Issue 84 – Regulatory and Tax Developments in September 2011 pot

RD 1145/2011 also simplifies the obligations for Spanish Resident Corporate Income Tax “CIT” taxpayers in respect of investments of specific fixed-rate financial instruments and clears u

1

FUND NEWS

September 2011

Investment Fund Regulatory and Tax developments in

selected jurisdictions

Issue 84 – Regulatory and Tax

Developments in September 2011

Regulatory News

European Union

ESMA publishes updated measures

regarding Short Selling

On 29 September 2011 ESMA

published an updated list of measures

adopted by competent authorities on

short selling This update includes

measures taken by France, Greece, Italy

and Spain

The full list of measures is available via the following web link:

http://www.esma.europa.eu/popup2.ph p?id=7696

ESMA launches a Call for Evidence

on empty voting

On 14 September ESMA launched a Call for Evidence on empty voting

Currently there are no specific rules relating to empty voting at the European level ESMA’s objective is to collect

Regulatory Content

European Union

ESMA publishes updated measures regarding

ESMA launches a call for evidence on empty

Ireland

Fitness & Probity for directors and staff Page 2

UK

FSA issues PS 11/10 on its Transposition of the

revised UCITS Directive Page 2

FSA quarterly consultation includes minor amendments for the operation of Authorised

Tax Content

European Union

European Commission proposes a Financial

Netherlands

New bill on reclaims of Dutch dividend

Poland

Proposed amendments to the tax exemption

regime applicable to EU and EEA funds Page 4

Spain

Royal Decree 1145/2011 amending the General Regulations on tax management and inspection actions and procedures Page 5

Switzerland

Switzerland and the UK initial tax agreement

Page 8

UK

Authorised Investment Funds amending tax

HM Treasury confirms it will introduce a protected cell regime for OEICs by November

Fund News – September 2011

2

information and evidence on the extent

to which empty voting practices exist in

practice within the EU and the effects

of such practices

The Call for Evidence is available via the

following web link:

http://www.esma.europa.eu/popup2

php?id=7819

Ireland

Fitness & Probity for directors and

staff

The Central Bank of Ireland has issued

new Fitness and Probity Standards for

all Irish regulated firms These rules

apply to two categories of staff –

Pre-Approved Control Functions (“PCFs”)

and Controlled Functions (“CFs”)

These new rules are being introduced

on a phased basis over the next year in

order to allow for the introduction of

new internal controls and procedures

UK

FSA issues PS 11/10 on its Transposition of the revised UCITS Directive

On 2 September, the Financial Services Authority (“FSA”) issued its policy statement explaining its transposition of the revised UCITS Directive (“UCITS IV”) into UK regulation This policy statement is relevant not only to the UK industry but also to those firms, in the

UK and overseas, looking to passport services whether through the cross-border marketing of UCITS funds or those non-UK UCITS managers seeking

to use the management company passport to manage UK-authorised UCITS schemes

PS 11/10 reports on implementing the revised directive in the UK and summarises the feedback received to the questions the FSA “asked” when it issued the implementation consultation paper of December 2010 PS 11/10 publishes the final rules that have already been implemented by the transposition deadline through statutory instrument (SI 2011/1613) and the FSA Board approved Handbook changes (see Fund News Issue 81)

The new features of UCITS IV have already been extensively discussed, however, the FSA re-emphasises that the Key Investor Information Document (“KIID”) will be a shorter and clearer document to help consumers compare funds and make more informed choices before they make their investment decision It reiterates that firms have until 30 June 2012 to introduce the KIID

The policy statement (295 pages) is available via this web link:

http://www.fsa.gov.uk/pubs/policy/ps11 _10.pdf

Note that from page 37 of PS 11/10, the document comprises the “Made rules”, i.e the implementing legal instrument: UCITS IV Directive Instrument (FSA 2011/39), and, while these 257 pages were published in July and are already included in the updated FSA Handbook

in a wide range of places, document FSA 2011/39 provides a useful “black line” version showing the changes made by the FSA across the FSA Handbook to implement the UCITS IV Directive

