Sovereign wealth navigating the · 4 Sovereign wealth and pension investors – navigating the...

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Sovereign wealth and pension investors – navigating the global tax environment KPMG International

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Sovereign wealth and pension investors – navigating the global tax environment

KPMG International

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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Introduction

g

David Neuenhaus KPMG’s Global Head of Sovereign Wealth and Pension Funds Tax network

Tax

Risk & Com

pliance

C-Su

ite

Evolving Investment Opportunities

Increasing Board and Auditor Tax Scrutiny

Expa

nding

Geo

graphic F

ootprints

Regulatory Dev

elopm

ents

A changing investment landscape

Source: KPMG International 2015

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

In today’s complex and competitive investment environment, pension funds and sovereign wealth funds (SWFs) are being asked to look harder and farther to find higher yields. To meet this challenge, managers are leaving few stones unturned. Emerginmarkets, especially those in high-growth countries, are increasingly on the itinerary. Alternative investments, in the form of infrastructure, real estate, private equity and private debt are becoming core to many allocation strategies. New structures such as funds of one, co-invests and directs are being explored. And partnerships are being formed with a wide variety of counterparties and participants.

As this new paradigm continues to take shape, a separate but parallel development is taking place in the international tax community. Governments around the world, eager to reduce deficit and debt after years of stimulus spending, are changing

their behavior, too. They are taking advantage of public sentiment on tax morality and turning to tax reform to help determine that companies (especially multinationals) pay their fair share of taxes into the depleted national coffers. At the same time, these cash-strapped governments are looking to the private sector to help fund and build much-needed capacity in areas such as infrastructure, health care, and social services.

The resulting investment landscape is not always familiar, nor always stable. Tax risks are very real, and understanding, managing, and capitalizing on risks has never been more important. Governments and tax authorities, spurred by high-profile cases of tax avoidance, are rushing to reform.

KPMG’s global network of member firms can provide a specific, tailored approach to sovereign investors for their next investment that truly adds value. I encourage you to read on to find out how.

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Teaming with you – KPMG’s distinctive global capabilityKPMG member firms are some of the leading tax advisers to sovereign and pension investors in our key markets, with the capability to assist sovereign investors in their next strategic investment.

We understand the sovereign and pension investor industry, key drivers for investment and how these factors can effect an investor’s tax position.

• Not all investments or investors are the same. Some investors are passive portfolio investors, others take controlling interests. Some prefer infrastructure or property assets while others invest in more diverse industries ranging from transportation to banking.

• KPMG’s member firms understand you and your investment profile and can provide commercially relevant tax and business insights into your next investment.

We work with you through your investment lifecycleKPMG member firms understand that sovereign and pension investor risk parameters are different than a typical corporate investor.

We provide specialized technical service and advice, and provide a dedicated team who understand the bigger picture. For example, the impact of local sensitivities associated with foreign sovereign and pension investors.

Strategy Execution Post-completion

Investment management

• Policy and legislation

• Market creation

• Market entry

• Thought leadership

• Strategic planning

• Project screening

• Risk identification and allocation

Deal structure Deal execution Deal closure

• Feasibility and • Bid evaluation • Complete business case negotiations

• Bid submission• Procurement • Commercial

• Negotiationdocumentation and financial (RFI, RFQ, RFP) • Funding and close

financing• Financial

modeling • Deal structuring

• Due diligence

• Refinancing• Restructuring• Post transaction

• Exit strategy

• Compliance

Source: KPMG International 2015

2 Sovereign wealth and pension investors – navigating the global tax environment

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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We have a strong international network ready to serve you.

• We have dedicated teams throughout the world that can assist in managing the intricacies in implementing cross-border structures.

• Our teams understand your business and work together at both a local and international level to deliver leading advice for your business.

• We understand that sovereign and pension investors may co-invest with other investors such as private equity, hedge funds or other sovereign funds.

• We are able to bring insight into planning tax efficient structures for all parties involved.

