Deloitte 2021 M&A Tax Virtual Conference Break-out session Germany: RETT Reform with a focus on the "New Shareholder Rule" and future RETT ...
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Deloitte 2021 M&A Tax Virtual Conference Break-out session Germany: RETT Reform with a focus on the “New Shareholder Rule” and future RETT blockers possibilities 02 MARCH 2021
Day 1: Global and regional private equity topics
Introduction and Contacts
Nevin Borucu
Partner
Munich
E-Mail: nborucu@deloitte.de
Half of everything you know will be
obsolete in 18-24 months - Moore's
Law
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2
Contents Overview of Legislation in Germany 4 Current vs. potential future law RETT law 6 Case studies 9 Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3
Overview of Legislation in Germany Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4
Overview of Legislation in Germany
Real Estate Transfer Tax Reform - Overview
Retrospective application?
25.09.2020
01.01.2020
31.07.2019
Legislative procedures
Potential retro- New RETT rules to come
Federal Government
picked up again – up to
spectivity for into force for RETT
issues draft act on the
date NO UPDATE
observation periods triggering events as of 1
RETT reform
RETT reform January 2020
24.10.2019 H1 2020
Government press release: new RETT rules will Expected timeline for
08.05.2019 NOT come into force as of 1 January 2020 new RETT rules to
Federal Ministry of Finance come into force
issues RETT reform draft bill
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5
Current vs. potential future law RETT law Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 6
Current vs. new RETT law
Transactions subject to RETT (new law)
PropCo vehicle Partnership Corporation Corporation & Partnership
direct / indirect share transfer of direct / indirect share transfer of direct / indirect, legal / economic
RETT triggering event 95% 90% within 5 10 years to new 90% within 10 years to new unification of 95% 90% of the
shareholders shareholders shares
Unification in the hands unification requirement in the
irrelevant irrelevant
of 1 buyer? hands of one acquirer
Time frame 5 10 years 10 years irrelevant
Land-rich requirement No No No
Date of the triggering event Closing Closing Signing
Share seller and purchaser jointly
RETT liable party partnership itself corporation itself
liable
typically FMV of underlying real typically FMV of underlying real typically FMV of underlying real
RETT basis
estate estate estate
RETT rate 3.5% - 6.5% 3.5% - 6.5% 3.5% - 6.5%
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 7
Listed corporations
Change in shareholder structure
Problem
Free float
• In the case of listed corporations, the shareholders structure changes
Anchor frequently.
investor?
• The chart on the left shows the time to reach a 90% turnover in years
of selected DAX stocks (e.g. Deutsche Bank AG, based on the
computations, would have to pay RETT on its entire real estate
portfolio every 0.32 years on average).
(listed)
PropCo
• Simplified computation approach: market capitalization
(01.02.2019)/revenue of transactions (year 2018). No consideration
Year of anchor investors. 18 out of 30 of the DAX companies do not have
an anchor shareholder.
Solution: Stock exchange exemption (still under discussion)
• Change in shareholder structure would not be applicable for listed
companies.
Source: Deutsches Aktieninstitut e. V.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 8
Case Studies Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 9
Case Studies
Current RETT law
RETT triggering event?
2020
• RETT triggered in case of unification of at least 95% in one hand or in
Seller Buyer 1
the hands of company controlled entities.
• Buyer1 unifies 100%.
100% • Transaction is subject to RETT
Lux Hold Co
* German RETT applies on the transfer of the shares on HoldCo
irrespective whether HoldCo is German land rich or not.
100% 100% 100%
Lux PropCo Lux PropCo Lux PropCo
(Germany) (France) (United Kingdom)
Fair Value: 1,000k€ 4,000k€ 5,000k€
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 10Case Studies
Current RETT law vs. potential new law
RETT triggering event?
2021 2021 • RETT triggered in case of unification of at least 95% in one hand or in
the hands of company controlled entities.
Seller Buyer 1 Buyer 2
• Buyer 1 unifies only 89% an Buyer 2 only 11% (assuming Buyer 1 is
89% fully independent from Buyer2).
11%
• Buyer 2 act as RETT-Blocker
Lux PropCo • Transactions are not subject to RETT
RETT triggering event?
• RETT triggered in case of unification of at least 90% or shareholder
change of at least 90%
• 100% transfer of shares to new shareholders
• Transactions IS subject to RETT
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 11Case Studies
Potential future law
RETT triggering event?
2018 2022
• 2019: Buyer 1 unifies only 89%: no RETT
Seller Buyer 1 Buyer 2
• 2022: Buyer 2 unifies only 11%. Shareholder change only 11%.
89%
11% • Retrospective application of the 10 year observation period?
• Position sill unclear
Lux PropCo
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 12Case Studies
Potential future law
RETT triggering event?
2021 • RETT triggered in case of unification of at least 90% or shareholder
change of at least 90%
Seller Buyer 1
• Only 89% transfer of shares to a new shareholder
89%
11% • Seller acts as RETT-Blocker
• Transactions is NOT subject to RETT
Lux PropCo
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 13Share-Deal
Example (potential future law)
RETT triggering event?
2021 2022 • RETT triggered in case of unification of at least 90% or shareholder
change of at least 90%
Seller Buyer 1 Buyer 2
• 2021: Buyer 1 is a new shareholder, however less than 90% are
Sale of 89% Sale of 89% transferred to new shareholder: NO RETT
11% 89%
• 2022: Buyer 2 is a new shareholder, however less than 90% are
transferred to new shareholder: NO RETT
Lux PropCo
• Conclusion: As long as Seller – as Anchor Investor - remains in Lux
PropCo as shareholder in a rolling period of ten years, with respect to
new shareholders, no RETT is triggered.
2033 2022
Seller Buyer X Buyer 2
• 2033: Buyer X is a new shareholder, however less than 90% are
transferred to new shareholders within ten years.
Sale of 11%
11% 89% • In 2033: After a holding period of 10 years by Buyer 2, Buyer 2
become an Anchor Investor.
