Presentación hein vermeulen v26042012
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Transcript of Presentación hein vermeulen v26042012
'European regimes for collective investments. 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)
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
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
The classical system
Private individual Personal income tax at level of private individual
Stock Company
Real estate
Private individual
Legal entity
Personal income tax at level of private individual
Corporate income tax at level of corporate entity
No deduction from tax base for dividend distribution
Stock Company
Real estate
Stock or bonds
Stock or bonds
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?
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
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
The Dutch approach
Co
CIV
Investor level
CIV level
Investment level
Corporate taxation at level of CIV is eliminated, so
only one layer of tax remains
at the level of the investor
Real estate Stock or bonds
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
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
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
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
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
Fiscally transparent structure
Co
CIV
Investor level
CIV level
Investment level
CIV is disregarded for tax purposes
Real estate
Investors receive dividends, interest income
or rental income directly
Stock or bonds
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
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
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
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
No legal personality
Co
CIV
Investor level
CIV level
Investment level
Real estate
Manager
Economic ownership
Legal ownership
(legal title)
Stock or bonds
Custodian
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
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
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
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
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
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
Fiscal Investment Institution
Co
CIV
Investor level
CIV level
Investment level
Fiscal Investment Institution = corporate taxpayer
Corporate tax rate = 0%
All income is converted into profit of the Fiscal
Investment Institution
Real estate
Investors receive dividend income and
capital gains/losses on their interest in the
Fiscal Investment Institution
Stock or bonds
Dividend withholding tax
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
Fiscal Investment Institution can have legal personality
Co
CIV
Investor level
CIV level
Investment level
Real estate
Legal ownership (legal title)
and economic ownership at the level
of the CIV, if organized as a company
NV (public limited liability company) or
BV (private limited liability company)
Stock or bonds
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
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
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
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
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?
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
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
Exempt Investment Institution
Co
CIV
Investor level
CIV level
Investment level
Exempt Investment Institution ≠ corporate taxpayer
Exempt from corporate tax rate
All income is still converted into (commercial) profit
of the Fiscal Investment Institution
Real estate ≠ transferable security
Investors receive dividend income and
capital gains/losses on their interest in the
Exempt Investment Institution
Stock or bonds
Exempt Investment Institution may only invest in
Transferable Securities,
(stock, bonds, futures, options et cetera) but not
in Dutch real estate X
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
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
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
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
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
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
Institutional investor
Institutional investor
Taxable structure
Institutional investors
Sub
No Dutch dividend withholding tax
Use of participation exemption
Corporate tax entity
Sub Sub
BV
Coop
Corporate tax entity
Use of participation exemption NL
ROW
ROW
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
Comparative law overview
• European systems
• Generally, three types of CIV regimes
– Transparent structures
– Funds
• UCITS
– REITS
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
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
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
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
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
Luxembourg SICAV
Co
CIV
Investor level
CIV level
Investment level
SICAV = exempt from corporate tax rate
All income is still converted into (commercial) profit
of the SICAV
Investors receive dividend income and
capital gains/losses on their interest in the
SICAV
Stock or bonds
SICAV has no requirements for investments
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
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
Irish UCITS
Co
CIV
Investor level
CIV level
Investment level
Irish UCITS = exempt from corporate tax rate
All income is still converted into (commercial) profit
of the Irish UCITS
Investors receive dividend income and
capital gains/losses on their interest in the
Irish UCITS
Stock or bonds
Irish UCITS may only invest in
Transferable Securities as listed in UCITS
Directive
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
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
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
REITS in an international context
Residence State
Source State
Which CS has taxing right? Co
'European regimes for collective investments. 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)