Fill the glass to the brim II: have we broken through?

Transcription

1 Fill the glass to the brim II: have we broken through? An update on the tax implications of UCITS IV. March 2012 kpmg.com KPMG International

2 Contents

3 Foreword 3 Executive summary 4 Transposition of the Directive 6 Key tax issues 8 Cross-border merger of two or more EU-resident funds 14 Management company passport 18 Master-feeder structures 21 Indirect tax 24 Country reports 26

4 2 Fill the glass to the brim II: have we broken through? Georges Bock Chairman european Investment Management & Funds Tax Practice KPMG in luxembourg

5 Fill the glass to the brim II: have we broken through? 3 Foreword In 2010, KPMG International produced the report Fill the glass to the brim where we took a close look at the implications of the new UCITS IV Directive. At the time, KPMG identified the critical tax issues and examples of discrimination and barriers to successful implementation. In this new report, Fill the glass to the brim II: have we broken through? we are following up to see whether UCITS IV has actually been implemented in the eu member states, and if any progress has been made on the tax hurdles identified in In a nutshell, since 2010, as far as taxation is concerned, only modest progress has been achieved. Some countries have solved tax issues with the Single Management Passport component of the Directive to make sure they can offer workable solutions for their locations. But on the critical issue of tax neutrality for investors on fund reorganizations, progress has stalled. Market participants are clearly saying that they are therefore not going to consider taking advantage of the cross-border merger possibilities as the tax considerations are much too disruptive. To that end, we invite policy makers to take up the challenge of making sure UCITS IV can deliver the efficiencies that it promised to investors. optimists might see UCITS IV as a glass half full and pessimists as a glass half empty. Through this report our goal is to help fill the glass to the brim and break through the challenges that exist in order to eliminate uncertainties from this market. We invite you to read on and learn more.

6 4 Fill the glass to the brim II: have we broken through? Executive summary Fill the glass to the brim II: have we broken through? The need for certainty UCITS funds are intended to be marketed to retail investors that is, the general public. At the best of times, removing uncertainties from this market is important to give people the confidence they need to invest. In today s difficult economic environment, eliminating uncertainty is even more important. retail investors demand and deserve legal certainty, and it is up to legislators to lay a sound foundation for making good investment decisions. There is much in the UCITS IV directive that will help achieve this goal. KPMG previously identified some important tax issues that should be addressed if UCITS IV is to serve as the platform for a truly pan-european product. In numerous examples, our research found varying degrees of discriminatory tax treatment of cross-border fund operations. even though, to date, progress has been made, many of these cases of discrimination and adverse tax consequences remain. Changes in possible tax consequence: 2010 versus Cross-border Merger Scenario (out bound): Cross-border Merger Scenario (out bound): Management Company Scenario: Fund Level Management Company Scenario: Management Company Scenario: ManCo level Master Feeder Scenario: Ongoing taxation between Master and Feeder: /WHT on dividends Master Feeder Scenario: Ongoing taxation between Master and Feeder: / Redemption of units Master Feeder Scenario: Transformation of Fund into Feeder: Master Feeder Scenario: Transformation of Fund into Feeder: A green light signals business as usual. Industry participants need not take any action as a consequence of UCITS IV, as per the chosen scenarios. The issues raised do not specifically relate to the directive and would normally be considered in the course of making a business decision. An amber light signals that industry participants should monitor the situation closely due to the possible adverse tax consequences in any one of the scenarios. A red light highlights an area in which amendments to local legislation may be necessary before the industry players can be sure that tax neutrality can be achieved. A red light also indicates that material issues should be addressed to protect investors from an unfair tax liability or discriminatory tax treatment. Source: KPMG International, March 2012