Lux PropCo • Transaction in NOT subject to RETT
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 14Deloitte 2021 M&A Tax Virtual Conference Break-out session Germany: Fiscal authorities re-open new options for RETT-exempt intra-group restructurings 02 MARCH 2021
Day 2: Real estate and debt funds
Introduction and Contacts
Andrea Bilitewski
Partner, Tax & Legal | M&A
Hamburg, Germany
E-Mail: abilitewski@deloitte.de
Structuring various post-merger
integration processes
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2Fiscal authorities re-open new options for RETT-exempt intra-group restructurings Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3
Day 2: Real estate and debt funds
RETT exemption for certain intra-group restructurings by Sec. 6a German RETTA
Transactions covered • Merger
• Spin-off
• Split-off
• Hive-down
• Asset/share transfers on the basis of articles of association (contribution in kind,
distribution in kind, liquidation)
The exemption is also available for cross-border transfers within the EU
Requirements for RETT • Controlling entity
exemption regarding involved • can be any legal entity (corporation or partnership) as well as individuals.
entities • needs to be “economically active”.
• Tax Authorities conclude that a mere holding company does not
qualify as controlling entity
• It is doubtful whether this conclusion is consistent with the view of
the FCJ.
• Controlled entity
• A direct or indirect shareholding of at least 95% must have already existed
for the 5 years prior to the transaction as well as for at least 5 years
subsequent to the transaction (so-called prior and subsequent holding
periods).
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4Day 2: Real estate and debt funds
Intra-group merger of real estate owning companies
Opinion of Tax Authorities
P GmbH • Up-stream merger of a controlled company to the controlling company
does not qualify for RETT exemption because the “subsequent holding
period” of 5 years cannot be met due to the merger.
> 95% within 5 years
• However, RETT exemption regarding a side-stream merger was already
„prior holding period“
accepted b tax authorities if
• the transferring entity fulfills the 5 years holding period prior to the
transaction
S GmbH
• The acquiring entity fulfills both 5 years period (prior and
subsequent holding period)
Ruling of the Federal Fiscal Court
• Sec. 6a RETT Act is to be interpreted that the 5 years “subsequent holding
period” does not apply in cases of a (side-stream/up-stream) merger as the
nature of the qualifying restructuring transaction does not allow this
P GmbH
requirement to be met.
• Consequence for up-stream merger: RETT exemption applies if the 5 years
> 95% within 5 years > 95% within 5 years „prior + “prior holding period” was fulfilled.
„prior holding period“ subsequent holding period“
• Rulings: FFC II R 18/19 as of 22 August 2019
FFC II R 15/19 as of 21 August 2019
S1 GmbH S2 GmbH
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5Day 2: Real estate and debt funds
Intra-group merger of real estate owning companies
Side-stream merger involving two subsidiaries
P GmbH Opinion of Tax Authorities
• RETT exemption does not apply because the acquiring entity does not
fulfil the 5 years “prior holding period”.
> 95% within 5 years > 95% within the prior 3
„prior holding period“ years and the subsequent Ruling of the Federal Fiscal Court
5 years
• Shared the legal opinion of Tax Authorities
• The fact that the real estate itself was owned by the group for 5 years prior
and 5 years after the transaction was not relevant to the decision as Sec. 6a
RETTA refers to shareholding periods and not to ownership periods
regarding the real estate.
S 1 GmbH S 2 GmbH
• Ruling: FFC II R 17/19 as of 22 August 2019.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 6Day 2: Real estate and debt funds
Hive-down to a newly established subsidiary
Opinion of the tax authorities
P GmbH • RETT exemption (Sec. 6a RETTA) does not apply as the shareholding in the
acquiring entity does not fulfil the the 5 years “prior holding period”.
> 95% within 5 years „prior +
subsequent holding period“ Ruling of the Federal Fiscal Court
S GmbH • RETT exemption acc. to sec 6a RETTA is applicable.
• The fact that the 5 years “prior holding period” cannot be fulfilled in cases
> 95% within the of a reorganization to a newly established controlled entity is harmless.
„subsequent holding period“
• The same applies in cases of intra-group mergers or spin-offs to a newly
controlled entity.
NewCo
• In case of a spin-off for new establishment, the dominant entity needs to
fulfill the retention period of five years. However, the reservation period
with regard to the newly established entity does not need to be met
because the fulfillment of the reservation period requirement is not
P GmbH possible due to the spin-off.
> 95% within 5 years „prior + > 95% within the • Ruling: FFC II R 16/19 as of 21 August 2019
subsequent holding period“ „subsequent holding period“ FFC II R 21/19 as of 21 August 2019
S GmbH NewCo
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 7Day 2: Real estate and debt funds
Spin-off in a foreign EU jurisdiction
Facts
P AG - Austria • Austrian S 1 GmbH transfers all shares in German S 2 GmbH
to newly established Austrian NewCo.
> 95% within the • The transaction generally triggers RETT with regard to the real
> 95% within 5 years
„subsequent holding period“ estate of S 2 GmbH as well as S 3 GmbH.
„prior + subsequent
holding period“ Opinion of the tax authorities
• The spin-off under Austrian law corresponds to a spin-off
under German Law.
S 1 GmbH - Austria NewCo
• However, no RETT exemption as NewCo cannot meet the 5
year “prior holding period.
Ruling of the Federal Fiscal Court
• RETT exemption acc. to sec. 6a RETTA applies. The fact that
NewCo does not meet the “prior holding period” is not
100% detrimental.
S 2 GmbH - • Decision: FFC II R 21/19 as of 21 August 2019
Germany
100%
S 3 GmbH -
Germany
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 8Day 2: Real estate and debt funds
Relevance to acquisition structures and post merger integration transactions
Requirement of a 5 years “prior holding period”
• hinders cross-border integration measures between existing
controlling entity
group and newly acquired target group.
• Any transactions between the groups within 5 years after the
acquisition of target group are liable to RETT (for a second
time).
