Wildgen’s Newsletter May 2012
TABLE OF CONTENTS PRIME MINISTER SPEECH ON THE «STATE OF THE NATION»
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NEW LUXEMBOURG-GERMANY DOUBLE TAX TREATY
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THE LUXEMBOURG DOUBLE TAX TREATIES NETWORK
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NEW SIF LAW (UPDATE)
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WILDGEN NEWS
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Prime Minister speech on the «State of the Nation» By Stephanie Bonn, Knowledge Manager.
On May 8, 2012, the Prime Minister Jean-Claude Juncker presented to the Chamber of Representatives the annual “State of the Nation” speech regarding the economic, social and financial country’s situation. Hereafter a selection of the main measures contemplated by the Luxembourg Government. Additionals news will be published when more information (e.g draft bills) is available on the proposed measures. Investments: o Although investments remain at a satisfactory level (1.800 EUR million estimated for 2012), they will be reduced (125 EUR million less than initially planned): some constructions projects will not be achieved including by example road infrastructures. o However, large amounts will continue to be invested in research and development sector and in the IT and broadband sector. In new technologies, Luxembourg is well underway, with 1000 new jobs created. Sector growth will continue despite the programmed modification of the VAT regime applicable to electronic commerce as from 2015 (see below). Investment in data centers and networks will continue. The satellite industry will do its part in this development. Taxation: o The 0,8% crisis contribution, which entered into force on January 1, 2011 applied on professional and replacement income as well as to all categories of non-professional income taxable in Luxembourg. This contribution was repealed with effect January 1, 2012. The Prime Minister has confirmed that this crisis contribution will not be reintroduced for 2013, cutting off definitively the rumours. o Maximal individual tax rate could be increased to 42,7%. Currently, the maximum tax rate of 38% is applicable to taxable income between EUR 39,885 and EUR 41,793 and 39% to taxable income exceeding EUR 41,793. o The surcharge for the employment fund (the so-called “solidarity tax”) added to the income tax rates will be increased by 2% as from January 1, 2013. Currently, the surcharge rate for individuals is 4% for income not exceeding EUR 150,000 (EUR 300,000 for couples taxed jointly) and 6 % Copyright © 2012 | Wildgen, Partners in Law
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for income above .This solidarity tax could be applied to the municipalities as well. Application of a specific tax for vacant accommodation. If certain municipalities have already the possibility to tax the vacant accommodation, they rarely use this opportunity. In order to establish the rules and the criterias of the application of that specific tax, a vademecum will be communicated to the municipalities. VAT remains unchanged during this legislative period but modifications are planned for 2015. Currently, VAT for electronically supplied services is charged and paid in the provider’s country: Luxembourg is very attractive with its 15% standard rate. As from January 1, 2015, VAT will be charged in the Member State where the customer has his residence.
Social measures: o The Government plans to finalize a pension reform. o Increase of the minimal social wage as of January 1, 2013. o No taxation or reduction in family allowances but increase of family participation in certain services (“chèques-services” by example).
The article is available on our website
New Luxembourg-Germany Double Tax Treaty
By David Maria, Partner, Arvine Zamani, Junior Associate.
Luxembourg and Germany concluded on 23rd of April 2012 a new Double Tax Treaty replacing the former treaty signed in 1958. The new treaty follows mainly the OECD Model convention on income and capital but it contains a number of new anti-abuse provisions to tackle situations where double non taxation may arise. Here below are the salient changes of the provisions of the treaty: Under the new treaty, the reduced withholding tax for dividends is lowered to 5% when the parent company holds 10% of the share capital of the paying subsidiary. The standard rate of 15% for portfolio and partnership dividends remains unchanged. For interests, the treaty provides for a 0% withholding rate whereas royalties are subject to a reduced withholding tax of 5 %. The treaty attributes the taxing rights to the source State for capital gains on disposal of shares of Real Estate companies deriving more than 50 % of their value directly or indirectly from immovable property situated therein. With this provision, the sale of shares of a German real estate company through Luxembourg companies becomes taxable in Germany. Hybrid instruments and entities are covered by the protocol to the new treaty which attributes the taxing rights to Germany in respect of income from profit participating loans or bonds, and income from silent partnerships where the said income have been deducted from the profits of the issuer. For Luxembourg tax purpose, the treaty reclassifies the aforementioned income from debt instruments or silent partnerships as dividends. Investment funds such as SICAV, SICAF or SICAR are expressly entitled to treaty benefits, namely they can take advantage from the reduced withholding tax rate for interest and dividends. Contractual investment funds such as FCP are also entitled to treaty benefits provided that they are held by persons resident in the country where the FCP is established. The treaty expressly provides that both states may rely on their domestic anti-abuse provisions. Germany for instance grants the exemption to mitigate double taxation only where the underlying income in the source state is derived from “active business income” defined under the German tax law. In practice the exemption is Copyright © 2012 | Wildgen, Partners in Law
5 granted if the income is subject to tax in Luxembourg. If the exemption is not granted, Germany will apply the credit method. The new treaty will enter into force as of January 1st of the year following the ratification in both countries. The treaty shall probably apply to taxes due after January 2013. Conclusion The treaty introduces some clarity namely in the field of investment funds by allowing their access to treaty benefits in accordance with the OECD principles. However the treaty impacts the current German Real Estate structures held through Luxembourg companies. Investors should restructure their holdings or realize capital gains on the German companies prior to the entry into force of the new treaty. Lastly the reliance on domestic anti-abuse law subject to the requirements of EU law, highlight the growing importance of the substance of companies in Luxembourg.