7 Fill the glass to the brim II: have we broken through? 5 We continue to believe that most tax issues arising from the UCITS IV framework should be solved at the EU level. Current status where do we stand since our previous publication? Certain national tax rules have been amended to make UCITS IV more workable. In efforts to remain attractive as locations for managing investment funds, countries like Italy, Ireland, luxembourg and Sweden have introduced new tax rules that should allow funds to carry out cross-border operations without adverse tax consequences. In our first edition of Fill the glass to the brim, we used a traffic light system to illustrate our findings. The chart opposite shows how these lights have evolved. From the chart, we see that overall the number of red lights (which signals situations in which unexpected tax consequences for investors may arise) have decreased. new amber lights have emerged which signals that the situation should be closely monitored due to the possible adverse tax consequences of any one of the scenarios. Then we see an increase, though moderate, in the number of green lights (indicating that taxation should not be an issue). In particular, the taxation of investors upon a cross-border merger remains a critical issue as none of the analyzed countries provide for pure tax neutrality. With regard to master-feeder structures, almost no progress has been made, with the exception of slight movements in ongoing taxation. We do see, however, slight improvements with respect to the single management company scenario as some countries have clarified the tax consequences at fund and investor level. We continue to believe that most tax issues arising from the UCITS IV framework should be solved on an eu level. However, we note recommendations we have made have not been taken into consideration and that the eu Commission has taken little public initiative. Given the current economic difficulties, solving the tax implications of UCITS IV does not appear to be high on the political agenda. However removing tax hurdles appears absolutely necessary to deliver the promised UCITS IV efficiencies to investors. Our recommendations Key enabling tax changes we recommend include: Fund mergers: A separate EU Directive, based on the ideas in the EU Merger Directive, should be issued to cover taxation issues for cross-border fund operations at the levels of both the fund and the investor. Management company passport: New EU-wide rules should be designed for the taxation of funds and their management companies. Alternatively, to avoid introducing new complexities and preserve the status quo, national tax rules should exempt UCITS undertakings from the Effective Seat of Management doctrine. In doing so, the funds could remain taxable in their country of establishment, even if the fund is managed by a non-resident EU-based management company. Value Added Tax (VAT): Member States should take a more uniform approach on the question of when they consider a fund to be a taxable person for VAT purposes. To avoid distortions within the EU, we recommend Member States adopt a more uniform interpretation of what activities constitute VAT-exempt fund management.

8 6 Fill the glass to the brim II: have we broken through? UCITS IV Transposition of the Directive To create a harmonized marketing in the eu, Member states should have transposed the UCITS IV Directive into national law by 1 July 2011 by amending their laws to bring them in line with the various UCITS IV provisions. In keeping with its long-standing tradition of transposing UCITS-related directives rather quickly, on 17 December 2010, luxembourg was the first eu Member State to enact the UCITS IV Directive and its implementation measures into national law. other countries followed, including the netherlands, Denmark, German, Sweden and the United Kingdom. Yet, even though the deadline has passed, some Member States have not fulfilled their obligations. These include Belgium, Cyprus, Greece and Portugal. As foreseen by the Directive, late transposition may entail practical issues where cross-border operations involve a Member State that has not transposed the UCITS IV Directive. This is why the european Securities and Markets Authority (esma) introduced practical arrangements to resolve these issues. In essence, the esma takes the following views: Management companies established in a transposing member state should be able to create a fund via the management company passport in a Member State where the UCITS IV Directive has not been transposed. Cross-border mergers involving a UCITS established in a Member State that has not transposed the Directive are not possible. Master-feeder structures should not be permitted if one of the two Member States in which the UCITS are established has not transposed the Directive. As foreseen by the Directive, late transposition may entail practical issues where cross-border operations involve a Member State that has not transposed the UCITS IV Directive.

9 Fill the glass to the brim II: have we broken through? 7 The following table presents an overview the status of eu Member States in transposing the UCITS IV Directive. Country Directive 2009/65/EC Implementing Directives 2010/43/EU and 2010/44/EU Austria YES YES Belgium NO NO Bulgaria YES NO Cyprus NO NO Czech Republic YES YES Denmark YES YES Estonia YES YES Finland YES YES France YES NO Germany YES YES Greece NO NO Hungary YES YES Ireland YES YES Italy NO NO Latvia NO NO Lithuania NO NO Luxembourg YES YES Malta YES YES The Netherlands YES YES Poland NO NO Portugal NO NO Romania NO NO Slovakia YES YES Slovenia YES NO Spain YES NO Sweden YES YES United Kingdom YES YES Source: KPMG International, March 2012

10 8 Fill the glass to the brim II: have we broken through? UCITS IV Key tax issues In our first edition of Fill the glass to the brim, we focused on the main tax constraints associated with the Directive s three crucial areas of harmonization related to cross-border fund structuring. In this section, we update our findings on these three areas, which are: 1. cross-border merger of two or more eu-domiciled funds 2. Management company passport and cross-border management of fund structures 3. establishment of cross-border master-feeder structures. We use a traffic light system to illustrate our findings. A green light signals business as usual. Industry participants do not need to take any action as a consequence of UCITS IV, as per the chosen scenarios. The issues raised do not specifically relate to the Directive and would normally be considered during the course of making a business decision. An amber light signals that industry participants should monitor the situation closely due to the possible adverse tax consequences in any one of the scenarios. A red light highlights an area in which amendments to local legislation may be necessary before the industry players can be sure that tax neutrality is achievable. A red light also indicates that material issues should be addressed to protect investors from an unfair tax liability or discriminatory tax treatment. The traffic light system focuses on the main countries where eu funds are domiciled and managed. In the case of relocating the management company out of the local jurisdiction, we focus on eleven main locations of domicile within the eu. The system is useful to view the various issues that arise across the different jurisdictions. A brief country synopsis is included to help explain each scenario. Changes As mentioned, certain Member States introduced new income tax measures with the aim to increase the attractiveness of their jurisdictions with regard to crossborder fund administration, distribution and management. In addition, the scope of the country reports has been extended by adding Malta and the netherlands. Word of caution This study does not aim to indicate which jurisdiction is the most favorable UCITS IV location. This determination will vary with each case. A red light should not be interpreted as a no go for a country. The aim is simply to outline certain considerations for the industry before UCITS IV can fully meet its objectives. A further aim is to encourage thoughts on the development and creation of an optimal eu tax framework to allow the european fund industry to compete globally.

11 Fill the glass to the brim II: have we broken through? 9 A red light should not be interpreted as a no go for a country. The aim is simply to outline certain considerations for the industry before UCITS IV can fully meet its objectives.

12 10 Fill the glass to the brim II: have we broken through? 1. Cross-border merger scenario (outbound) * Status changed compared to 2010 study The Netherlands Ireland UK Finland Sweden Germany Luxembourg France Italy Spain Malta ** The Netherlands Ireland UK Finland Sweden Germany Luxembourg France Italy Spain Malta * To the extent that a fund holds UK equities, UK stamp duty may apply on a merger unless clearance requirements are satisfied. ** Tax resident in the respective country. Source: KPMG International, March 2012

13 Fill the glass to the brim II: have we broken through? Management company scenario * Status changed compared to 2010 study The Netherlands Ireland UK Finland Sweden Germany Luxembourg France Italy Spain Malta Management company level 1 The Netherlands The Netherlands Ireland UK Ireland UK Finland Sweden Germany Luxembourg Spain France Malta Germany Spain France Malta Italy Luxembourg * Tax resident in the respective country

14 12 Fill the glass to the brim II: have we broken through? 3.1. Master feeder scenario: transformation of fund into feeder 2 The Netherlands Ireland UK** Finland Sweden Germany Luxembourg France Italy Spain Malta * The Netherlands Ireland UK Finland Sweden Germany Luxembourg France Italy Spain Malta * Tax resident in the respective country ** Under new proposed tax legislation, Stamp Duty Reserve Tax should not apply to a UK feeder fund that invests in a foreign master where the underlying investments are foreign equities/brands.

15 Fill the glass to the brim II: have we broken through? Master feeder scenario: ongoing taxation between master and feeder 3 : WHT on dividends Status changed compared to 2010 study The Netherlands Ireland UK Finland Sweden 4 Germany Luxembourg France Italy Spain Malta : redemption of units The Netherlands Ireland UK Finland Sweden Germany Luxembourg France Italy Spain 5 Malta Source: KPMG International, March Outbound without keeping a branch. 2. Transformation of a local fund into a local feeder of a foreign master. 3. Transformation of a local fund into a master having a foreign feeder. 4. Withholding tax on distributions to certain foreign investment funds is abolished as from 1 January 2012, see further under the country report pages as to which funds. 5. Uncertainty on application of exemption exists where non-treaty FCP holds participations in Spanish master fund of 25 percent or more.

16 14 Fill the glass to the brim II: have we broken through? Cross-border merger of two or more EUresident funds Country A Country B Country C UCITS UCITS UCITS Management company Management company Management company Depositary Regulator Auditor Depositary Regulator Auditor Depositary Regulator Auditor Source: KPMG International, March 2012 In 2010, KPMG s analysis recommended introducing a separate eu directive to ensure and promote the further development of the eu fund market. This Directive should be an extension of the current eu Merger Directive for commercial companies and should cover taxation issues for domestic, foreign and cross-border fund reorganizations (Table 1). Different tax treatment Under UCITS IV, all eu countries are obliged to allow crossborder mergers from a legal and regulatory point of view. The tax treatment of fund mergers varies from country to country. While some countries allow tax neutrality for domestic mergers, most impose tax on foreign and cross-border fund reorganizations, at the level of the fund (Table 2) and/or at the level of the investor (Table 3).

17 Fill the glass to the brim II: have we broken through? 15 1: Possible merger situations Before UCITS IV (1) Domestic merger (2) Foreign merger (3) Cross-border merger (inbound) After UCITS IV (4) Cross-border merger (outbound) Investors in Country A Investors in Country A Investors in Country A Investors in Country A Fund in Country A Fund in Country A Fund in Country B Fund in Country B Fund in Country A Fund in Country B Fund in Country A Fund in Country B Table 2: Does taxation arise at fund level in the following cases? Country Domestic merger Cross-border merger (inbound) Cross-border merger (outbound) