Sectors

Investment & Asset Management

Investment & asset management

Our investment and asset management lawyers are here to serve the sponsors, managers and investors of mid-market alternative investment funds, supporting them throughout the fund management lifecycle; from initial structuring through to marketing, set-up, launch, investment operations, portfolio due diligence, divestment and exit.

We have a wealth of experience as attorneys in the investment fund industry, advising clients on all legal, technical and commercial aspects. Our expertise covers the private equity, hedge, debt, real estate, life sciences and funds-of-funds sectors.

In addition, we are able to represent a wide range of fund clients, including financial institutions, pension funds, family offices, HNW/UHNW individuals and first-time fund managers.

Our offer includes:

  • Initial negotiation and documentation of offering terms
  • Legal/regulatory and tax structuring of funds, taking into account the specifics of the investment sector.
  • Where required, we can also act to reconcile the needs and preferences of investors and managers, providing sufficient flexibility to accommodate the evolving financial landscape of the project
  • Structuring managers’ incentive packages (management remuneration, including carried interest) as well as managers’ seed investment, co-investment and the reinvestment of management remuneration
  • Negotiating agreements with service providers, such as custodian agents, placement agents, auditors, administrators and AIFMs
  • Monitoring domestic and international tax aspects at the level of the fund vehicle, its management company/AIFM and any relevant SPVs
  • Handling all legal, regulatory and tax filing for the fund vehicle(s), management company/AIFM and/or local intermediary SPVs, including for FATCA and CRS purposes
  • Preparation of exit documentation, distributions and the liquidation of fund structures
coronavirus regulation

Coronavirus measures: Corporate rules for holding of meetings

Context
As the coronavirus epidemic has immediate consequences on the good governance of companies and other legal persons, the Grand-Ducal Regulation of 20 March 2020 introducing measures concerning the holding of meetings in companies and other legal persons (the “Regulation”) has been adopted.
Overview

The law of 10 August 1915 regarding commercial companies, as amended, as well as the law of 24 May 2011 on the exercise of certain rights of shareholders at meetings general information of listed companies, as amended (the “Laws”), provide the rules concerning the holding of shareholders’
meetings and other meetings of board of directors and other corporate organs.
The Laws provide corporate organs meetings to be held by physical meeting or by any telecommunication means on the condition that such option be explicitly provided in the articles of associations of companies.

New temporary emergency measures

Article 1 of the Regulation authorises companies and other legal persons to hold their meetings in particular their shareholders’ meetings and boards of directors remotely. In this context, the physical attendance of members is not required.
A company may, notwithstanding any provision to the contrary in the articles, regardless of the expected number of participants in its general meeting, hold any general meeting without a physical meeting, and require its shareholders or members and other participants in the meeting to attend the meeting and exercise their rights exclusively:

  1. by voting from a remote location in writing or electronically, provided that the full text of the resolutions or decisions to be taken has been published or communicated to them;
  2. through a proxy holder […]; or
  3. by video conference or other telecommunication means permitting their identification.”

By the use of one of these possibilities, the shareholder/manager will be deemed present for the calculation of the quorum and the majority.

Furthermore, notwithstanding any provision to the contrary in the articles of association, annual general meetings of companies and other legal persons may be convened on a date within six months after the end of their financial year or on any date prior to 30 June 2020.

Date of effect

The Regulation entered into force on 20 March 2020 with immediate effect.

Further details

You can have an access to the text of Regulation here.

For more information, please do not hesitate to contact:

Head of Legal

+352 27 77 97 05
+352 691 778 378

Faruk DURUSU

Head of Legal

Avocat - Associate

+352 27 77 97 08

Mikail CEYLAN

Avocat - Associate

green finance

The European Commission’s Green Deal

On 11 December 2019 the European Commission published a communication (a nonbinding document) and launched the European Green Deal – a roadmap for making the EU’s economy sustainable.

The European Green Deal is the new growth strategy set by the newly appointed European Commission for the coming years. It is seen as a way to improve the health and well-being of our people by transforming the European economic model.

It provides a roadmap with actions to boost the efficient use of resources by moving to a clean, and circular economy stopping climate change, revert biodiversity loss and cuting pollution. It outlines investments needed and financing tools available and explains how to ensure a just and inclusive transition. In other words, it aims at stimulating growth, tackling climate change and combating rising inequality.

A green direction will mean redesigning all EU instruments, including those used by the European Central Bank and financial regulators, the European Investment Bank, structural funds, investment funds and funds for small and medium-sized enterprises. The “mission-oriented” can help create coherence between such policies and put the public good at the centre of economic growth.