The article is available on our website
The Luxembourg Double Tax Treaties Network By David Maria, Partner, Arvine Zamani, Junior Associate.
Situated at the crossroad of Europe, the Grand-Duchy of Luxembourg is based on a dynamic and open economy which actively promotes the development of cross border trade and investments.Its major role in matter of international trade in the sectors of banking and finance, investment funds and holding companies has for a consequence that a strong network of double tax treaties has been developed over the years. To that end, Luxembourg has entered into 64 comprehensive double tax treaties based on the OECD model tax convention on income and capital in order to mitigate the risks of double taxation for businesses. The Grand Duchy treaty partners are amongst the most industrialised countries with inter alia all of the states in the European Union but Cyprus, the United States, Japan, Brazil, China, Mexico, Hong Kong and Russia, Canada. Luxembourg Tax treaties as most bilateral agreements are designed and balanced to address a specific economic context. Given their very nature, tax treaties are constantly negotiated and updated to the latest international standards. For instance, the conclusion of a protocol to the Luxembourg-Russian tax treaty on 21st of November 2011 or the renegotiations of the French Luxembourg treaty are illustrative of that trend. As such, 23 treaties and 9 protocols are still pending approval with a large array of states such as Argentina, Albania, Oman, Saudi Arabia, Egypt, Cyprus, Croatia, New Zealand, Seychelles, Ukraine and Uruguay to name a few. Another perspective to the steady expansion of Luxembourg tax treaties must be added. Luxembourg endorsed on the 13th of March 2009, the international standard of exchange of information upon request embodied in article 26-5 of the OECD model tax convention. As a result, more than 23 treaties containing the said standard were concluded.
The full list and the article are available on our website
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New SIF Law (update) By Mevlüde-Aysun Tokbag, Director, Iya Martkoplichvili, Associate, Giuseppe Cafiero, Junior Associate.
Update following CSSF Press Release 12/16 New SIF Law Amending the Luxembourg Law of 13 February 2007 Relating to Specialised Investment Funds The draft bill 6318 amending the Luxembourg law of 13 February 2007 relating to specialised investment funds (hereafter the “Bill”) has been finally adopted by the Luxembourg parliament, published in the Luxembourg Official Gazette (Mémorial) and the new law has come into force as of 1 April 2012 (hereinafter the “New Law”). Thus, the New Law amends the Luxembourg law of 13 February 2007 relating to specialised investment funds (hereafter the “SIF Law”) and takes into account in particular the adoption of the Directive of the European Parliament and of the Council of 27 May 2011 on alternative investment fund managers (hereafter the “AIFM Directive”) and also attempts to modernise the SIF Law by implementing certain provisions already existing under the Luxembourg law of 17 December 2010 on undertakings for collective investment (hereafter the “UCITS Law”). Any currently existing SIF will need to set up relevant measures and documentation regarding investment management and conflicts of interest up to 30 June 2012, respectively in case of new SIFs provide such documents to the CSSF at the time of its approval process In detail, the changes introduced by the New Law can be (inter alia) summarised as following, including also the practical impact for the future: Authorisation Process with the CSSF First of all, specialised investment funds (“SIFs”) shall now be submitted to the prior authorisation of the CSSF before carrying out their activities. This change creates the same authorization process (at least from a timing perspective) as currently existing for collective investment funds under the UCITS Law.