Consequence for acquisition structures
• If possible, real estate of target group could be acquired
separately in advance or
• Shares in real estate owning companies of the target group
could be acquired separately by existing group companies
with which they are to be merged afterwards.
existing group newly acquired target group • In the latter case the subsequent merger might be
liable to RETT but the RETT resulting from the
purchase of the shares might be creditable.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 9Deloitte 2021 M&A Tax Virtual Conference Break-out session Germany: German Investment Tax Considerations: Developments and Trends 02 MARCH 2021
Day 2: Real estate and debt funds
Introduction and Contacts
Alexander Wenzel
Partner Financial Services
Frankfurt
E-Mail: alwenzel@deloitte.de
Be careful with German tax!
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2German Investment Tax Considerations: Developments and Trends Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3
Day 2: Real estate and debt funds
German Investment Tax Considerations: Developments and Trends
The activity as well as the behavior of the German tax authorities in the investment management / real estate / private equity space
have changed fundamentally in recent years.
Activity Interaction
• The activities of the tax authorities have increased • In previous years, it was sometimes difficult to reach an
enormously agreement with the tax authorities on certain tax
More tax officers technical questions
Significantly expanded tax technical expertise • From our point of view, this has changed
High audit density, which in some cases corresponds More interaction possible
to an early tax audit Tax officers are willing to participate in seminars
• In certain cases, we see significant differences between A number of tax officers who publish essays and/or
local tax office regarding tax technical views contribute to commentaries
• Sometimes we recognize the need for a more coordinated Important to recognize these activities and to value the
approach trust
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4Day 2: Real estate and debt funds
German Investment Tax Considerations: Developments and Trends
With the GITA 2018, the scope of application of the act has been
AIF / UCITS?
significantly expanded.
• Unlike in other jurisdictions, there is no single German tax act No
covering all conceivable forms of collective investment schemes. No
It is therefore indispensable to analyse each and every Yes Fictitious investment fund?
investment vehicle on a case-by-case basis.
Yes
• Tax consequences and tax compliance obligations differ
significantly, both on fund and investor level.
Exception?
• Basically, the scope of application of the AIFMD directly results in
No Yes
the applicability of the GITA. There are however also exceptions
as well as the concept of fictitious investment funds.
GITA applicable GITA not applicable
• According to the GITA as amended by the annual tax act 2020,
there is however no binding effect of the decision of the German
financial supervisory authority. In the past, this was already
stipulated by a decree of the German Federal Ministry of Special
Finance. investment fund
Retirement
asset fund
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5Day 2: Real estate and debt funds German Investment Tax Considerations: Developments and Trends The German Ministry of Finance recently issued a decree in relation to the retroactive correction of the equity gain (Aktiengewinn) calculated and published under the GITA 2004. • The decree follows a decision of the Finance Court of Lower Saxony, where the investment strategy as described in the sales prospectus included tying transactions (Kopplungsgeschäfte). • Tying transactions are arrangements intentionally put in place to leverage the contrary tax treatment of positive income on shares on the one hand and losses on financial derivatives on the other hand. • According to the decree, German investors need to ensure that the equity gain has been correctly calculated with respect to such conceptual arrangements. As opposed to the decision of the finance court, the decree also applies if the sales prospectus did not explicitly mention tying transactions. • German investors are now obligated to notify the competent tax office and to provide corrected equity gain figures if they were used in tax declarations and if the aforementioned arrangements were not considered correctly in the equity gain. • Unlike the GITA 2004, the GITA 2018 includes a provision to identify and to offset such transactions if they are part of a conceptual arrangement. Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 6
Day 2: Real estate and debt funds German Investment Tax Considerations: Developments and Trends Potential change to the German WHT reclaim procedure for non-German investment funds as from 1 July 2021. • According to a bill currently in the legislative process, the GITA will be amended in such a way that the WHT refund procedure according to sec. 7 para. 5 GITA would no longer be accessible for non-German investment funds. They would then need to go for the more complex German WHT reclaim procedure in line with sec. 11 GITA and sec. 50d para. 1 German Income Tax Act respectively. • Tax technical background: if German dividends are paid during a period for which a status certificate has not yet been provided, the entity responsible for the deduction of German WHT will apply the usual tax rate of 26.375% instead of the reduced tax rate of 15%. • Sec. 7 para. 5 GITA stipulates that if a status certificate is provided retroactively (within 18 months of the German dividend payment and covering the time of the payment) to the entity that has deducted the tax, this entity is obligated to refund the difference between the full and the reduced tax rate. • Recommendations? Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 7
Deloitte 2021 M&A Tax Virtual Conference Break-out session Luxembourg: Tax structuring concerns for open ended RE and Infra AIFs 02 MARCH 2021
Day 2: Real estate and debt funds
Introduction and Contacts
Francisco Da Cunha João Almeida
Partner Partner
Luxembourg Luxembourg
E-Mail: fdacunha@deloitte.lu E-Mail: joaoalmeida@deloitte.lu
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2Tax structuring concerns for open ended RE and Infra AIFs Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3
The global tax reset and how it influences Fund structuring
What is the outcome
Tax law Change Which Area of the Fund does impacting IRR
this impact
• Interest limitation rules • Local/Holding investment vehicles; • (Partial) Disallowance of tax deductions
• Exit Taxation • Local/Holding investment vehicles; • Exit taxes
• General anti abuse rules • Local/Holding investment vehicles; • Disallowance of tax benefits
• Controlled Foreign Company rules • Holding vehicles • Anticipate cash tax paid / double
taxation?
