ABBL

Deloitte Luxembourg Tax Alert - On August 6, 2010, the Luxembourg Government submitted to the Chamber of Representatives a draft law, the main objective of which is the implementation of the EU Directive 2009/65/CE (“UCITS IV Directive”). The draft law also includes some additional changes for investment funds, in particular in respect of taxes.

The draft law provides for the key amendments to the existing UCITS regime following the text of the UCITS IV Directive:

• European passport for management companies, which allows management of UCITS located in other Member States;
• Harmonized legal framework for UCITS mergers, including cross border;
• Possibility to create master-feeder UCITS structures;
• Simplified regulator-to-regulator notification process;
• Replacement of the simplified prospectus by the new standardised Key Investor Information;
• Strengthening of the co-operation between the regulators.

The UCITS IV Directive does not include amendments in respect of tax.

The Luxembourg government however proposes some tax changes in order to reduce the impact of taxes considered as an obstacle to UCITS IV and reinforce the attractiveness of Luxembourg as a location for funds and management companies:

• Subscription tax exemption for exchange traded funds. An exchange traded fund is a fund listed or traded on at least one Stock exchange or other regulated market, which duplicates an index.
• Subscription tax exemption for multi-employer pension pooling vehicles set up under the law of undertakings for collective investment (vehicles set up under the law of 2007 on Specialized Investment Funds benefitted from such exemption already, whereas the exemption was limited to single-employer vehicles for funds under the law of 2002).
• Tax exemption in Luxembourg for capital gains realized by a non-resident upon disposal of his Share in an undertaking for collective investment in corporate form. – This measure enhances Luxembourg’s attractiveness as a location for master funds. The potential taxation of capital gains in case of redemption of shares by non-resident feeder funds was considered the main existing Luxembourg tax obstacle for Master-Feeder structures.
• Undertakings for collective investment, which are established outside Luxembourg, are exempt from corporate Income tax, municipal business tax and net worth tax even if they have their central administration or their effective place of management in Luxembourg. – This measure will allow UCITS located in other Member States to be managed by a Luxembourg management company without any risk of shifting their tax residency to Luxembourg.

The law will enter into force on the first day of the month following its publication in the Luxembourg official gazette, with transitional provisions for the period until July 1, 2011. Until July 1, 2011, management companies or UCITS of other Member States can only rely on the law in a cross-border situation provided that their home country has implemented the UCITS IV directive. However, all tax provisions will enter into force on January 1, 2011.

(Source: Deloitte)