FSA quarterly consultation includes minor amendments for the operation

of Authorised Funds

On 7 September the FSA issued CP 11/18, its quarterly consultation paper

30, in which it proposes minor amendments to the Rules and Guidance

in its handbook In September the quarterly consultation included amendments with respect to authorised funds set out in chapter 6

The FSA’s quarterly CP proposes changes for authorised funds as follows:

 umbrella Non-UCITS retail schemes (“NURS”) will be permitted to combine sub-funds that operate as FAIFs (Funds of Alternative Investment Funds) alongside sub-funds that are not FAIFs;

 the FSA proposed to require that when the final sub-fund of an umbrella ICVC is terminated such that there is no remaining property

in the ICVC then the ICVC will be automatically wound up As

Fund News – September 2011

3

proposed, this would prevent the

ICVC becoming an empty shell that

the Authorised Fund Manager may

then repopulate with a new range

of authorised funds;

 the FSA proposes to issue new

guidance for managers to assist

with determining if interests in

syndicated loans are eligible

investments; and

 following the implementation of

UCITS IV into the COLL

sourcebook the FSA seeks to make

two clarifications:

o which ongoing charges

figure should be published

in the short report and the next update of the KIID provided that it is not misleading as an indication

of future charges; and

o that with respect to COLL

9.4.2R(1) and Documents, that for a section 264 recognised scheme only the KII document must be

in English in accordance with the Directive’s translation requirements

The quarterly consultation is available

via the link below – the relevant Chapter

for funds is Chapter 6 (on pages 28 to

33) and the draft COLL amendments

are in Annex 6 (on pages 77 to 84) of

the 102 page document Comments on

the proposed changes should be

provided to the FSA by 6 November

2011, details on page 33 of the CP

http://www.fsa.gov.uk/pubs/cp/cp11_18

.pdf

TAX News

European Union

European Commission proposes a Financial Transaction Tax

On 28 September, the European Commission published a proposed Directive for a tax on financial transactions

The scope of the tax is wide, aiming at covering transactions relating to all types of financial instruments The scope covers instruments which are negotiable on the capital market, money-market instruments (with the exception of instruments of payment), units or shares in collective investment undertakings (which include UCITS and alternative investment funds) and OTC derivatives agreements

The scope of the tax is focused on financial transactions carried out by financial institutions acting as party to a financial transaction, either for their own account or for the account of other persons, or acting in the name of a party to the transaction

The definition of financial institutions is broad and essentially includes investment firms, organised markets, credit institutions, insurance and reinsurance undertakings, collective investment undertakings and their managers, pension funds and their managers, holding companies, financial leasing companies, special purpose entities, and where possible refers to the definitions provided by the relevant

EU legislation adopted for regulatory purposes

Taxation will take place in the Member State in the territory of which the

Fund News – September 2011

4

establishment of a financial institution is

located, on condition that this institution

is party to the transaction, acting either

for its own account or for the account of

another person, or is acting in the name

of party to the transaction

Two rates of tax are proposed:

 A rate of not lower than 0.01

percent on the notional amount in

respect of derivatives transactions;

and

 A rate of not lower than 0.1 percent

on the consideration paid for the

transaction (or the arm's length

market price, if higher) for all other

eligible financial transactions

The full text of the proposed directive is

available via the following web link:

http://ec.europa.eu/taxation_customs/re

sources/documents/taxation/other_taxe

s/financial_sector/com(2011)594_en.pdf

Netherlands

New bill on reclaims of Dutch

dividend withholding tax

The Dutch government has published a

bill introducing a reclaim possibility for

Dutch dividend withholding tax withheld

on dividend payments to tax exempt

entities resident outside the European

Union / European Economic Area (for

Dutch, EU and EEA resident tax exempt

entities this reclaim procedure is already

applicable) Earlier, the tax authorities

announced to repay dividend

withholding tax after claims were filed

based on EU law

Main beneficiaries of the reclaim possibility are pension funds and charities Tax exempt entities that have

a function comparable to that of entities with an exempt investment institution

or fiscal investment institution status (articles 6a and 28 Dutch CITA) are excluded