• We provide tax services for the principal government pension plans and sovereign funds in key markets including:

• Europe

• North America

• The Middle East

• Australia

• China

• Singapore

• We provide tailored tax and financial due diligence services.

• We deliver due diligence that is specifically scoped to a client’s needs, taking into account a target’s investment size and the risk associated with the investment. Our services are scalable, should further due diligence be required as a deal progresses.

We strive to be a leader in everything we do, to turn our experience and industry knowledge into real value for our firms’ clients.We provide advice on complex capital structures that suit both the sovereign and pension investor and its target.

We work closely with existing key contacts within local tax authorities in an effort to deliver assurance over the tax structure and tax advice we provide you.

• We can assist sovereign and pension investors to obtain a ruling from the local tax authorities (where permitted in the country of investment) for their investment.

• We have contributed to and continue to be part of the consultative process with governments in the development of legislation and policy governing taxation.

We offer other tailored services to suit you, including ‘health check’ plans for your investments, financial and pensions due diligence, audit services, project management services and advisory services.

We understand the tax issues investors’ face.

While many sovereign and pension investors are generally tax exempt in their home jurisdiction, the taxation of such investors and/or their income stream in foreign jurisdictions is rarely straightforward. KPMG firms can assist a sovereign investor navigate their way through foreign investments to enhance their financial return with an efficient and ethical approach.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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Some questions that sovereign and pension investors should consider

Infrastructure

Real Estate

Private Equity

Tax Complexity

Inve

stm

ent

Com

plex

ity

Public and Capital Markets

Q Which jurisdiction will I be investing in?

Q What is the business that I am investing in? Does my investment involve real property?

Q With whom am I investing? Can my co-investors and I achieve our differing financial objectives?

Q Does sovereign immunity apply to the taxation of my foreign investment and what criteria need to be met?

Q What foreign withholding taxes apply if sovereign immunity is not available for my investment?

Q Are there any local anti-avoidance rules that should be considered as part of my investment structure?

Q To what income does sovereign immunity apply? Are there limitations?

Source: KPMG International 2015

4 Sovereign wealth and pension investors – navigating the global tax environment

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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KPMG’s ApproachKPMG member firm professionals can help you navigate this complexity, providing advice that is tailored to your

business, your strategic objectives and the nature of the opportunity at hand.

Public markets

• KPMG’s member firm professionals can assist clients with establishing a reporting arrangement with custodian banks to expedite the process and minimize the timelines for repatriation of funds. Working with clients and custodians, KPMG professionals can:

• compute the amount of gain on equity and debt securities and issue certificates to the local custodian confirming tax liability or absence thereof, depending on the application of a relevant tax treaty

• compute and certify the tax liability or absence thereof on interest/ dividends

• prepare and file tax returns as appropriate.

• These services can be provided on a trade-by-trade, weekly, monthly or quarterly basis, depending on volume of activity and repatriation/reinvestment requirements.

Co-investment

• KPMG’s Sovereign Wealth and Pension Fund team’s comprehensive view of the market and leading practices for managing tax risks can provide investors with a clear understanding of the local tax risks and provide information to encourage fund managers to maintain leading practices to help mitigate that risk. In addition, KPMG member firms maintain close ties to the local tax authorities to help determine that clients are kept abreast of and can provide input into the development of tax regulations and administrative practices.

Direct investing

• KPMG’s Sovereign Wealth and Pension Fund practice has tailored its conventional services to focus on and anticipate the particular requirements of sovereign and pension investors. Working with investment teams, client support groups (operations and finance) and other advisors, KPMG teams pace transaction work to help minimize the potential impact of failed deal costs and help determine that clients are fully informed of the opportunities, issues and risks on a timely basis.