• Hybrid and imported mismatch • All entities within the structure
rules • (Partial) Disallowance of tax deductions
• Fund vehicle
• Reverse hybrid rules • Taxation of otherwise exempt Fund
• GP / service providers profits
• Mandatory disclosure rules
• Holding vehicles • Penalties / Criminal offences
• Multilateral instrument and the
• Holding vehicles • Disallowance of tax benefits under DTTs
PPT
• ECJ court Cases • Disallowance of tax benefits under EU
Directives
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4New dynamics between GPs and LPs
Leading to a shift in fundraise and fund structuring
Business and commercial rationale are the
Increased DD by LPs on GPs driving forces behind decision making. Tax is
second to business reasons
LPs are willing to pay more costs in an
Tax is however an increasingly
effort to have a cleaner and certain
complex area to still cater for structure
GPs still in search for yield, but
LPs seek simplicity and “When you change the way
preferably wrapped up and arising from
flexibility on Fund structures you look at things, the things
you look at change” sustainable / ethical / responsible
investment
GPs still seek maximizing the
LPs will need to be more lenient with UBO
profits whilst reducing the
information request as this is a new standard
costs
for doing business
Low tolerance for tax risk and
GPs and LPs will need to substantially change fund
no use of tax havens
subscription documentation to cater different cost
allocations (eg, provoked by reverse hybrid rules)
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5Fund Structuring
Investment Fund set up • Management activities and fund consolidated in one
place
• Adequate level of substance and functions (including the
oversight of delegations) required
• Cross-border management allowed within the EU
• JV structures are commonly used EU Investors Non-EU Investors
due to the size and volume of the
investments
• Typically Co-investors invest Foreign IM
directly in the Fund with
preferred units.
• JVs can influence platform set up Lux AIFM Non-AIFM GP
and repatriation waterfalls
Co-Investors Lux AIF
Parallel
(e.g. SCSp) Fund
Master LuxCo
Lux SPV 1 Lux SPV 2 Lux SPV 3
• Pooling regional platform possibly
qualifying to PPT for DTT purposes EU entities
• Appropriate level of economic and EU BidCos Non-EU BidCos Lux PropCos
physical substance to be
maintained in Luxembourg. • PPT / GAAR test to be discussed
• Impact on MLI to be investigated on a
source country basis
Real Estate / Infrastructure Assets • Anti-hybrid and imported mismatch to
be considered if leverage
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 6Deloitte 2021 M&A Tax Virtual Conference Break-out session Luxembourg: AIF structures: important VAT considerations in light of recent CJEU decisions 02 MARCH 2021
AIF structures important VAT considerations in light of recent CJEU decisions Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2
Break out sessions – AIF Structures – Important VAT considerations
Introduction and Contacts
Cédric Tussiot Tomas Papousek
Partner Directeur
Luxembourg Luxembourg
E-Mail: ctussiot@deloitte.lu E-Mail: topapousek@deloitte.lu
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3Contents Typical AIF structures 5 Fund Management VAT exemption 6 Financial Intermediary exemption 7 Latest CJEU case law 8 AIFs as eligible vehicles 10 Case studies 11 Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4
Day 2: AIF structures
Typical AIF structures and related management service flow
Lux GP will be acting as statutory general partner
Lux AIFM has been appointed to and will be entitled to a GP which should cover its
provide portfolio and risk operating costs and a markup
management services as well as LPs
valuation and distribution services and
in consideration will be entitled to
AIFM fee
Lux GP
GP fees
Portfolio management
and distribution AIFM services
UK Portfolio Service providers
Lux AIFM
Manager SCSp Fund accounting
(AIF) services
Lux AIFM delegates portfolio
management to UK Portfolio Manager Asset Cos
who in consideration will be entitled
to portfolio management fee and
reimbursement of ancillary costs
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5Day 2: AIF structures
Fund Management VAT exemption
Concept of “fund management” Set Up Services Ancillary services to portfolio
management
In order to benefit from the Services (Legal / Tax / Advisory)
qualification as fund management incurred by the promoter / Services which are sourced by the
services exempt from VAT under future manager of a fund portfolio manager / investment adviser
Article 44 §1 d) LTVA, the sub- structure are generally not from third party suppliers, and incurred
delegated services must be: considered as management and in its capacity of portfolio manager /
• Specific and essential for do not benefit from the VAT investment adviser, which are specific to
management of the investment exemption (debate on the and essential for the management of a
fund; market place) qualifying vehicle, directly related to and
• Individualized (investment fund necessary for, the provision of the
by investment fund); and portfolio management / investment
• Not “isolated” services (Circular advisory, may under certain conditions,
n°723bis). be considered as ancillary to the main
portfolio management / investment
advisory services and share the VAT
exempt treatment of these main services
Illustrative overview* of application of fund management VAT exemption on typical services received by a an eligible investment vehicle
Portfolio management Exempt NAV calculation Exempt
Risk management Exempt Legal and tax services Taxable
Investment advice Exempt Transfer and/or registrar agent Exempt
Fund accounting Exempt Domiciliation Mostly exempt
Depositary Partly exempt and subject to 14% VAT Audit Taxable
* The above is only an illustrative overview and should not be in any way considered as binding. Accordingly, the VAT treatment of each service needs to be analysed on a case-by-
case basis taking into account all its specificities. In this respect, supporting documentation and/or agreements must always be reviewed to confirm the VAT treatment
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 6Day 2: AIF structures
Financial intermediary VAT exemption
According to the CJEU, “negotiation” is “a service
rendered to, and remunerated by, a contractual party as a
distinct act of mediation. It may consist, amongst other
things, in pointing out suitable opportunities for the
conclusion of such a contract, making contact with
another party or negotiating, in the name of and on
behalf of a client, the detail of the payments to be made
by either side. The purpose of negotiation is therefore to
Based on the above, the a supplier needs to be do all that is necessary in order for two parties to enter
actively involved in the bringing together the party into a contract, without the negotiator having any
seeking to sell and the party seeking to buy interest of his own in the terms of the contract”.
shares/interest in an entity and negotiating the terms
of the contract.
It is not negotiation where one of the parties entrusts to a
sub-contractor some of the clerical formalities related to
the contract, such as providing information to the other
party and receiving and processing applications for
subscription to the securities which form the subject-
matter of the contract.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 7Day 2: AIF structures
Latest CJEU case-law
Eligible
vehicles
Supply of Alladin IT
system
BlackRock US BlackRock UK
CJEU decision Not
• The fund management VAT exemption cannot apply to delegated services which eligible
are rendered as a single supply to a fund manager who manages both vehicles
eligible under this VAT exemption and vehicles that are not eligible. Otherwise this
would go against the need to construe VAT exemptions narrowly.
• In particular, the CJEU is concerned that a manager may have funds under
management that are mostly eligible under the fund management VAT exemption,
and if the exemption were permitted to apply, funds not eligible under the fund
management VAT exemption could also benefit from the VAT exemption.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 8Day 2: AIF structures
Latest CJEU case-law
DBKAG (C-59/20) CJEU hearing hold on 3 February 2021
Could the granting by a third-party licensor to an investment management
• Parties are mostly in agreement that the services are essential but
company (‘IMC’) of a right to use specialist software specifically designed for the
• Discussion around the specificity of the services (tax services more complex than
management of special investment funds, where the software is intended
‘standard’ tax services – question around the responsibility of the services
exclusively to perform “specific and essential” activities in connection with the
provider of the software)
management of the fund but runs on the systems of the IMC (with minor
• Discussion around neutrality between PME that need to outsource the services
participation by the IMC), and uses market data provided by the IMC, be VAT
and big companies that can do it in-house
exempt?
Decision expected before summer
Finanzamt N (K) (C-58/20)
Could tax-related responsibilities entrusted by the management company to a
third party, consisting of ensuring that the income received by unit-holders from
investment funds is taxed in accordance with the law be VAT exempt?
The IMC was under a statutory duty to provide information to unit-holders to
allow them to comply with their tax obligations, and outsourced this to K. The
CJEU will rule on whether this outsourced service amounted to “management”
of investment fund in its own right.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 9Day 2: AIF structures
AIFs as eligible investment vehicles?
• Fiscale Eenheid X (Case C-595/13) – investment companies may qualify as a SIF, if (i) capital is pooled by several investors; (ii) investment risk is borne /
profits are received by the investors; and (iii) the investment company is subject to “state supervision”.
• “State supervision” – application? - The CJEU introduced the concept, but left it to Member States to interpret what it actually means.
• EU VAT Committee guidelines (July 2018) defined 5 criteria a fund must meet to qualify as a SIF:
1) The fund is a collective investment
2) The fund must operate on the principle of risk-spreading
3) The return on the investment depends on the performance of the investments, and the holders bear the risk connected with the fund
4) The fund must be subject to State supervision
5) The fund must be subject to the same conditions of competition and appeal to the same circle of investors as UCITS.
• No intention at present to (i) amend the list of funds qualifying as SIF under the Luxembourg VAT law and/or to (ii) require that such funds are subject to
“the same conditions of competition and appeal to the same circle of investors as UCITS”
• Luxembourg VAT authorities have so far not issued any guidelines or comments on the “state supervision” point
• Regarding AIFs, the view in Luxembourg is that the indirect supervision through their AIFM is sufficient in that respect
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 10Day 2: AIF structures
Case studies of routing management services within AIF structures
Limited grounds to consider the application of fund Stronger arguments to consider the
management VAT exemption on services performed to application of fund management VAT
Lux AIF exemption on services performed to Lux
AIF
Luxembourg VAT likely due on the GP fee
Lux GP Lux GP
Lux AIFM Lux AIFM
Management
services Management
AIFM services Appointment services
Lux of Lux AIFM Lux
AIF AIF
Management services to benefit from the
AIFM services to benefit from the fund fund management VAT exemption - proper
management VAT exemption - proper documentation supporting the nature of the
documentation supporting the nature of the AssetCos AssetCos
services as management of investment fund
services as management of investment fund and and clear description of Lux AIF as beneficiary
clear description of Lux AIF as beneficiary of of services
services No entitlement to VAT deduction at the level
No entitlement to VAT deduction at the level of of AIF (but VATable costs should be limited)
AIF (but VATable costs should be limited)
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 11Day 2: AIF structures
Case studies of routing management services within AIF structures
In Luxembourg services qualifying as management of investment funds Foreign Investment
Transaction costs (including
(including AIFs) can benefit from a VAT exemption. Therefore: Manager (UK/US) Investment
dead deal costs) covering
management
• Investment management / advisory services rendered to the Lux AIFM by the tax, legal, accounting,
services and
foreign investment manager for the benefit of the AIF should be VAT exempt administration, etc. reimbursement of
ancillary costs
• AIFM services (portfolio, risk and administrative management) rendered to
the AIF by the AIFM should benefit from a VAT exemption
3rd party
service providers Lux AIFM
• Custody and central administration services rendered for the benefit of the
AIF should be VAT exempt Investment
management
• 3rd Party costs (tax / legal / other transaction services) are generally taxable services and
and when charged by the third party to the AIFM or directly to the AIF will reimbursement of
create a VAT cost in Luxembourg Transaction costs (including ancillary costs
dead deal costs) covering
• In case 3rd party costs (in particular transaction costs), instead of being tax, legal, accounting, Lux AIF
charged to the AIF, would be incurred at the level of the Foreign investment administration, etc.
manager, as costs directly necessary for and connected to the provision of
the investment management services, and when they can be incorporated in
the investment management fee or added as ancillary expenses, they could
share the VAT treatment of the main services and benefit from the VAT
exemption
Points of attention
• Proof of taxable person status of Lux AIFM (Lux VAT Id Nr)
Proper documentation supporting the nature of the services as
management of investment fund
• Clear description of Lux AIF as ultimate beneficiary of services
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 12Day 2: AIF structures
Case studies of routing management services within AIF structures
Foreign investment
Investment manager / advisor
management/advisory
services
Investment advisory fee paid directly to
Third Party the foreign investment manager /
Lux GP
AIFM (Lux) advisor
AIFM services
Fee for AIFM services paid to third party Lux
AIFM reduced by investment AIF
management / advisory fee paid
directly to foreign investment manager/
advisor
EU entities
The investment management / advisory service flow in the above
example differs from the investment management / advisory fee flow.