This new reclaim possibility only applies

to portfolio investments For the definition of portfolio investments the bill refers to the free movement of capital as defined in article 63 of the Treaty of the functioning of the European Union (and not being direct investments as referred to in article 64

of that treaty)

Furthermore, the Dutch Ministry of Finance must have designated the country of residence as a qualifying country Only countries that have concluded a tax treaty with the Netherlands that provides for the exchange of information (a Tax Information Exchange Agreement) can qualify

It is envisaged that this new legislation will be in force as of 1 January 2012

Further information re this bill (in Dutch)

is available via this link:

http://www.rijksoverheid.nl/onderwerpe n/belastingplan-2012

For information on earlier claims follow this link:

http://www.kpmg.com/Global/en/What WeDo/Tax/Documents/EU-tax-flash/etf-165.pdf

Poland

Proposed amendments to the tax exemption regime applicable to EU and EEA funds

The Polish Government recently published further proposed amendments to the Polish Corporate Icome Tax Act

More specifically, as an additional condition to benefit from the exemption regime currently applicable to foreign investment funds, such foreign funds will have to be managed by an entity operating on the basis of a permission issued by the competent financial sector authorities of a given state This additional general comparability requirement (i.e existence of an authorized management company) will

be imposed on all foreign funds, and one cannot exclude that it will lead to the exclusion of self-managed corporate funds from the exemption regime

In addition, it seems that the Government intends to apply the exemption also to close-ended funds which do not operate on the basis of a permission issued by the competent financial sector authorities of a given state but must only notify about initiation of investment activities To benefit from the withholding tax exemption in Poland such funds will have to meet the following additional requirements:

 such funds are close-ended funds

 investment certificates (units) in a given fund are not offered publically (traded on the stock exchange) or traded on any regulated market or other multilateral trading facilities

 in case investment certificates can

be acquired by individuals, such

Fund News – September 2011

5

 individual purchases must have a

minimum value of EUR 40,000

The proposed amendments are

currently being discussed at

Government level and, if accepted, will

be submitted for consideration to the

Parliament These proposed provisions

further depart from the EU

Commissions' standpoint (formal

request dated 11 June) according to

which current legislation, by introducing

numerous exemption requirements,

remains discriminatory with respect to

foreign funds

Spain

Royal Decree 1145/2011 amending the General Regulations on tax management and inspection actions and procedures

Simplification of formal obligations in connection with investors in fixed-income financial instruments (Government and Qualifying Public Debt) Modification of the obligation to obtain a Spanish Tax Identification Number

On 30 July 2011 the Official State Gazette published Royal Decree 1145/2011, dated 29 July, (“RT 1145/2011”), which amends the General Regulations on tax management and inspection actions and procedures, approved by Royal Decree 1065/2007, dated 27 July (“RD 1065/2007”)

As described in the Preamble, RD 1145/2011 introduces a simplification of the reporting obligations for non-resident investors of fixed-income financial instruments

RD 1145/2011 also simplifies the obligations for Spanish Resident Corporate Income Tax (“CIT”) taxpayers

in respect of investments of specific fixed-rate financial instruments and clears up certain doubts in connection with the obligation for non-resident investors to obtain a Spanish Tax Identification Number (“TIN”) when investing in securities

Modification of information duties of non-resident investors

Royal Legislative Decree 2/2008, dated

21 April, which sets forth measures to boost economic activity, extended the

scope of the exemption of the Non-Resident Income Tax (“NRIT”) Law for Government Debt and other financial instruments to all non-resident investors regardless of their country of residence (including investors which are resident

in jurisdictions considered tax havens for tax purposes)

On the other hand, Law 4/2008, dated

23 December, which abolishes Net Wealth Tax, eliminated the obligation of providing information on income derived from Government and private Debt issued in accordance with Law 13/1985, dated 25 May, on investment ratios, equity and information duties of financial intermediaries (hereinafter,

“Qualified Corporate Debt”) obtained by non-resident investors without a permanent establishment in Spain However, until the recently approved

