourg suffers from current drawbacks while offering huge promises as
a Family Office business platform. Current Luxembourg positioning and
Copyright © 2012 | Wildgen, Partners in Law
reputation is not indeed quite yet at par with leading jurisdictions such as the
US, Switzerland or Singapore. However, Luxembourg, by its long-standing
expertise in all financial sector services, its outstanding human and technical
resources, its economical and political stability, benefits from all the assets
necessary to offer a favorable alternative option for the development of Family
Office business. In this respect, the future law relating to Family Office aims at
providing a most adapted and attractive legal framework.
The full article is available on our website
DTT LUXEMBOURG-RUSSIA - NOTE PROTOCOL
By Giuseppe Cafiero, Junior Associate and David Maria, Partner
On November 21, 2011, the Double Tax Treaty between the Grand-Duchy of
Luxembourg and the Russian Federation dated June 28, 1993 (hereafter the
“DTT”) has been amended by a protocol implementing new important rules
aiming to avoid double taxation and to prevent fiscal evasion with respect to
taxes on income and capital (hereafter the “Protocol”). The Protocol entered
into force in both countries on January 1, following the date on which the
respective ratification procedures have been completed.
The purpose of such amendment is to improve DTT provisions in relation to
economic interest, focused on dividend taxation which should then increase
the appeal of Luxembourg for Russian investments in Europe.
[..]
The full article is available on our website
9
WILDGEN NEWS
Wildgen supports SOS Children's Village Luxembourg
We continue our support to SOS Children's Village Luxembourg this
year again. In partnership with the Luxembourgish cinema chain
Utopia, the firm treated the children of the Village to the movies
several times in 2011 and is delighted to make it possible also in 2012.
SOS Kannerduerf Luxembourg takes care of underprivileged children
and teens who can not stay with their natural families and offer
accommodation to youths on their way into independence.
Wildgen elected new Partners, Directors and Senior Associates
We are glad to announce the following promotions, rewarding the
professionalism and expertise of our legal talents:
Partners: Anne-Laure Jabin and David Maria;
Directors: Mevlüde-Aysun Tokbag, Jackye Elombo, Gregor H.
Berke and Vincent Bolard;
Senior Associates: Laurie-Anne Takerkart-Wolf, Luis Marques
Guilherme and Eric Perru.
Wildgen awarded three times in 2011
In 2011, the firm received three awards acknowledging the
outstanding level of service and the high degree of ability
demonstrated by our partners and associates. Those accolades also
recognised different factors, such as client retention, speed of
response and assistance and ability to navigate complex situations.
Even if 2011 was another tough year for law firms across the globe,
we demonstrate the firm has the ability to overcome new challenges
and to help our clients achieve success.
Copyright © 2012 | Wildgen, Partners in Law
Awards received in 2011:
“Luxembourg Corporate Tax Law Firm of the Year (2011)", by
Dealmakers Monthly
“Banking & Finance Law Firm of the Year in Luxembourg
(2011)”, by Corporate Intl
and “Islamic Law Firm of the Year, Luxembourg (2011)”, by
Lawyer Monthly
Upcoming Event
20 January 2012 - 1 February 2012
Die Zukunft alternativer Fonds in Europa
Luxemburger Lösungen für innovative Fondsstrukturen vor dem
Hintergrund der AIFM Richtlinie. Eine Übersicht über rechtliche,
steuerliche, aufsichtsbehördliche und administrative Aspekte, die bei
der Fondsstrukturierung und -auflegung berücksichtigt werden
sollten.
20 January 2012
Femme-Homme : Égalité ?
Le 20 janvier, IMS Luxembourg, Institut pour le Mouvement Sociétal,
organise une conférence sur le thème Femme - Homme : Egalité ?
Invitée à répondre à cette question, Samia Rabia interviendra pour
parler de l'esprit d'entreprise au Luxembourg et faire part de son
expérience en tant qu'Ambassadrice de l’Entrepreneuriat Féminin au
Luxembourg.
Get more information on our website
11
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----------------------------------The present newsletter contains general information only. It is not intended to be, and should not be relied upon
as, a comprehensive statement of the law. Therefore, WILDGEN can not accept any liability for any errors,
omissions or opinions contained herein and for the implementation of the principles set out without its active
involvement.
Copyright © 2012 | Wildgen, Partners in Law