Investment in Australian real estate Netherlands and Luxembourg

1
Investment in Australian real estate -
Netherlands and Luxembourg

• Sydney, 9 February 2009
• Bart Rubbens
• Peter Moons
• Matthijs Vogel

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Topics

• Dutch investors and investment structures
• Luxembourg investment structures
• Recent developments

3
Dutch investors

• Pension funds
• Taxable corporate investors
• Investment funds

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Dutch investors pension funds

• Strictly regulated
• Fully exempt from corporate income tax
• Dutch perspective treaty residents
• Dutch tax considerations no structure driver

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Dutch investors pension funds
Pension fund
Pension fund 1
Pension fund
Pension fund
Pension fund 2
Unit linked notes
CV
75
Units
LPT
LPT
Trust
LPT
6
Dutch investors taxable corporate investors
Corporate investor
Corporate investor
Trust
Direct Indirect Exemption under
treaty Qualification
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Dutch investors taxable corporate investors

• 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

8
Dutch investors taxable corporate investors

• 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

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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

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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

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Dutch investors Co-op
Investors 5

• 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

Netherlands Antilles
Investors lt5
Dutch Co-op
BV
SPV
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Dutch investors investment funds

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

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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
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Luxembourg funds overview
Registered foreign funds worldwide, Luxembourg
market share

Sweden 80
Germany 73
Switzerland 73
South Korea 100
France 73
Italy 78
Japan 76
Bahrein 77
Taiwan 72
Hong Kong 72
Peru 93
Singapore 67
Chile 78
Figures as at June 30, 2008 Source ALFI
14
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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

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Luxembourg fund model pillars
Investor Protection Authorisation Fund
management Specialised Investors
Supervision Custody Reporting Audit
Tax Efficiency Income tax exemption No tax on
distributions No exit tax SIF 1 bp annual
subscription tax Specific VAT exemption
Structuring Flexibility Access Quick Start
(SIF) Choice of vehicle All invest. policies No
statutory diversification (But CSSF Circular) No
borrowing restrictions
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Luxembourg investment regimes overview

• UCITS (2002)
• Undertakings for Collective Investment in
  Transferable Securities
• SEPCAV/ASSEP
• Luxembourg and potentially pan-european pension
  funds
• SIF (2007) Specialized Investment Fund
• SICAR (2004) Investment Company in Risk Capital
• SV (2004) Securitization Vehicle

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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)

Investors
No tax on distributions
Luxembourg ManCo
FUND FCP - SIF
VAT exemption
No tax on interest
Hybrid
No tax on income/gains
Luxembourg SPV
Dutch SPV
LPT
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Example of structuring of Luxembourg fund into
Australian LPT

• Optimisation before 2011 intercompany interest
  deductions? Interest withholding rate lower than
  dividend withholding
• Need tax treaty country for reduced Australian
  interest withholding tax rate

Investors
Luxembourg Management Company
No tax on distributions
VAT exemption
FUND FCP - SIF
No tax on interest
Hybrid
No tax on income/gains
Luxembourg SPV
Dutch SPV
Lending through SPV
LPT
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Example of structuring of Luxembourg fund into
Australian LPT

• 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)

Exempt Investors
Treaty country corporate investor
No tax on distributions
Feeder
Luxembourg ManCo
FUND FCP - SIF
VAT exemption
No tax on interest
No tax on income/gains
Luxembourg SPV
Dutch SPV
Lending through SPV
LPT
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Example of structuring of Luxembourg fund into
Australian LPT

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

Exempt Investors
No tax on distributions
Luxembourg ManCo
FUND FCP - SIF
VAT exemption
Luxembourg SPV
EU country corporate investor
gt5
Dutch SPV
Lending through SPV
LPT
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Example of structuring of Luxembourg fund into
Australian LPT

• 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
• Corporate investors look (generally) through
  Luxembourg FCP
• Withholding taxes not applicable to redemptions
  of classes of shares

Exempt Investors
Treaty country corporate investor
No tax on distributions
Luxembourg ManCo
FUND FCP - SIF
VAT exemption
1 - 8
Luxembourg SPV
Dutch SPV
LPT
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Example of structuring of Luxembourg fund into
Australian LPT

• Alternative structure through a SICAR
• Exempt investors
• E.g. sovereign wealth funds
• 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
corporate investor
No tax on distributions
Lux SICAR
Dutch SPV
Until 2011 lending (bonds) through SPV
LPT
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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