RD 1145/2011, no Regulations developing amendments introduced by Law 4/2008 were approved In this regard, in accordance with the tax rulings issued by the General Directorate of Taxation (“Dirección General de Tributos”), dated 20 January

2009, information duties relating to the identity of beneficial owners as laid down in RD 1285/1991, dated 2 August, and article 44 of RD 1065/2007

remained applicable in order to apply the NRIT exemption to income derived from Government Debt and Qualified Corporate Debt obtained by non-resident investors acting without a permanent establishment in Spain As a result, until the recently approved RD 1145/2011 the onerous information obligations applicable in respect of non-resident investors that existed prior to the enactment of Law 4/2008 were maintained

Fund News – September 2011

6

Tax regime applicable as of 31 July

2011

RD 1145/2011 has developed the

amendments introduced by Royal

Legislative Decree 2/2008 and Law

4/2008, establishing and simplifying the

procedure for paying Government and

Qualified Corporate Debt In this sense,

Article 44 of RD 1065/2006 has been

amended, unifying procedures for

Government and Qualified Corporate

Debt

The new procedure established by

RD 1145/2011 can be summarized

as follows:

 It is no longer obligatory to

individually identify the

beneficiaries of interest deriving

from debt securities (both

Government and Qualified

Corporate Debt)

 The current individual identification

procedure is replaced with a

certificate issued by:

(i) In the case of Government

Debt securities: Spanish

management entities and

securities clearing and

settlement entities resident

outside of Spain which have

signed an agreement with a

Spanish securities clearing and

settlement entity

(ii) In the case of Qualified

Corporate Debt initially

registered with a Spanish

clearing and settlement

entity (Iberclear): Participant

entities in Iberclear or

non-Spanish securities clearing and

settlement entities which have

signed an agreement with

Iberclear, or

(iii) In the case of Qualified

Corporate Debt initially

registered with a foreign

clearing and settlement entity (e.g Euroclear, Clearstream, DTC): The

paying agent designated by the issuer

 The certificate, which must follow the official form attached to RD 1145/2011, exclusively includes (i) the securities identification; (ii) the total amount of the return derived from the relevant securities; (iii) the amount of the return corresponding

to individuals subject to the Spanish Personal Income Tax (PIT), and (iv) the total amount of the return that may be paid free of withholding tax in Spain (i.e the part of the total amount of the return of the relevant securities paid to investors who are not Spanish PIT taxpayers)

 In case of Qualified Corporate

Debt initially registered with a

foreign clearing and settlement entity (e.g Euroclear, Clearstream, DTC), the statement issued by the paying agent must only include (i) the securities identification; and (ii) the total amount of the return corresponding to each foreign clearing and settlement entity (i.e

there is no requirement to include the amount attributable to Spanish PIT taxpayers)

 The referred certificate does not replace other general information duties set forth in the Spanish Tax Law in connection with debt issuers or depositaries with regard

to PIT and CIT taxpayers or NRIT taxpayers with a permanent establishment in Spain investing in Government or Corporate Debt

Payment procedure applicable as of

31 July 2011

RD 1145/2011 establishes a double payment procedure:

 The above referred certificate must

be filed on the business day prior to the date of payment of interest This certificate can be filed electronically Once this information is provided, interest can be paid gross

 In case the return is not filed within this deadline, the issuer or the paying agent will carry out the relevant withholding (currently at a19% rate), and pay the net amount

Nevertheless, the issuer or paying agent will refund the amounts initially withheld providing the certificate is filed (i) within the following 30 days as of the payment date of interest derived from Government Debt securities or (ii) as of the tenth day of the month following that in which the interest resulting from the Qualified Corporate Debt becomes due

Amendments affecting CIT taxpayers and non-residents with a permanent establishment in Spain

RD 1145/2011 has also simplified the obligations for CIT and NRIT taxpayers with a permanent establishment in Spain investing in Government and Qualified Corporate Debt

The income obtained by these taxpayers will be subject to the same procedure explained for non-resident investors, thus simplifying their information duties