The Risk Management and Conflict of Interest The New Law introduces the concept of “risk management” and “conflict of interest” stemming from the AIFM Directive as well as from the UCITS Law. SIFs shall implement an appropriate risk management system to limit the risk linked to the investment positions and their contribution to the general risk profile of the portfolio. In addition, SIFs shall also be structured and organised in order to limit any possible conflict of interest with their counterparts or any persons linked to SIFs. In practice, any currently existing SIF will need to set up relevant measures and documentation regarding investment management and conflicts of interest up to 30 June 2012, respectively in case of new SIFs provide such documents to the CSSF at the time of its approval process (CSSF Press Release 12/16, further details to follow upon issuance of the relevant CSSF Regulation). Relevant adaptations to the fund documentation (i.e. articles of association and placement memorandum) will be thus required, too. Investment Management In order to exclude the possibility to set up a passive SIF having an investment activity limited to pure shareholding, the New Law introduces the definition of “management” of assets, which is an activity including at least the management of portfolio meaning that SIFs should carry out a real and active management of their portfolio. Practically speaking, any existing SIF being more of a passive nature when it comes to the management is now required to implement a real and active management of its assets. Delegation to Third Parties The New Law follows the same provisions as given under the UCITS Law when it comes to the delegation of tasks by the management of the SIF to third parties. In such case, SIFs shall adequately inform the CSSF and the mandate shall not prevent the supervision conducted by the management on the SIF. In case of an appointment of an investment manager, such must be authorised or registered in order to manage investment portfolios and submitted to a prudential supervision. Service providers of existing SIFs shall be notified to the CSSF at the latest by 30 June 2013.
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9 Cross-Investments With regard to cross-investments (i.e. possibility for a sub-fund of a SIF to invest in another sub-fund of the same SIF), the New Law follows again the UCITS Law. Indeed, cross-investments will be possible under following conditions: the cross investment between the sub-fund target and the investing sub-fund are not permitted; the voting rights of the target compartment are suspended during the period of investment; the value of the assets is not taken into account for the calculation of the NAV in the context of meeting the minimum net assets requirements. Relevant updates of the fund documentation (i.e. articles of association and placement memorandum) will be however required in that respect. Contributions in Kind Regarding contributions in kind, the New Law puts an end to several discussions about the requirement of an independent auditor’s report. Henceforth, any contribution other than cash shall, whatever the legal structure of the SIF is and prior to the incorporation, meet the conditions of article 26-1 of the law of 10 August 1915 concerning commercial companies (i.e. auditors’ report). Derogation of the Corporate Law As it is already foreseen under the UCITS Law, SIFs are now exempted to translate their articles of association or any modifications of it into French or German, if these documents have been drawn up in English. In addition, SIFs are no more required to send their investors any copies of their annual reports by mail and they are also allowed - for the purpose to fix voting rights – to provide for a record date system, being five days before a general meeting. Relevant updates of the fund documentation (i.e. articles of association and placement memorandum) will be however required in that respect.
The article is available on our website
WILDGEN NEWS Wildgen's new talents
Since April, we have had the pleasure to welcome a number of new talents. Here is a brief round-up. Our corporate team was strengthened by the arrival of Delia Nitescu, Senior Associate; Estelle N’zoungou, Associate; Laurence Licata and Claude Kikoka, both Junior Associates. Jérémie Ferrian and Arvine Zamani, Junior Associates joined our tax department while our litigation team welcomed Fleur Marchal and Michel Schmit, Junior Associates. Last but not least, we were pleased to welcome Stéphanie Bonn, Knowledge Manager who leads Wildgen Knowledge Management department relying on ten years of experience with a "Big4" audit firm in Luxembourg.
More information about our associates can be found on our website
Brochures We recently updated or released brochures and would be delighted to send you a copy. May 2012 Luxembourg-Hong Kong Double Tax Treaty Memo
April 2012 La Société de Gestion de Patrimoine Familial (SPF) à Luxembourg
Brochures can be requested by email or via our website Copyright © 2012 | Wildgen, Partners in Law
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Upcoming Event 7 July 2012 - Rallye du Jeune Barreau 2012 The Rallye du Jeune Barreau is the not-to-be missed annual event of the Luxembourg young legal community. During a oneday challenging rallye in Luxembourg, lawyers compete in teams of 5 to 10 people. The Comité du Rallye of Wildgen, Partners in Law won the previous edition and is therefore proud to organise the 2012 Rallye. With the support of the Conférence du Jeune Barreau de Luxembourg, this event takes place on Saturday 07 July from dawn to dusk. If you are interested in getting more information on sponsoring the event or in registering your team, please visit the dedicated website at www.rallye2012.lu or contact the organising team at
[email protected].
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[email protected] ----------------------------------The present newsletter contains general information only. It is not intended to be, and should not be relied upon as, a comprehensive statement of the law. Therefore, WILDGEN can not accept any liability for any errors, omissions or opinions contained herein and for the implementation of the principles set out without its active involvement.
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