1 FUND NEWS December 2011 Investment Fund Regulatory and Tax developments in selected jurisdictions Issue 87 – Regulatory and Tax Developments in December 2011 Regulatory News Europe
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FUND NEWS December 2011
Investment Fund Regulatory and Tax developments in selected jurisdictions
Issue 87 – Regulatory and Tax
Developments in December 2011
Regulatory News
European Union
Proposal for a Regulation on
European Venture Capital Funds
On 7 December 2011 the European
Commission released a proposal for a
regulation on European Venture Capital
Funds This regulation will introduce a
common framework of rules for a new
fund designation, the “European
Venture Capital Fund” and conditions for the marketing of this type of fund to eligible investors across the European Union The regulation would apply to AIFMD managers managing non-UCITS funds only, with assets under
management in qualifying venture capital funds that do not exceed the threshold of €500 million The
"European Venture Capital Fund" would
be restricted to those funds that:
invest 70% of the capital committed
by its sponsors in small and medium size enterprises (SMEs);
Regulatory Content European Union
Proposal for a Regulation on European Venture Capital Funds Page 1
Proposal for a Regulation on Social Entrepreneurship Funds Page 2
ESMA consultations on MiFID Page 2
France
AMF policy updates on collective
UCITS IV transposition finalized Page 3
UK
Introducing the Protected Cell Regime (“PCR”) for UK OEICs Page 4
FSA proposal to permit non-UCITS retail
schemes to be feeder funds Page 4 - Tax Content
Italy
New Italian tax withholding calculation for investors in funds investing in
Luxembourg
Aberdeen Case E-Alerts Page 6
UK
Tax Transparent Fund and Property
Authorised Investment Funds Page 7
-
Accounting Content
KPMG’s IFRS for Investment Funds Page 7
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2
invest in equity or quasi-equity
instruments; and
do not use borrowings or any form
of leverage
The Regulation will provide all managers
of qualifying venture capital funds with a
European marketing passport allowing
access to eligible investors across the
EU Eligible investors will be
professional investors as defined under
MiFID and certain other sophisticated
venture capital investors
Managers will need to register in the
country where they are established and
will need to comply with rules regarding
conduct of business, the management
of conflicts of interest, valuation of
assets and the production of annual
financial reports
The proposed regulation now passes to
the European Parliament and the Council
for negotiation and adoption under the
co-decision procedure The Regulation
is expected to apply from the 22 July
2013
A provisional version of the proposal is
currently available at the following web
link:
http://ec.europa.eu/internal_market/inves
tment/venture_capital_en.htm
Proposal for a Regulation on Social Entrepreneurship Funds
On 7 December 2011 the European Commission also issued a second proposal for a “European Social Entrepreneurship Fund” (EuSEF) label
The proposal lays down uniform requirements for those managers that wish to use the label, and conditions regarding the marketing of funds under this label across the European Union
The regulation will apply to AIFMD registered managers managing non-UCITS funds only, whose assets under management in EuSEFs do not exceed a threshold of €500 million
An EuSEF will be required to:
invest at least 70% of its assets in qualifying investments which include equities, debt, fund units, loans and other type of
participations in unlisted social enterprises
not employ any means of leverage apart from short term borrowings for liquidity purposes
EuSEF managers will be subject to conduct of business rules, requirements regarding conflicts of interest
management, pre-sale disclosure rules and requirements to produce audited
annual reports for their EuSEFs The manager will benefit from a passport to market EuSEFs across the European Union by simple notification to their home regulator
The proposed regulation now passes to the European Parliament and the Council for negotiation and adoption under the co-decision procedure The Regulation
is expected to apply from the 22 July
2013 A provisional version of the proposal is currently available at the following web link:
http://ec.europa.eu/internal_market/inves tment/social_investment_funds_en.htm# proposal
ESMA consultations on MiFID
On 22 December the European Securities and Markets Authority (ESMA) issued two MiFID related consultation papers (CPs) containing Guidelines on suitability and the Compliance function
The Guidelines on suitability focus on the need for firms to have in place appropriate policies and procedures in order to know their clients when recommending suitable investment choices
The Guidelines on the Compliance function cover the responsibilities of the function, specifically compliance risk assessment, monitoring, reporting and advisory obligations They also cover the organizational requirements for the function and guidelines for the review of the function by the competent authority The consultation period closes on 24 February 2012 and the consultation paper is available via the following web link:
http://esma.europa.eu/consultations/over view/10
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3
France
AMF policy updates on collective
investment schemes
On 23 December 2011 the Autorité des
Marchés Financiers (AMF) published
updates to the following collective
investment schemes guides
The guide to regulatory documents
for collective investment schemes
(“OPCVM”) and real-estate
collective investment schemes
(“OPCI”)
The good practice guide to drafting
commercial documents and
distributing collective investment
undertakings, illustrating appropriate
behaviour and bad practice to be
proscribed
The good practice guide to
monitoring collective investment
undertakings The purpose of this
document is to inform asset
management companies,
depositaries and statutory auditors
of the way certain aspects of the
regulations should be interpreted
These guides contain recommendations
which market players are asked to
comply with, and also positions setting
out the binding provisions of the General
Regulation
The guides are available at
www.amf-france.org
UCITS IV transposition finalised
On 21 December the AMF published amended instructions governing the authorisation and operation of UCITS, non-UCITS and real estate collective investment schemes that now incorporate all the new UCITS IV measures introduced into French law
The AMF has also simplified the presentation of the instructions, so there
is now only one for each major category
of collective investment scheme targeting retail investors:
for UCITS: Instruction 2011-19 on authorisation procedures, establishment of a KIID and a prospectus, and the periodic reporting requirements of French UCITS and foreign UCITS marketed
in France (previously Instructions 2005-01 and 2005-02)
for non-UCITS: Instruction 2011-20
on authorisation procedures, establishment of a KIID and a prospectus, and the periodic reporting requirements of non-UCITS (previously Instructions
2005-01 and 2005-02)
for collective investment schemes for employees: Instruction 2011-21
on authorization procedures, establishment of a KIID and a prospectus, and the periodic reporting requirements of collective investment schemes for employees (previously Instruction 2005-05)
for approved venture capital collective investment schemes:
Instruction 2011-22 on authorisation procedures, establishment of a KIID and bylaws, and the periodic reporting requirements of approved venture capital funds, innovation funds and local investment funds (previously Instructions 2009-03 and 2009-05)
for real estate collective investment schemes: Instruction 2011-23 on authorization procedures, establishment of a KIID and a prospectus, and the periodic reporting requirements of real estate collective investment schemes (previously Instructions 2009-01 and 2009-02)
The AMF has also published Instruction 2011-15 on procedures for calculating the global exposure of UCITS, in order to implement CESR’s Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS, published on 28 July 2010, and ESMA’s Guidelines to competent authorities and UCITS management companies on risk measurement and the calculation of global exposure for certain types of structured UCITS, issued on 14 April 2011 This instruction replaces Instruction 2006-04 of 24 January 2006
on the procedures for calculating the exposure of UCITS to derivative financial instruments
The Instructions are available at
www.amf-france.org
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UK
Introducing the Protected Cell Regime
(“PCR”) for UK OEICs
As discussed in Fund News issue 86, on
20 December the Statutory Instrument
(“SI”) was laid before Parliament and
became “made” legislation coming into
force on 21 December 2011 This
commences the up to two year
transition during which existing umbrella
OEICs will need to become protected
cell OEICs The result is that the assets
of each sub-fund are ring-fenced and
cannot be called upon to meet an
excess of liabilities of another sub-fund
of the umbrella All new umbrella OEICs
must be established from the outset
with protected cells
In parallel, on 21 December, to introduce
the protected cell regime the Financial
Services Authority (“FSA”) has
published its Instrument 2011-76 This
came into force immediately and
amends the FSA’s Collective Investment
Schemes sourcebook (“COLL”) to
include rules and guidance on the PCR
The FSA’s Instrument has been
supported by an information note to
Authorised Corporate Directors
(“ACDs”) explaining what is required,
and its January Handbook Notice will
provide the feedback and comments on
the changes made to bring in the PCR
The FSA requires umbrella schemes to
make a statement regarding the
“principle of limited recourse”, that is
that the assets of a sub-fund belong
exclusively to that sub-fund and shall not
be used to settle, directly or indirectly,
the liabilities or claims against the
umbrella or any other sub-fund
There is a caveat to the introduction of
the PCR with respect to a potential
uncertainty as to how foreign courts will
react to claims by creditors under
foreign law contracts with the OEIC, which are brought in foreign courts