Fund News – September 2011

7

Amendments regarding the

obligation for non-resident investors

to obtain a Spanish Tax Identification

Number when investing in securities

RD 1145/2011 has also modified RD

1065/2007, introducing certain

clarifications in connection with the

obligation for non-resident investors

without a permanent establishment in

Spain to obtain a TIN when investing in

Spanish securities

In this sense, it is not necessary to

obtain a TIN in the following cases:

 When acquiring or purchasing

securities represented by stocks or

book entries located in Spain, or

acquiring financial assets with an

implicit return, provided such

transactions are carried out by

means of a securities account held

by a non-resident without a

permanent establishment in Spain

 In case of the subscription,

acquisition, reimbursement or

transfer of shares in Spanish

collective investment institutions or

collective investment schemes

commercialized in Spain under Law

35/2003, of 4 November, provided

these transactions are carried out

by means of a securities account

held by a non-resident without a

permanent establishment in Spain

It should be noted that RD 1145/2011

also eliminates the obligation for non

residents operating with assets or

liabilities account or shares account to

obtain a TIN As a result, the number of

cases in which a TIN is not required has

been increased (e.g loans or credits)

In order to apply this exemption from

the obligation to obtain a TIN, the

non-resident must evidence its status by

providing: (i) a tax residence certificate

issued by the relevant tax authorities; or

(ii) a tax residence declaration using the Form approved by the Spanish

Authorities

Enactment

RD 1145/2011 came into force on the day following its publication in the Official State Gazette (31st July 2011), and is applicable to all interest payments, redemptions or reimbursements of securities issued at discount or segregated, made as from 31st July As a result, it will be applicable not only to debt issues made from this date onwards, but also to those still “alive” on the referred date

Observations

RD 1145/2011 changes the information duties of non-resident investors, which also applies to CIT and PIT taxpayers

The main amendments introduced may

be summarized as follows:

 Elimination of the specific obligation for the issuer to identify non-resident investors acquiring Government Debt securities or Qualified Corporate Debt This obligation is also eliminated for CIT taxpayers as well as for NRIT taxpayers operating through a permanent establishment in Spain

 Issuers will also not be obliged to identify PIT taxpayers investing in Spanish Government Debt securities or Qualified Corporate Debt In this sense, it will only be necessary to identify the total amount of the income corresponding to such PIT taxpayers Nevertheless, in principle, this does not involve a change in the general withholding tax regime applicable to Spanish tax resident individuals nor the general identification and

information duties regarding financial institutions taking part in these transactions

Furthermore, in the case of Qualified Corporate Debt initially registered with a foreign clearing and settlement entity (e.g

Euroclear, Clearstream, DTC), it will only be necessary to identify the total amount of the income corresponding to each foreign entity that manages the clearing and settlement of securities (that

is, it shall not be necessary to include the information regarding the income obtained by Spanish PIT taxpayers)

 A single information procedure is established together with a simple and flexible payment system which reduces the administrative

requirements for issuers, depositaries and investors

 Unification of the different procedures and systems, creating a single procedure and payment system for investments in both Government Debt securities as well as Qualified Corporate Debt and applicable to both non-resident investors and CIT taxpayers

 No reference is made in RD 1145/2011 in connection with a

“beneficial owner” test in case of certain pass-through non-resident institutional investors This issue may still be relevant and outstanding in those cases in which, under the new Regulation, the total amount of the income obtained by Spanish PIT taxpayers must be identified

 Non-resident investors operating in Spain without a permanent establishment will not be obliged to obtain a TIN when investing in

Fund News – September 2011

8

 Spanish securities or in Spanish

Collective Investment Institutions,

provided these transactions are

made by means of a securities

account and the non-resident

investor provides evidence of its

non-resident status The procedure

for certifying the non-resident

status is pending approval

Apparently, this new Regulation

extends the exemption for

obtaining a TIN to other loan and

credit transactions

 RD 1145/2011 came into force on

31st July 2011 As a result, the

amended information requirements

and TIN obligations are fully

applicable not only to debt issues

made from this date onwards, but

also to those still “alive” on the

referred date

Switzerland

Switzerland and the UK initial tax agreement

On 24 August 2011, British and Swiss negotiators initialled a tax agreement in order to resolve outstanding tax issues between the two countries This tax agreement is largely the same as the agreement between Switzerland and Germany signed by the Finance Ministers of both countries in September