• Due diligence work is tailored to provide frequent “red flag” reporting and coordinate the timing, nature and extent of work to suit the circumstances and control costs. Reports provide plain language practical views on risks, issues mitigation strategies – keeping pace with and informing the transaction process.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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Case StudiesA government pension plan’s (GPP) investment in Asia Pacific

We provided tax due diligence and tax structuring services to a North American GPP who took a portfolio interest in an Asia Pacific-based infrastructure group.

Our due diligence services were structured in two phases:

• 1st phase: to provide our client with an overview of the material tax and commercial risks associated with their investment.

• 2nd phase: we further examined the tax consequences arising from a high-risk cross-border debt financing

arrangement to determine the likelihood of exposure to deny the deductibility of interest by local tax authorities.

We provided strategic and commercial advice for a tax structure for our client’s investment in the infrastructure group and successfully sought clearance from the tax authorities that the sovereign immunity principle would apply to interest and dividend income streams from its investment.

A sovereign wealth fund’s investment in a European trading company

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

We assisted a Middle Eastern sovereign wealth fund acquire a 100 percent stake in a European chemical manufacturer via a Luxembourg holding structure.

The structure was designed to be Sharia compliant for the Middle Eastern investor in respect of instruments used to fund the investment into the Luxembourg holding company.

We successfully obtained private tax rulings in Luxembourg and other

European jurisdictions providing clarity over the taxation treatment of dividend and interest receipts, the deductibility of interest to shield taxable profits of the underlying companies and the tax consequences associated with future refinancing and exit planning.

We are continuing to work on refining the tax profile of the group including providing transfer pricing services within the group’s pan-European operations.

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The KPMG DifferenceKPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 155,000 people working in member firms around the world.

KPMG Tax’s group is made up of more than 27,000 professional based all over the world who think beyond the present and beyond borders to create and deliver long-lasting value for our clients.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

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Global Tax Sovereign Wealth and Pension Funds Network Leads

Global Lead

David NeuenhausPrincipal, KPMG in the UST: + 1 917 400 9272E: [email protected]

Asia Pacific

Steven EconomidesPartner, KPMG in AustraliaT: + 61 2 9335 8876E: [email protected]

Simon ClarkPartner, KPMG in SingaporeT: + 65 62132152E: [email protected]

Daniel JoePrincipal-in-Charge of US Tax, AsiaT: +82 10 8940 1781 E: [email protected]

Vaughn BarberPartner, KPMG in China (Beijing)T: +86 10 8508 7071 E: [email protected]

Charles KinsleyPartner, KPMG in China (Hong Kong)T: +85 22 8268070 E: [email protected]

Europe and the Middle East

Margaret StephensPartner, KPMG in the UK T: + 44 20 73116693E: [email protected]

Niels GroothuizenPartner, KPMG in MeijburgT: +31 890 91192 E: [email protected]

Martin RengDirector, KPMG Acor TaxT: +45 3078 6682 E: [email protected]

Marco MüthPartner, KPMG in GermanyT: +49 69 9587 3347 E: [email protected]

Nilesh AsharPartner, KPMG in the U.A.E.T: +97 144248987 E: [email protected]

Andrew EllisDirector, KPMG in the U.A.E.T: +97 124014800 E: [email protected]

North America

Justin DavisSeconded Partner, KPMG in the UST: + 1 212 872 3847E: [email protected]

Michael PlowgianPrincipal, KPMG in the UST: + 1 202 533 5006E: [email protected]

Donna MaiminPrincipal, KPMG in the UST: + 1 212 872 3497E: [email protected]

Chris SextonPartner, KPMG in CanadaT: + 1 416 228 7201E: [email protected]

Jocelyn BlanchetPartner, KPMG in CanadaT: + 1 416 777 301E: [email protected]

Marc Desrosiers Partner, KPMG in CanadaT: +1 514 840 2358E: [email protected]

Nicholas Kato Partner, KPMG in CanadaT: +1 647 777 5362E: [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Designed by Evalueserve.Publication name: Sovereign wealth and pension investors – navigating the global tax environmentPublication number: 132492-G Publication date: June 2015

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