investment in australian real estate - netherlands and luxembourg

Investment in Australian real estate - Netherlands and Luxembourg

Sydney, 9 February 2009

Bart RubbensPeter MoonsMatthijs Vogel

Topics

• Dutch investors and investment structures

• Luxembourg investment structures

• Recent developments

Dutch investors

• Pension funds

• Taxable corporate investors

• Investment funds

Dutch investors – pension funds

• Strictly regulated

• Fully exempt from corporate income tax

• Dutch perspective: treaty residents

• Dutch tax considerations no structure driver

Dutch investors – pension funds

Pensionfund

Pensionfund

Pensionfund 1

Pensionfund 1

LPTLPT

Pensionfund

Pensionfund

LPTLPT

Units

Pensionfund

Pensionfund

LPTLPT

TrustTrust

Unit linked notes

75%

Pensionfund 2

Pensionfund 2

CVCV

Dutch investors – taxable corporate investors

Corporateinvestor

Corporateinvestor

Corporateinvestor

Corporateinvestor

TrustTrust

Direct: Indirect:Exemption under treaty Qualification


• Investment in property trust– Qualification– Compare to Dutch fund for mutual account– Two types: transparent and non-transparent

• If units only transferable to fund: transparent

• If units only transferable with unanimous consent: transparent

• In all other cases: not transparent

– LPT: not transparent– Wholesale fund: depends on the trust deed


• Transparent: direct investment• Non-transparent LPT or wholesale fund:

– Participation exemption only if real estate company (90% test) - ruling

– If no participation exemption: • all dividends and gains taxed• if 25% or more interest: mark-to-market at year-end

– No credit for Australian WHT on profit distributions

• Stapled structure: – No qualification issues for company site– Participation exemption for company

Dutch investors – investment funds

• Dutch LP and transparent fund for mutual account– Mainly pooling vehicle for institutional investments

• VBI (= tax exempt investment institution) – Entity for collective investment– For investment in financial instruments– On a risk diversified basis– Full tax exemption (CIT and DWT) – No treaty protection– Not widely used (competition with Luxembourg) – Not for real estate investments

Dutch investors – investment funds• Dutch FBI (‘REIT’) – Corporation or non-transparent

fund for mutual account with special tax status:– 0% CIT rate– 15% DWHT rate – Financing limits and shareholders’ requirements

• Co-op – For pooling foreign investors– 25.5% CIT– Treaty protected– Participation exemption– No shares, no dividend WHT– CIT risk for holder of substantial interest: ruling practice or

blocker

Dutch investors – Co-op

Dutch Co-opDutch Co-op

BVBV

• No Dutch DWHT if Co-op has no capital divided by shares

• Netherlands Antilles to avoid Dutch CIT on substantial shareholding (dividends and capital gains) or ruling

• Fiscal unity possible between Co-op and BV

• Functional currency possible• Participation exemption• Dutch-Australian tax treaty

contains information exchange clause

Investors <5%

SPVSPV

Netherlands Antilles

Netherlands Antilles

Investors ≥5%

Dutch investors – investment funds

• Dutch BV held by Luxembourg fund– Alternative foreign investor pooling platform

Luxembourg funds overview

• Luxembourg track records

– N° 2 largest funds centre in the world

•3,371 registered investment funds

•EUR bn 1,560 net assets under management

– N° 1 centre in Europe for Funds distribution in and outside Europe

•75% of worldwide distribution autorisations

•75% of UCITS registered in at least 3 countries

Figures as at December 31, 2008 – Source ALFI

14

Peru 93%

Chile 78%

Singapore 67%

Japan 76%

Hong Kong 72%

South Korea 100%

Switzerland 73%France 73%

Germany 73%Sweden 80%

Italy 78%Bahrein 77% Taiwan 72%

Figures as at June 30, 2008 – Source ALFI

Luxembourg funds overview Registered foreign funds worldwide, Luxembourg market share

Onshore versus offshore funds • Globalization of alternative investments

• ‘New’ (institutional) investors constrained to invest ‘offshore’– Marketability/reputation/policy guidelines– Supervision – Listing possibilities

• ‘Offshore’ funds constrained to invest in certain countries (e.g. Spain and Italy)

• Other possible benefits of ‘onshore’ funds: – Time-zone– Substance solutions (at the level of the fund and at the level of the holding

vehicles)– Investors protection (regulatory framework, corporate governance,

infrastructure/service providers etc.)– Investment protection with BITs– Tax efficiency

Luxembourg fund model: pillars

Investor Protection

AuthorisationFund management

Specialised Investors Supervision

CustodyReporting

Audit

Tax Efficiency

Income tax exemption No tax on distributions

No exit tax

SIF: 1 bp annual subscription tax

Specific VAT exemption

Structuring Flexibility

AccessQuick Start (SIF)Choice of vehicleAll invest. policies

No statutory diversification(But: CSSF Circular)

No borrowing restrictions

• UCITS (2002)Undertakings for Collective Investment in Transferable Securities

• SEPCAV/ASSEPLuxembourg and potentially pan-european pension funds

• SIF (2007) Specialized Investment Fund

• SICAR (2004) Investment Company in Risk Capital

• SV (2004) Securitization Vehicle

Luxembourg investment regimes overview

Example of structuring of Luxembourg fund into Australian LPT

• Investors in Lux Fund• Information exchange

country needed (Australian WHT reduction)

• Luxembourg blocker entity to avoid WHT in information exchange country

• Hybrid to avoid DWHT in Luxembourg (ruling)

FUND FCP - SIF

FUND FCP - SIF

Investors

Luxembourg SPVLuxembourg SPV

Luxembourg ManCo

Luxembourg ManCo

VAT exemption

No tax on interest

No tax on distributions

Dutch SPVDutch SPV

No tax on income/gains

LPT LPT

Hybrid


• Optimisation before 2011: intercompany interest deductions? Interest withholding rate lower than dividend withholding

• Need tax treaty country for reduced Australian interest withholding tax rate

FUND FCP - SIF

FUND FCP - SIF

Investors


Luxembourg Management Company

Luxembourg Management Company

VAT exemption

No tax on interest


Dutch SPVDutch SPV


LPT LPT

Lending through SPV

Hybrid


• For which investors?– Exempt investors

• E.g. sovereign wealth funds

• Fund of funds

• Offshore funds

• Pension funds (but better of investing directly)

– Corporate Investors in tax treaty country

• Potentially through tax-optimised feeder vehicle (mostly debt financed)

FUND FCP - SIF

FUND FCP - SIF

Exempt Investors


Luxembourg ManCo

Luxembourg ManCo

VAT exemption

No tax on interest


Dutch SPVDutch SPV


LPT LPT

Lending through SPV

Treaty country corporate investor


FeederFeeder




• Fund of funds

• Offshore funds

• Pension funds (but better of investing directly)

– Corporate investors in EU country

• Could invest into Dutch SPV if they hold at least 5%

FUND FCP - SIF

FUND FCP - SIF

Exempt Investors


Luxembourg ManCo

Luxembourg ManCo

VAT exemption


Dutch SPVDutch SPV

LPT LPT

Lending through SPV

EU country corporate investor

EU country corporate investor

>=5%




• Fund of funds• Offshore funds• Pension funds (but better

of investing directly)

– Corporate Investors in tax treaty country

• Corporate investors look (generally) through Luxembourg FCP

• Withholding taxes not applicable to redemptions of classes of shares

FUND FCP - SIF

FUND FCP - SIF

Exempt Investors


Luxembourg ManCo

Luxembourg ManCo

VAT exemption


Dutch SPVDutch SPV

LPT LPT



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• Alternative structure through a SICAR– Exempt investors


• Fund of funds• Offshore funds• Pension funds (but better

off investing directly)

– Corporate investors – SICAR only open to

investments ‘with a view to launch, develop or IPO a business’

Exempt Investors


Dutch SPVDutch SPV

LPT LPT

Until 2011 lending (bonds) through SPV

corporate investor

corporate investor

Lux SICARLux SICAR

Recent European developments

• Property values decreasing– Divestments– Stronger focus on real estate transfer tax and VAT– More asset deals

• Further limitation of interest deductions– Closing of loopholes in thin cap rules– Thin cap rules replaced by earnings stripping rules

investment in australian real estate - netherlands and luxembourg

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