Where there are such contracts this is to
be made clear by the OEIC The COLL rules require the ACD to take
appropriate actions to resolve where a foreign law contract may be inconsistent with the principle of limited recourse
The introduction of the PCR has enabled the FSA to amend COLL rule 5.2.30 so that a sub-fund of an umbrella may invest in units of other sub-funds of the same umbrella provided the scheme documentation permits this and conditions are met Permitted cross investment within OEIC umbrellas may provide opportunities to consolidate OEICs and reduce the costs of operating several umbrella OEICs
The same rules apply to Non-UCITS umbrella OEICs as to UCITS umbrella OEICs but, of course, the UCITS Directive requirement prevails in that UCITS and Non-UCITS schemes cannot
be mixed in the same umbrella
With the introduction of the PCR the FSA COLL rules now make it clear that when terminating a sub-fund it is the solvency of the sub-fund that is to be assessed and reported to the FSA not that of the OEIC
The statutory instrument (2011 No
3049) (7 pages) is available via this link:
http://www.legislation.gov.uk/uksi/2011/
3049/contents/made
The FSA’s Instrument amending COLL (18 pages) is available via this link:
http://media.fsahandbook.info/Legislatio n/2011/2011_76.pdf
FSA proposal to permit non-UCITS retail schemes to be feeder funds
On 6 December the Financial Services Authority (“FSA”) issued its quarterly consultation paper (“CP 11/27”) which includes, in Chapter 8 and Appendix 8, the FSA’s proposals to permit non-UCITS retail schemes (“NURSs”) to operate as feeder funds and minor consequential changes for its rules for UCITS feeder funds
The UCITS IV rule amendments allow UCITS funds to operate as feeder funds
to a master UCITS and the FSA has already amended its Collective Investment Schemes sourcebook (“COLL Rules”) in this respect In CP 11/27 it proposes to allow NURSs in general to operate as feeder funds A NURS can already be a feeder fund in specific limited circumstances which are: a pension scheme feeder; a property authorised investment fund (“PAIF”) feeder; and a fund of alternative investment funds (“FAIF”) feeder The proposals will leave these existing arrangements unchanged but will provide a set of framework rules to allow the feeder-master structure for NURSs in general
The proposed new rules for the COLL sourcebook, which will apply to schemes operating under COLL 5.6, are dispersed to the relevant sections of COLL rather than being contained in COLL 5.6
The proposals require the master fund to provide at least the equivalent level of protection as if the feeder fund had been
a NURS Therefore the permitted master fund is limited to funds that could have been sold to retail investors
in the UK and this will restrict the master fund to being:
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5
a UCITS scheme authorised in the
UK or another member state;
a NURS; or
a UK recognised scheme
The feeder NURS must be dedicated to
investment in the units of a single
master scheme, however a NURS
feeder will not be constrained to invest
at least 85% of the scheme property in
the units of the master scheme as is the
case for UCITS feeder funds The
proposal is that there is no hard limit on
the minimum proportion of the feeder’s
assets that must be held in units of the
master; however, the balance of the
property of the feeder must be invested
in cash; near cash or derivatives held
and used for efficient portfolio
management
The master fund must not invest more
than 15% of its assets in other funds, so
the master fund cannot be a fund of
funds or itself a feeder fund However,
if a feeder NURS wishes to invest in a
master fund that is a fund of funds it can
set up as a NURS managed as a FAIF
In addition, to prevent circularity, the
master should not invest, within its 15%
limit, in units of the feeder NURS
However, as the master may be outside
the UK, a rule on the master scheme
could not be effective in all cases so it
will be the responsibility of the manager
of the feeder NURS to prevent circularity
by taking reasonable care to ensure its
units are not beneficially, directly or
indirectly, owned by its master fund
The proposals include a range of
disclosures to the investors in the feeder
NURS including:
naming the specific master fund in
the feeder’s prospectus, and
explaining the investment objective
and policy, and the risk profile of the
master fund;
stating whether the performance of the feeder and master will be identical or how and why they will differ;
past performance data must be of the feeder fund;
providing the aggregate charges of the feeder and the master in the annual short and long reports;
provision, on request, of the prospectus and annual and half-yearly long reports of the master fund, free of charge;
the FSA cannot specify that there may be no charge for the subscription and redemption of units in the master but it will require that where a charge arises to the feeder NURS the manager will be required to reimburse the feeder NURS This requirement does not extend to charges related to dilution levy or stamp duty reserve tax;
the FSA will preclude a UK master making information available in priority to a feeder NURS that could
be prejudicial to the interests of other investors in the master fund;
and,
unlike for UCITS, there will not be imposed an obligation on the depositaries and auditors of the feeder and master funds to enter into information sharing
agreements However the depositary of a feeder NURS should
be consulted by the manager prior
to investment in the master fund to confirm whether it is satisfied it can obtain all the necessary information
to comply with its general duties
The manager will need to ensure that the feeder NURS’s valuation, pricing and dealing can be co-ordinated with the master fund to prevent arbitrage
In proposing these COLL Rules the FSA
is taking the opportunity to amend COLL
to make it clear that:
a UCITS umbrella may contain both standard UCITS sub-funds and feeder UCITS sub-funds provided that where this is the case it clear which sub-funds are feeder UCITS; and
it will not be a requirement of the half-yearly short report of a feeder UCITS to disclose the aggregated charges of the master and feeder funds as this is not a requirement of the half-yearly long report of a UCITS
NURS and UCITS feeders will be the same in these respects
The FSA’s consultation paper is available via the link below, CP 11/27 is 155 pages – the relevant sections are Chapter 8 (page numbers 47 to 57) and Appendix 8 (pages 131 to 147)
http://www.fsa.gov.uk/pubs/cp/cp11_27 pdf
Responses to this aspect of the CP are required by 6 February 2012
Tax News
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Italy
New Italian tax withholding
calculation for investors in funds
investing in eligible bonds
In its decree dated 13 December 2011
the Italian tax authorities have revised
the reporting regime with effect from 1
January 2012 The new regulations
change the rate at which tax should be
withheld on certain bonds and
investment funds The result,
introduces a complex calculation to
determine the amount of tax on
distributions to Italian investors in
investment funds where the fund, and
therefore the investor indirectly, holds a
composite of bonds eligible to be taxed
at the lower rate of 12.5% and securities
taxed at the new standard rate of 20%
This will require calculations to be made
and information to be provided to paying
agents for distributions from 1 January
2012
From 1 January 2012, Italian investors
will be subject to tax at 20% on income
from investments, including distributions
from UCITS and non-UCITS funds where
the rate had previously been 12.5%
The new 20% rate replaces the rates of
12.5% and 27% However, income
from Italian government bonds, public
securities and other government bonds
that have a sufficient exchange of
information continue to be taxed at
12.5% This would mean that holding
such securities through an investment
fund (e.g a UCITS or non-UCITS) could
be a disadvantage for investors
The solution advised in the Decree of 13
December (Ref 11A16232) is that an
investment fund which holds a
combination of bonds eligible for the
lower rate (12.5%) taxation and new
standard rate (20%) taxation will reflect the proportion of each to equate to a composite tax rate for investors The manager must determine the proportion
by value of bonds taxed at 12.5% and 20% every six months, the dates of calculation are to coincide with semi-annual and semi-annual reporting dates
As an example a fund with a calendar year end, will with respect to its distributions for the period commencing
1 January 2012 look back to the proportion by value of bonds at the semi-annual report of 30 June 2011 and the annual report of 31 December 2010
The simple average of the proportion by value of eligible bonds on these two dates will determine the proportion of the distribution on which tax is levied at 12.5% and the proportion which now must be taxed at 20%
The proportion of bonds to be taxed at 12.5% is multiplied by 0.625 and added
to the proportion to be taxed at 20% to determine an aggregate percentage of the distribution that will then be taxed at 20% (E.g if the average invested at the two dates in 12.5% eligible bonds was 30%; this is multiplied by 0.625 to equal 18.75%; and is added to the 70% in assets to be taxed at 20%; so that the total of 88.75% is the proportion of the distribution which is taxed at 20%.) For a new fund, until financial statements are published the 20% tax rate applies to the whole distribution
When financial statements are published then the taxable proportion of the distribution can reflect the information in that report
Paying agents will require the proportion
of the distribution which is to be taxed at
20% for Italian investors by the end of December 2011 for distributions from 1 January 2012
The Decree of 13 December (Ref 11A16232) is available in Italian via this web link:
http://www.gazzettaufficiale.biz/atti/20 11/20110292/11A16232.htm
Luxembourg
Aberdeen Case E-Alerts
The latest Aberdeen E-Alerts (tax newsletter focusing on withholding tax reclaims based on the Aberdeen case law) that outlines the positive impact of new Italian legislation on Aberdeen tax reclaims is available via the following web link:
http://www.kpmg.com/LU/en/IssuesAnd Insights/Articlespublications/Pages/Aber deene-alerts-Issue2011-13.aspx
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UK
Tax Transparent Fund and Property
Authorised Investment Funds
In relation to the publication of the
Finance Bill 2012 on 6 December, HM
Treasury (“HMT”) announced proposals
for the establishment of an authorised
tax transparent fund in 2012, and to
facilitate conversion of authorised funds
to the Property Authorised Investment
Fund (PAIF) tax regime
New tax transparent fund as a pooled
investment vehicle
Further details have been announced
regarding the proposed new tax
transparent fund (“TTF”), which will be a
new form of pooled investment vehicle
that could significantly facilitate asset
pooling in the UK by investment
managers and institutional investors
such as insurance companies and
pension funds
HMT will be given powers in the Finance
Act 2012 to make regulations for two
categories of a regulated asset pooling
vehicle: a contractually based
co-ownership fund transparent for income
but opaque for chargeable gains; and a
partnership-based fund transparent for
both income and gains
Regulations are also proposed to provide
that assets of the new class held within
the long term fund of an insurance
company will be deemed annually
disposed of and reacquired (Section 212
TCGA), in order to give relief to
insurance companies on the transfer of
assets into the new tax transparent
schemes and to simplify the application
of the current chargeable gains rules on
the merger and reconstruction of both
new and existing types of collective
investment schemes
The continued development of the UK’s TTF is welcome news as it will provide investment managers with a UK alternative when considering pooling structures The delivery by HMT of the TTF in 2012 is important as managers assess optimal structures in the light of opportunities made available under UCITS IV and with the increased focus
on withholding taxes and wider cost pressures on managing portfolio investments
A regulatory consultation document will
be published later this month or in early
2012 HMT’s announcement is available via this web link:
www.hm-treasury.gov.uk/d/tax_transparent_funds
Exchange of units between Property Authorised Investment Funds (PAIFs) and feeder funds
HM Revenue & Customs has announced proposals to assist the managers of authorised investment funds wishing to convert funds into Property Authorised Investment Funds (“PAIFs”)
The Government intends to allow investors to exchange their units in a dedicated PAIF feeder fund for units in the PAIF itself and vice versa in specified circumstances without triggering a capital gains charge
After undertaking informal consultation with interested parties, a statutory instrument to make the required changes is expected in the late spring or early summer of 2012
This change has been sought by the industry to facilitate the process of converting authorised property unit trusts into PAIFs It would allow
investors who invest via a funds platform that is currently unable to support income streaming to initially invest via an authorised unit trust feeder, and then subsequently switch to the PAIF when these administrative streaming issues have been resolved
By allowing switching without suffering capital gains, it will also allow managers greater flexibility in managing the corporate ownership condition which limits corporate investors from holding more than 10% of the PAIF
HMRC’s announcement is available via this web link:
www.hmrc.gov.uk/budget-updates/06dec11/paif-hmrc-stat.pdf
Accounting News
IFRS for Investment Funds
Our series of IFRS for Investment Funds publications addresses practical
application issues that investment funds may encounter when applying IFRS It discusses the key requirements and includes interpretative guidance and illustrative examples The first issue covers the presentation and
measurement of the financial assets carried at fair value subsequent to initial recognition and classified as fair value through profit or loss and available for sale The second issue covers segment reporting as applicable funds
The second issue in the series is available at:
http://www.kpmg.com/LU/en/IssuesAnd Insights/Articlespublications/Pages/IFRSf orInvestmentFundsIssue2.aspx
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Contact us
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Senior Manager
T: + 352 22 5151 7369
E: dee.ruddy@kpmg.lu
Audit
Nathalie Dogniez
Partner
T: + 352 22 5151 7319
E: nathalie.dogniez@kpmg.lu
www.kpmg.lu
Publications
Tax Georges Bock
Partner
T: + 352 22 5151 5522 E: georges.bock@kpmg.lu
Advisory Vincent Heymans
Partner
T: +352 22 5151 7917 E: vincent.heymans@kpmg.lu
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timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such
information without appropriate professional advice after a thorough examination of the particular situation
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Evolving Investment Management Regulation - Meeting the challenge here
FATCA and the funds industry:
Defining the path here
Charles Muller
Partner
T: +352 22 5151 7950 E: charles.muller@kpmg.lu