ALFI Seminar on Taxes for Investment Funds

The subscription tax is a key element for Luxembourg investment funds and plays an important role in the competitiveness of the Luxembourg financial centre. The Luxembourg law of 21 July 2023 amended the fund laws with a view to modernise some of their provisions on subscription tax aspects, to encourage the emergence and development of the new EU regimes for European Long Term Investment Funds (ELTIFs) and the pan-European Personal Pension Product (PEPP) and bring some provisions into line with more up-to-date and flexible ones. Two leading respresentatives of the fund industry will examine outstanding issues, challenges and potential future developments from both a fiscal and operational perspective.

Investment funds often face obstacles which constitutes actual barriers to cross-border investment when trying to access reduced withholding tax rates or exemptions in source countries. The proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER), released on 19 June 2023, has created expectations for EU harmonised rules that simplify the process for obtaining relief at source or refund of excess withholding tax borne by investors. The panel will discuss the legal and implementation challenges raised by the FASTER Directive to effectively enable end investors access withholding tax relief and/or quick refund systems and eliminate tax barriers to cross-border investment.

The GloBE Pillar 2 model rules developed by the OECD and reflected in the recently adopted EU directive on minimum taxation will come into force on 1 January 2024. The OECD has done extensive and extremely detailed work on this topic, which has also taken into account the particularities of investment funds. As these rules are entirely new and rather complex, the speakers will guide us through the specific key points that investment fund structures will need to take into account in order to comply with these new rules, and in particular the treatment of investment funds as Excluded Entities, the consolidation provisions applicable to fund structures and how structure analysis should be approached.

The investment fund and asset management industry is highly regulated. UCITS, AIFs and their subsidiaries, as well as investment managers operate in accordance with EU directives and regulations. They are tax-neutral entities that generally operate on a pan-European basis and are used for pure investment purposes. They provide an essential platform for EU and non-EU investors to channel capital in particular to EU entities in a regulated manner. In this context, economic substance derives from EU Directives and the rules set by the competent national authorities that shape their operational set-up. In the context of tax rules, however, the perception may be somewhat different. The panel will present and discuss the concept of "substance" in investment fund structures and in the asset management business model(s) seen from a tax perspective including, inter alia, the potential impacts of the draft "Unshell" Directive, the influence of case law and of the increasing use of new ways of working.