To set into legislation the political ambition of being the world’s first climate neutral continent by 2050, the European Commission will present in the coming months the first ‘European Climate Law’ by March 2020. In addition to introducing more ambitious emissions targets, the plan seeks to drive policy reforms to make Europe the frontrunner in climate-friendly industries, green technologies and green financing.

For more information, please do not hesitate to contact:

Avocat - Associate

+352 27 77 97 08

Mikail CEYLAN

Avocat - Associate

Head of Tax

+352 27 77 97 03
+352 691 555 675

Chokri Bouzidi

Head of Tax

New EU rules to exchange VAT payment data

New EU rules to exchange VAT payment data

On 8 November 2019, the EU Council reached a general agreement on new measures proposed by the European Commission to improve cooperation between tax authorities and payment service providers and facilitate the detection of tax fraud in cross-border e-commerce transactions.

The new set of rules will enter into force on 1 January 2024 and require payment service providers to transmit payment data electronically to tax authorities in EU member states using a standardized approach.

Concretely, this new set of rules consists of two legislative texts:

  • A proposal for a directive amending Directive 2006/112/EC (the VAT Directive), putting in place requirements on payment service providers to keep records of cross-border payments related to e-commerce. This data will then be made available to national tax authorities under strict conditions.
  • A proposal for a regulation amending Regulation (EU) 904/2010 on administrative cooperation in the area of VAT. The proposed amendments will set out the details on how national tax authorities will have to cooperate to detect VAT fraud and control compliance with VAT obligations.

The objective of these new rules is to put in place EU rules which will enable Member States to collect in a harmonised way the records made electronically available by the payment service providers. In addition, a new central electronic system (CESOP) will be set up for the storage of the payment information and for the further processing of this information by anti-fraud officials in the Member States within the Eurofisc framework.

These new rules will complement the VAT regulatory framework for e-commerce that is coming into force in January 2021 and which will introduce new VAT obligations for online marketplaces and simplified VAT compliance rules for online businesses.

For more information, please do not hesitate to contact:

Head of Legal

+352 27 77 97 05
+352 691 778 378

Faruk DURUSU

Head of Legal

green finance

ECJ – German WHT on dividends to nonresident pension funds

On 13 November 2019, the Court of Justice of the European Union (“ECJ” or the “Court”) issued a decision (C-641/17) whereby the German withholding tax regime applicable to dividends paid to nonresident pension funds is incompatible with the free movement of capital principle of article 63 of the Treaty on the Functioning of the European Union (TFEU). The Fiscal Court of Munich had referred the case to the ECJ on 23 October 2017. The ECJ effectively followed the opinion issued by Advocate General Pikamäe on 5 June 2019.

Background

In the case at hand, the taxpayer, a Canadian pension fund holding indirect interests of less than 1% of the shares in various German resident companies received dividends. The dividends were subject to a 25% withholding tax (reduced to 15% according to the double tax treaty between Canada and Germany).
The fund introduced a request for the refund of the 15% tax withheld. The request was denied by the German tax authorities.

ECJ decision

The ECJ ruled that Germany’s tax treatment was incompatible with EU law on two grounds:

  • Free movement of capital

The ECJ concluded that German tax treatment of dividend distributions to pension funds infringed EU law. The court observed that the higher withholding tax burden on a cross-border payment compared to the combined withholding tax and corporate income tax liability resulting from a payment to a domestic pension fund resulted in less advantageous treatment. Indeed both pension funds are subject to two different taxation regime in respect of dividends received. In the case of a non-resident pension fund, the tax on income from capital on such dividends becomes definitive. Conversely, dividends paid to resident pension funds are incorporated in the pension fund’s balance sheet, which is subsequently used to determine the taxable profit, on which corporation tax will be charged at the rate of 15%. When that tax
becomes payable, the tax on income from capital can be set off in its entirety against the amount due.

As a consequence, non-resident pension funds are treated less favourably than resident pension funds which constitutes a restriction on the free movement of capital. Furthermore, the Court noted that resident and non-resident pension funds are in a comparable situation. the German legislation does not only provide for different tax regimes depending on the residence of the fund, but its application may also lead to the full exemption of the dividends paid to resident funds.The German courts must consider whether the Canadian fund added the dividends received to its pension reserve, either voluntarily or based on Canadian law. If the fund did so, the ECJ stated that there was no justification for the difference in treatment.