In this case, the Lux AIF pays each the third party AIFM and the foreign
investment manager / advisor their net share. Commercially and
accounting and invoicing wise, however, foreign investment manager /
advisor is rendering and raising its invoice to third party AIFM and the
third party AIFM raises its invoices for the full AIFM fee directly to the
Fund
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 13Deloitte 2021 M&A Tax Virtual Conference Break-out session Luxembourg: Business model of the private debt in light of current/future challenges 02 MARCH 2021
Day 2: Real estate and debt funds
Breakout on the business model of the private debt in light of current/future challenges
Clemens Petersen Olivier Venzal
Tax Partner Tax Partner
Germany - Frankfurt France - Paris
clepetersen@deloitte.de ovenzal@taj.fr
Ben Toussaint
Tax partner & (Lux) debt leader
Luxembourg
btoussaint@deloitte.lu
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2Day 2: breakout on the business model of the private debt
Introduction and objective of today
• The idea of this session originated from an exercise we performed some time ago at Deloitte when BEPS/ATAD were under
discussion.
• We did a mapping of our private debt clients in order to assess whether this industry was on par with private equity/real estate:
the reality was that debt funds were not necessarily on par with the rest of the alternative industry.
• Questions are (i) whether the business model of private debt changed in the light of all the legislative developments of the last
couple of years; and (ii) how source countries look at these funds.
Offshore addiction: non-EU funds were used in majority by asset managers
(especially US).
Low substance & operating model.
Our historical
mapping
No rationalization of the use of jurisdictions: no pooling & case by case.
Randomly focusing on beneficial ownership.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3Day 2: breakout on the business model of the private debt
Evolution of the business model
From To
• The old model was randomly using Luxembourg as an intermediate • We saw an increasing number of setups relying on a Luxembourg platform
jurisdiction along side with other jurisdictions on a case by case basis with or without an AIF depending on the case at hand.
depending on tax needs.
• Management activities and fund can be consolidated in one place.
• There was no substance or it was rather cosmetic.
• These platforms have more and more substance (increase of the nbr. of
• Limited functions were performed. employees) and a min level of functions above routine functions are
performed.
• Specific requirements of the AIFM are considered (risk management,
oversight of delegation to the investment manager, distribution of the AIF to
EU investors)
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4Day 2: breakout on the business model of the private debt
Challenges (theory)
• The beneficial ownership (BO)
is already a requirement of the
OECD model tax convention
within an international context.
• A BO test is also included in
the EU Interest and royalties
Directive (within an EU
context).
• It was also interpreted & re-
emphasized by the European
Court of Justice on 26 Feb.
2019 (so-called Danish case).
• Generally speaking, there are 2 • The principal purpose test (PPT) is a general anti-
concepts which could be abuse measure addressing cases of treaty abuse,
applied by foreign tax including treaty-shopping situations, such as
authorities when assessing certain conduit financing arrangements that are
whether the recipient of an not covered by more specific anti-abuse rules.
interest income is eligible for a • The PPT is one of the possible options (alongside
WHT reduction or exemption with the PPT completed by a simplified LOB) for
under a tax treaty, certain EU jurisdictions that have chosen to sign the
Directives or a domestic rule. Multilateral Instrument (“MLI”) released by the
OECD under the BEPS initiative.
• A similar provision to the PPT was introduced
within the EU through the EU Directive 2015/121
dated 27 January 2015 (amending the EU Parent-
Subsidiary regime) and more broadly in the EU
Directive 2016/1164 (introducing ATAD I).
• There is no clear visibility on the application of the
PPT test in each jurisdictions.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5Day 2: breakout on the business model of the private debt
Challenges (examples)
1st Non-CIV paper German tax circular German draft bill
issued by the OECD of April 2018 on (Jan. 2021) on German
in 2016 dividends WHT on dividends
Eqiom (Sept. 2017) & ECJ decision 26 Feb.
Diester (Dec. 2017) 2019 (Danish cases)
ECJ cases on int. & div.
Is there a sustainable business
model?
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 6Day 2: breakout on the business model of the private debt
Germany – Case where the Lux lender solely receives interest income
• Case where the Lux lender solely engage into a loan origination
transaction and expects to receive interest income on the loan
receivable.
• German WHT on interest payments?
Lux
AIF ‒ Profit participating loan.
Master • Lux SPV becomes limited tax liable in Germany?
Luxco
‒ Loan secured with real estate located in Germany.
Lux SPV Lux SPV Lux SPV
• Limited interest deductibility at Borrower‘s level?
Interest
payments
‒ Possible application of the German interest limitation rule.
Borrower Borrower Borrower
Germany Germany Germany ‒ 25% of the tax deductible interest expenses are not tax
deductible for Trade Tax purposes.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 7Day 2: breakout on the business model of the private debt
Germany – Case where the Lux lender has an equity kicker
• Case where the Lux lender engage into a loan origination gets
an incentive in the form of an equity kicker.
• German WHT on dividends to Lux SPV?
Lux • Shareholding < 10%
AIF
‒ 15% due to DTA
Master
Luxco • Shareholding at least 10%
‒ 0% due to Parent Subsidiary Directive
Lux SPV Lux SPV Lux SPV
Equity
Equity like • However, 26.325% if the German anti-treaty shopping
return
kicker provisions are not fulfilled: Draft bill (20 January 2021)
Borrower Borrower Borrower
Germany Germany Germany ‒ Shareholder Test
‒ Business income Test
‒ Benefit Test
…expected to be enacted during 2021
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 8Day 2: breakout on the business model of the private debt
France – Case where the Lux lender solely receives interest income
• Case where the Lux lender solely engage into a loan origination
transaction and expects to receive interest income on the loan
receivable.
• French WHT on interest payments?
Lux
AIF ‒ No (unless made to a non-cooperative country).
Master • Limited interest deductibility at Borrower‘s level?
Luxco
‒ Possible application of the French interest limitation rule.
Lux SPV Lux SPV Lux SPV
‒ EBITDA limitations: external debt as well as related-party debt
Interest falls within the scope of the EBITDA limitation. Interest
payments
expenses are deductible up to €3m or 30% of the borrower
Borrower Borrower Borrower EBITDA.
France France France
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 9Day 2: breakout on the business model of the private debt
France – Case where the Lux lender has an equity kicker
• Case where the Lux lender engaged into a loan origination gets
an incentive in the form of an equity kicker.
• French WHT on dividends to Lux SPV?
‒ 28%, possibly reduced to nil if shareholding >5%
‒ However, access to WHT exemption is subject to (i) existence
of economic substance in the Lux SPV, (ii) Lux SPV being the
beneficial owner of the dividends and (iii) compliance with
Lux
Principal Purpose Test.
AIF
• Interest rate
‒ Interest rate must in principle be set at arm’s length.
Master
Luxco
‒ For lenders who own a minority share in the capital of the
Lux SPV Lux SPV Lux SPV borrower, interest rate is however capped at a very low rate
Equity like
(c. 1.2% currently) pursuant to the law.
Equity
return
kicker • Anti-hybrid legislation (ATAD2)
Borrower Borrower Borrower
France France France ‒ Arrangements targeted by ATAD 2 rules are mainly (i)
situations that give rise to a deduction without inclusion of a
payment made under a hybrid instrument, or to a hybrid
entity, (ii) situations that give rise to a double deduction and
(iii) certain other specific situations.
‒ Should not apply to a minority private lender, save if it owns
more than 25% of the borrower.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 10Day 2: breakout on the business model of the private debt
Take away
Is your organization planning to restructure your current operating model
and fund structure as a result of the principal purpose test (PPT) and
scrutiny on BO?
A. We already adapted ourselves to these new challenges
B. Yes for sure
C. Probably
D. Not sure yet
E. No for sure
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 11Deloitte 2021 M&A Tax Virtual Conference Break-out session Luxembourg: Wave of onshorisation in Asia : structuring considerations and typical alternative set-up for RE managers 02 MARCH 2021
Day 2: Real estate and debt funds
Contacts
Yves Knel Cedric Carnoye
Part Cross-border Tax Director, International and M&A Tax Services
Deloitte Luxembourg Deloitte China (Hong Kong)
E-Mail: yknel@deloitte.lu E-Mail: cecarnoye@deloitte.com.hk
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2Day 2: Real estate and debt funds
Cayman economic substance law (“Cayman ES Law”)
Cayman
GP
Banking Insurance
Fund Cayman
Holding LP
Cayman
entities Mgmt. Manager
Intellectual
property Relevant Financing Cayman Co Advisor
Activities
Loan
Dist. &
Service
Leasing SPV
Shipping Headquarters
RE
• The requirements impact certain companies and partnerships established or doing business in Bermuda, the BVI, or the Cayman Islands,
if these entities are engaged in a “relevant activity”
• Entities which are able to demonstrate tax residency in another jurisdiction are deemed out of scope for the purposes of the economic
substance requirements
• The list of relevant activities was defined by the EU and as such is mostly consistent across all jurisdictions
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3Day 2: Real estate and debt funds
Luxembourg Pan Asian Investment Structures
Distribution
• Worldwide recognition of the Luxembourg brand (EU distribution
passports not accessible for non-EU/AIFMD funds)
Asia fund structure Lux (parallel) fund Legal forms to accommodate any promoter and
Non-EU investors EU investors investors needs
• Corporate (public or private companies)
Foreign • Partnerships (limited , limited by shares, etc.)
IM • FCP (trust)
• Possible check-the-box election for US tax purposes
Portfolio mgt.
delegation Onshore tax neutral platform in a post-BEPS world
• Tax neutrality for all funds in principle
Fund Fund • Tax transparent or opaque structures available
management management
Lux • Treaty access (for certain forms)
Fund ManCo Lux • BEPS – MLI/PPT: convergence between regulatory and tax
AIFM AIF requirements
Risk mgt. &
oversight
delegation Regulation and easy ongoing process
• Regulated and unregulated options available
HoldCo • “rent” third party licensed ManCo (AIFM) with portfolio delegation
• Compliance aspects managed by EU licensed entity (trustworthy)
• Very affordable unregulated versions of partnership available (if
size < 500M EUR)
Structure (for Asia based managers)
• Structuring of tax neutral carried interest and management fee for
Investments Asia-based asset managers
• Standalone or compatible with any existing fund structure
• Operating model similar to offshore structure (Cayman LP vs. Lux
SCSP for example)
• Asian outbound is also possible: for example Asian platform into a
Lux fund platform
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4Day 2: Real estate and debt funds
Distributing in Asia: Qualified Domestic Limited Partnership (“QDLP”) Structure
China considerations
PRC LP’s • Flow through for PRC direct tax purposes:
Taxable in the hands of LP’s
25% PRC EIT for corporate (No withholding
obligations by QDLP Fund)
GP
PRC IIT at (i) 20% or (ii) 5% to 35% for
Management Individual investors (withholding obligations
company by QDLP Fund)
QDLP
China • PRC VAT:
Overseas
Not a flow through
Overseas LP’s
Unclear from a tax technical perspective
Offshore Fund whether disposal of offshore investment
(Lux etc.) product is VAT taxable
Practically we haven't seen QDLP paying VAT
Investmen • Management fee and carried fully taxable
t portfolio
• Transfer pricing issue on the management fee split
between PRC FMC and offshore FMC
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5Day 2: Real estate and debt funds
Luxembourg FCP
General features of the Luxembourg FCP
• A FCP in Luxembourg is the acronym from “Fonds Commun du
Placement”, which represents a common investment fund that is
registered as an open-ended mutual fund.
• FCP does not have a legal personality.
Japanese Investors
FCP as a tax efficient vehicle
• Tax neutrality for Luxembourg FCP funds.
• Tax transparency – no WHT levied on distributions.
Fund
management
• Not subject to CIT/MBT/NWT but to an annual subscription tax
ManCo charged at the rate of 0.01% on its total NAV.
FCP
Regulation and easy ongoing process
• Regulated and unregulated options available.
Structure (for Asia based managers)
HoldCo
• Operating model similar to offshore structure.
• Asian outbound is also possible : for example Asian platform into
a Lux fund platform.
• Japanese investors may have a clear preference for the "unit" of
Investments an FCP since it provides for easier accounting valuations in their
books.
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 6Day 2: Real estate and debt funds
Another typical Pan Asian Real Estate Structure
Investors Investors
Lux Fund
HK/SG/Lux
Only for
qualifying
investors
Non resident GK REF/ MIT
SG PropCo SPV (HK/SG/Lux)
PropCo TK PQIF
China
Bank Property Trust
debt
HK Sing Japan Korea China Australia
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 7Day 2: Real estate and debt funds
AM in China with foreign investors: Qualified Foreign Limited Partnership (“QFLP”)
China considerations
Overseas LP’s
• Obtain QFLP License
• Facilitated foreign exchange control
WHT • Allow foreign and local investors to co-live in a
Overseas China managed fund
China • QFLP is tax transparent and not subject to EIT on its
PRC LP’s profit
GP
• Taxation on a withholding basis upon remittance
• 10% or 25% tax uncertainty: Permanent
establishment issue
QFLP
x
SPV
Investment
portfolio
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 8Appendix Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 9
Day 2: Real estate and debt funds
Luxembourg fund toolbox (1/2)
Largest cross-border investment Prime location in EU for alternative
Leader in global fund investments
fund center worldwide
distribution
€ 4,9 + trillion Total Net AuM (regulated only) 1200+ RAIF setup in 3.5 years as well as many partnerships
Luxembourg funds are distributed in more
More than doubled over the past 10 years due to AIFMD, set up
than 70 countries
Brexit, BEPs, etc.
58% Global market share in cross-border 90% of global private equity investments are structured using
€ 815 billion in AuM by regulated alternative funds Luxembourg vehicles
investment funds
and a significant amount unknown in non regulated Presence of largest players :
products (RAIF, AIF SCS/SCSp, SPV) 9/ 10 global PE players
14/15 global RE players
10/ 20 global Hedge funds players have operations in Luxembourg
601 AIFMs (licensed alternative managers) registered with the CSSF
Non Regulated
SCS / SCSP
(Partnership) SOPARFI
Lightly
(SPV)
Regulated
Securitization
SIF RAIF
UCI II
UCITS SICAR
More
Regulated
* Under conditions
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 10Day 2: Real estate and debt funds
Luxembourg fund toolbox (2/2)
Type of fund Legal forms Compar Type Risk Time to Reg. Investors’ Global reach Taxation Double
available? tment? Assets spread? market Approv type tax
? treaty*
UCITS Corporate or Yes listed High Up to 6 Yes All including Distributed in Tax exempt, Yes (50pc
transparent transferra months retail 70+jurisdictions small dtt network
ble EU Passport subscription tax for
securities with exemption corporate
forms)
UCI II Corporate or Yes Private Moderate Up to 6 Yes All including Worldwide Tax exempt, Yes (50pc
transparent Equity, months retail EUP possible small dtt network
Real subscription tax for
Estate with exemption corporate
and forms)
Hedge
Funds
SIF Corporate or Yes All Low (at least Up to 3 Yes Institutional, Worldwide Tax exempt, Yes (50pc
transparent 3 assets) months professional EUP possible small network for
and HNW eg subscription tax corporate
Well-informed with exemption forms)
SICAR Corporate or Yes PE / risk None Up to 3 Yes Well-informed Worldwide Taxable but Yes (full)
transparent capital months EUP possible exempt on
eligible securities
and transit funds
RAIF Corporate or Yes (All/risk (Low / Days No (only Well-informed Worldwide (SIF / Sicar Yes (50pc /
(SIF/SICAR) transparent capital) None) AIFM) EUP possible regime) full)
SCS / SCSP Transparent No All None Days None No restriction Worldwide Tax transparent No
(as Alternative SCSP legal EUP possible
Investment personality
Fund)
SOPARFI (SPV) corporate No All None Days None No restriction Worldwide Taxable with Yes (full)
exemptions
available
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 11Deloitte 2021 M&A Tax Virtual Conference Break-out session France: Current trends in the structuring of French RE deals 02 MARCH 2021
Day 2: Real estate and debt funds
Introduction and Contacts
Sarvi Keyhani
Tax Partner
Paris
E-Mail: skeyhani@taj.fr
“Real estate is an imperishable asset,
ever increasing in value. It is the most
solid security that human ingenuity has
devised. It is the basis of all security
and about the only indestructible
security.” -Russell Sage
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 2Contents Typical French Real Estate Investment Structures 4 • Overview • REIT type structures (OPCI) • Standard “corporate” structures Areas of tax audit and Challenges with the FTA 8 • Interest rate on related party debt • French 3% tax on property Legislative measures of interest 12 • Sale and leaseback • Free revaluation of assets Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 3
Typical French Real Estate Investment Structures Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 4
Day 2: Real estate and debt funds
Typical French Real Estate Investment structures
REAL ESTATE INVESTMENT
Typical structures IN FRANCE
Option 1 Option 2 Assumptions:
• French property acquired for investment purposes (vs. trading)
• The investment Fund is established in the EU
Investors Investors
• Investors are composed of private or public, natural or legal, EU or non-
EU residents
At acquisition
Fund
IBL
Fund
IBL
• Standard CIT structure vs. OPCI ?
IBL IBL
• Choice of legal form / tax regime (REIT vs. Non-REIT, opaque vs. tax
transparency)
• Transfer tax costs and VAT
HoldCo
OPCI SAS • Debt?
During the holding period
• Taxation of rental income
• Transfer pricing, interest rate and other rules for deductibility of financial
expenses
• Cash repatriation
SCI 1 SCI 2 SCI 1 SCI 2 • Local taxes
• 3% tax obligations
At exit
• Share deal or asset deal
Deloitte 2021 Deloitte 2021 M&A Tax Virtual Conference 5You can also read
