Investment Management News Update – Spring 2021
An overview in which the Investment Management Practice Group highlights legal, regulatory and tax publications, as well as news items which may be of interest to you, including legislative dates for your diary.
Loyens & Loeff publications
ESAs publish final draft RTS on ESG disclosures
The ESAs published their final report including the draft RTS on disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector. To read this update, click here
IFR and IFD: the new prudential regime for investment firms (the Netherlands)
On 26 June 2021 a new prudential regime for investment firms will enter into force. This new regime will also have consequences for managers of investment funds with a MiFID top-up, who are authorized to provide investment services. To read this update, click here
Private equity and fund formation in Luxembourg (Luxembourg)
What legal form of vehicle is typically used for private equity funds formed in your jurisdiction? Does such a vehicle have a separate legal personality or existence under the law of your jurisdiction? In either case, what are the legal consequences for investors and the manager? To read this update, click here
Legislative proposal of the Dutch implementation of the Trust register submitted to parliament (the Netherlands)
On 26 April 2021, the legislative proposal for the implementation of a ‘UBO-register’ for trusts (the Trust register) was submitted to parliament. The Trust register is a publicly accessible register that contains certain personal information of ultimate beneficial owners (UBOs) of trusts and similar legal arrangements. To read this update, click here
Private equity’s new trend: selling to themselves (Switzerland)
The decline in global M&A activity during the Covid-19 pandemic, combined with the ongoing lack of attractively priced targets, led to a rise in an alternative exit scenario for private equity firms: selling their portfolio companies to themselves, typically by creating a so-called continuation fund. Such deals are no novelty but given their rising popularity, a closer look should be taken at the potential pitfalls involved in such deals. To read this update, click here
Court doubts the legitimacy of the Dutch UBO-register (the Netherlands)
On 18 March 2021, the District Court of The Hague rendered its judgement in the case instituted by the foundation Privacy First against the state regarding the Dutch UBO-register. Privacy First states that the UBO-register violates the right to privacy and claimes, among other things, that the UBO-register should be abolished. The court rejected the claim of Privacy First but expressed its doubts as to the legitimacy of the (partly) public nature of the UBO-register. To read this update, click here
Everything you need to know on Luxembourg investment funds (Luxembourg)
From the regulatory and tax environment to the fund formation, get a comprehensive overview of the Luxembourg investment funds market. To read this update, click here
SFDR disclosures: Luxembourg regulator implements a fast track procedure for prospectus/issuing document updates (Luxembourg)
The CSSF issued a communication on 16 December 2020 on regulatory requirements and fast track procedure for UCITS, Part II UCIs and SIFs to facilitate the submission of prospectuses/issuing documents for visa stamp to the CSSF in view of the entry into force of the Regulation (EU) 2019/2088 on the sustainability-related disclosures in the financial services sector. To read update, click here
The Dutch UBO-register for corporate and other legal entities (the Netherlands)
Update 15 December: As of 27 September 2020, corporate and other legal entities that are incorporated or established under Dutch law and that are registered in the Dutch Trade Register are required to obtain, hold and register certain personal information on their ultimate beneficial owners (UBOs) in the Dutch UBO-register. To read further, click here
CSR and ESG: the new normal (Luxembourg)
Why are ESG and CSR so important in today’s society? Get a comprehensive understanding of the challenges this question raises and why it is so critical to the business. To read this update, click here
Dutch tax classification rules
In the Netherlands, a limited partnership (commanditaire vennootschap or CV) and a fund for joint account (fonds voor gemene rekening or FGR) can be either transparent or non-transparent. The current Dutch tax classification rules for Dutch and foreign entities (such as partnerships) are quite unique and therefore often deviate from international standards. This may cause ‘hybrid entity mismatches’ in an international context. The Dutch government has recently proposed to overhaul these tax classification rules with certain legislative proposals, to align the Dutch tax classification of entities with common international standards. To read our detailed update, click here
Timing: the new rules, if enacted, should enter into force as per 1 January 2022.
Takeaway: the tax classification rules are relevant for almost all fund structures (containing a Dutch element). It is key to check the impact of these new tax classification rules. See further also the new reverse hybrid rules in this IM newsletter.
Reverse hybrid rules
A reverse hybrid entity is an entity that is tax transparent in its own state, but regarded as opaque from the perspective of the participants in such entity (for example, a Dutch fund limited partnership (CV) that is transparent in the Netherlands, but considered opaque from the perspective of one or more of the investors therein). Due to different tax classifications, this may under circumstances lead to double non-taxation of the income received by a reverse hybrid entity.
Under the implementation of the ATAD2 Directive, anti-reverse hybrid entity rules will enter into effect as from 1 January 2022, by making such entities (under circumstances) subject to Dutch corporate income tax in the Netherlands (i.e., the Netherlands will then no longer treat the reverse hybrid entity as transparent, effectively eliminating the mismatch). It is proposed that profit distributions made by such reverse hybrid entity will also be subject to 15% Dutch withholding tax and if applicable, 25% Dutch conditional withholding tax. To read our detailed update, click here
Timing: the intended entry into force of these rules is 1 January 2022.
Takeaway: the reverse hybrid rules are relevant for almost all fund structures (containing a Dutch element). It is key to check the impact of these new reverse hybrid rules. See further also the new reverse Dutch tax classification rules in this IM newsletter.
Transfer pricing mismatch rules
The Dutch Ministry of Finance recently proposed legislation to eliminate double non-taxation through transfer pricing mismatches. Under the proposal, a transfer pricing correction based on the arm’s length principle will be rejected if the taxpayer is not able to prove that a corresponding adjustment is made at the level of the foreign counterparty. Examples are corrections of interest expenses or income, but these rules will also impact situations where assets are acquired from or disposed of towards affiliated entities. To read our detailed update, click here
Timing: the intended entry into force of these rules is 1 January 2022.
Takeaway: in fund structures, the transfer pricing mismatch rules are typically relevant for (but not limited to) intra-group loans where the commercial terms deviate from the arm’s length terms. It is key to check the impact of these rules.
Dutch withholding tax developments
- Conditional withholding tax on interest and royalties
As from 1 January 2021, interest or royalty payments from the Netherlands may under circumstances be subject to 25% conditional withholding tax (e.g., when payments are made to low-taxing and/or blacklisted jurisdictions, or in certain cases of abuse). This tax has a prohibitive character and was introduced to prevent the Netherlands from being used as gateway for payments to such low-taxing and/or blacklisted jurisdictions.
The conditional withholding tax may also apply to certain cases not involving any low-taxing and/or blacklisted jurisdictions, but which are otherwise considered ‘abusive’ (including certain hybrid entities). The legislative proposal on the Dutch tax classification rules outlined in this IM newsletter is expected to already eliminate some of these mismatches (as the Netherlands will broadly speaking align its tax classification of partnerships with international standards). To read more about withholding taxes in the Netherlands, click here
- Exit tax:
In 2020, a Dutch opposition party (notably, not the Dutch government) published a legislative proposal to implement an exit tax for Dutch dividend withholding tax purposes. The proposed exit tax might be triggered when a Dutch tax resident entity relocates from the Netherlands to a jurisdiction with a potential risk for non-taxation on dividend distributions (e.g., by means of a merger or a migration). To read more about this development, click here
Timing: the legislative proposal has not been embraced by the Dutch government yet, but if implemented in its current form, the rules will have retroactive effect to 18 September 2020.
Takeaway: albeit uncertain whether this proposal will be implemented (there has been a lot of criticism), it could impact cross-border reorganisations.
- Conditional withholding tax on dividends
On 29 May 2020, the Dutch State Secretary for Finance announced that as of 1 January 2024, the Dutch conditional withholding tax (see above) will be expanded to also include dividend distributions. In relation thereto, the same framework will be applied that is currently already applied for interest and royalty payments. To read more about this development, click here
Timing: 1 January 2024.
Takeaway: structures containing low-taxing and/or blacklisted jurisdictions should be checked for the impact of these rules.
Legislative dates for your diary
30.06.2021 ESMA consultation deadline: on the framework for EU money market funds click here
12.05.2021 ESA consultation deadline: on Taxonomy-related sustainability disclosures click here
11.05.2021 EBA consultation deadline: on the draft technical standards on supervisory disclosure under the Investment Firms Directive click here
29.04.2021 ESMA consultation deadline: on Guidelines on appropriateness and execution only under MiFID II click here
23.04.2021 EBA consultation deadline: on draft RTS on colleges of supervisors for investment firms groups click here
17.03.2021 EBA consultation deadline: on Guidelines on remuneration policies for investment firms click here
17.03.2021 European Commission consultation deadline: on Guidelines on internal governance for investment firms click here
12.03.2021 ESMA consultation deadline: Consultation Paper MiFID II / MiFIR review report on Algorithmic Trading click here
08.02.2021 ESMA consultation deadline: Guidelines on marketing communications under the Regulation on cross-border distribution of funds click here and see Final Report; a Loyens & Loeff webinar has been scheduled on this topic on Thursday 29th of June, to attend the webinar please click here:
01.02.2021 European Commission consultation deadline: Long-term investment funds – review of EU rules click here
29.01.2021 European Commission consultation deadline: review of EU rules on alternative investment fund managers click here
11.01.2021 ESMA consultation deadline: Guidelines on the MiFID II/ MiFIR obligations on market data click here
Consultations The Netherlands
29.04.2021 Dutch legislative consultation deadline: Implementatiebesluit prudentieel toezicht beleggingsondernemingen click here
14.02.2021 Dutch legislative consultation deadline: Wet implementatie richtlijn grensoverschrijdende distributie van beleggingsinstellingen en icbe’s click here
Marco de LigniePartner Tax adviser
Marco de Lignie, tax adviser, is a member of the Investment Management practice group in our Amsterdam office. He focusses on tax aspects of fund formation and management participation and acts frequently as tax counsel in private equity transactions.T: +31 20 578 56 05 E: email@example.com
Roderik BeckersPartner Tax adviser
Roderik Beckers, tax adviser, is a member of the Investment Management practice group in our Amsterdam office. He focusses on cross-border investments and business activities in particular involving the Benelux countries, France, Spain and Portugal.T: +31 20 578 51 37 M: +31 6 13 61 75 13 E: firstname.lastname@example.org
Vilmar FeenstraPartner Attorney at law
Vilmar Feenstra, attorney at law, is a member of the Investment Management practice group in our Amsterdam office. He focusses on investment management structures and fund formation and is active both on the GP and LP side.T: +31 20 578 52 77 M: +31 6 10 89 41 64 E: email@example.com
Joep OttervangerPartner Attorney at law
Joep Ottervanger, attorney at law, is a member of the Investment Management practice group in our Amsterdam office. He focusses on investment management structures and fund formation and is active both on the GP and LP side.T: +31205785203 M: +31612375052 E: firstname.lastname@example.org
Bartjan ZoetmulderPartner Tax adviser
Bartjan R. Zoetmulder, tax partner in Loyens & Loeff’s Investment Management practice group, is an active member of the Real Estate team, heads the Central and Eastern Europe team and co-head of the Japan Desk.T: +31 20 578 56 58 M: +31 622 22 06 93 E: email@example.com