The Court then examined whether the restriction can be justified by overriding reasons in the public interest. The Court considered and rejected possible justifications based on the need to ensure a balanced allocation of taxing rights, the need to safeguard the coherence of the German tax system, and the need to ensure the effectiveness of fiscal supervision.

  • Standstill clause

This clause allows a derogation from the prohibition on all restrictions existing on December 31, 1993 to the free movement of capital between Member States and third countries, where such capital movements involve direct investment, establishment, the provision of financial services or the admission of securities to capital markets. In the case at hand, the ECJ ruled that since the fund held interests of less than 1% in the German companies, it held a portfolio investment rather than a direct investment and portfolio investments do not fall within the scope of the standstill clause.

For more information, please do not hesitate to contact:

Head of Tax

+352 27 77 97 03
+352 691 555 675

Chokri Bouzidi

Head of Tax

business-employment-law-litigations

Luxembourg launched the implementation process of ATAD 2

On 8 August 2019, the Luxembourg Government submitted bill n°7466 to the Parliament (the “Bill”) to implement Council Directive (EU) 2017/952 of 29 May 2017 (“ATAD 2” or the “Directive”) into Luxembourg law. Council Directive (EU) 2016/1164 of 12 July 2016, commonly referred to as “ATAD 1”, already included measures dealing with hybrid mismatches in an EU context, in force in Luxembourg since 1 January 2019. The aim of the Directive ATAD 2 is mainly to take a step further by replacing the former measures set up by ATAD 1 and extend their scope, notably to transactions involving non-EU countries.

Background

ATAD 2 follows the recommendations of the OECD with regard to Action 2 (Hybrid mismatch arrangements) of the Base Erosion and Profit Shifting (BEPS) project and covers various type of hybrid mismatches.
In this context, EU countries have until 1 January 2020 to implement ATAD 2 into their national laws. Luxembourg has chosen to stick closely to the text of the Directive and to apply the exceptions granted by ATAD 2. However, the Bill still needs to go through the legislative process and may be still subject to amendments before the final vote at the Chambre des Députés.
The main objective of ATAD 2 is to neutralize hybrid mismatches resulting in mismatch outcomes between associated enterprises (broadly, situations with a double deduction or a deduction without inclusion).
The new rules will enter into force as from 1 January 2020, except for the provision on reverse hybrid mismatches, applicable as from tax year 2022.

Overview

Luxembourg corporate income taxpayers, including Luxembourg permanent establishments (“PE”) of foreign entities would fall under the scope of the the new measures proposed by the Bill.

The provisions of the Bill would apply whenever there is a “hybrid mismatch”:

  • under a “structured arrangement”;
  • between “associated enterprises”;
  • between a head office of an entity and a PE;
  • between two or more PE of the same entity; or
  • in cases of dual tax residence.

The Bill covers inter alia the following hybrid mismatches scenari:

  • Deduction without inclusion: Refers to a situation where a deduction of a payment is realized at the level of the paying entity without a corresponding inclusion of such payment in the taxable income of the payee entity. In such a case the deduction on the hybrid payment may be denied for Luxembourg tax purposes.
  • Double deduction: May occur if a Luxembourg entity deducts the same payment in two different countries or if two taxpayers, including a Luxembourg entity, deduct the same payment in two different jurisdictions.
  • Double non-taxation or double tax credit: May often occur when neither a PE nor the head office of a Luxembourg entity includes the income in its taxable base or the same income allows for a foreign tax credit to two different taxpayers.

The Bill should particularly impact hybrid instruments such as PECs (Preferred Equity Certificates) and CPECs (Convertible Preferred Equity Certificates) used by Luxembourg entities with US tax resident shareholders or investors. Any structure which includes a Luxembourg entity that has issued any PECs or CPECS should be reviewed as soon as possible with the upcoming legislation in mind.

The reverse hybrid rules, which will enter in force in 2022, will not be applicable to collective investment vehicles that are widely held, have a diversified portfolio, and are subject to investor protection regulations, such as UCITs, Part II UCIs, SIFs and RAIFs.

Limitation provided by the Bill

The Bill provides that the new legislation should only apply to « deductible payments ». Which means that, unless otherwise mentioned, the rules only apply to payments and not for example to provisions recorded in relation to financing instruments.

Non-deductible payments are excluded from the scope of the Bill.

For more information, please do not hesitate to contact:

Avocat - Associate

+352 27 77 97 08

Mikail CEYLAN

Avocat - Associate

Head of Tax

+352 27 77 97 03
+352 691 555 675

Chokri Bouzidi

Head of Tax