Under this agreement, persons resident

in the United Kingdom can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts For the future, investment income and capital gains of British investors in Switzerland will be subject to a final withholding tax, and the proceeds of this will be transferred

to the British authorities by Switzerland

The next step of the negotiations is the signing of the agreement by both countries’ governments and its approval

by the parliaments of both countries

This agreement should enter into force

at the start of 2013

More information can be found on the Federal Authorities of the Swiss Confederation website (www.admin.ch)

or on the Federal Department of Finance website (www.efd.admin.ch)

UK

Authorised Investment Funds amending tax regulations published

The final version of The Authorised Investment Funds (Tax) (Amendment No.2) Regulations 2011 have been published and come into force on 1 October 2011 The amendments align the treatment of UK funds with recent changes made to the offshore funds regulations, with regards to the genuine diversity of ownership condition and index tracking funds

Genuine Diversity of Ownership condition

The genuine diversity of ownership (“GDO”) condition is a requirement of a number of tax-beneficial regimes established in recent years, including the tax regimes for: Qualified Investor Schemes; Property AIFs; Tax Elected Funds; and to provide certainty that diversely owned authorised funds are not taxable on trading profits

The GDO test previously only applied to

a single fund or feeder fund into a property AIF, but in the case where funds are invested in other funds, the new regulations allow a ‘look-through’

to the underlying fund to substantiate the test

Index-tracking funds

Provided the requirements of Regulation 14ZD are met for a UK authorised index tracking fund, offshore income gains under regulation 17 of the offshore funds regulations do not arise

if the UK fund invests non-reporting offshore funds

Fund News – September 2011

9

Regulation 14ZD includes a requirement

that the UK fund replicates the capital

and income returns of the index ‘as

closely as practicable’ This should

reduce the administrative burden for

index-tracking authorised funds

The regulations are contained in

Statutory Instrument 2011/2192 (4

pages) which is available via this web

link:

http://www.legislation.gov.uk/uksi/2011/

2192/made

HM Treasury confirms it will

introduce a protected cell regime for

OEICs by November 2011

In September the Government

confirmed that it will introduce a

protected cell regime (“PCR”) for UK

open ended investment companies

(“OEICs”) by November 2011 The

announcement was part of Mark

Hoban, Financial Secretary to the

Treasury’s wider “New Regulation 2”

announcements The introduction of a

PCR for OEICs is part of the measures

to facilitate the competitiveness of UK asset management and to protect investors in umbrella OEICs from the risk of contagion should a sub-fund in an umbrella OEIC collapse

The introduction of a PCR for UK OEICs has been under consideration for several years and, with the advent of UCITS IV, is an important feature for the

UK to include and reflects that sub-fund asset ring-fencing already exists in other jurisdictions The availability of a PCR may influence the location of the master funds under UCITS IV

The impact assessment has not yet been published However, one area of concern is that prior discussion papers have envisaged that the requirements a PCR will be imposed on both new and existing OEICs If the PCR is

compulsory of all OEICs, the period that will be permitted for existing OEICs to adopt the PCR will need to allow sufficient time in which the OEIC’s supplier contractual arrangements can

be revised where these would be impacted by the changes arising from the PCR

The statement (6 pages) is available via the web link below includes the PCR proposal as the second bullet on page one with a summary on the final page:

http://www.hm-treasury.gov.uk/d/hmt_new_regulation_j undec11.pdf

Fund News – September 2011

10

Contact us

Dee Ruddy

Senior Manager

T: + 352 22 5151 7369

E:

Audit

dee.ruddy@kpmg.lu

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

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavour to provide accurate and

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

© 2011 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity All rights reserved

Evolving Investment Management Regulation - Meeting the challengehere

FATCA and the funds industry:

Defining the path here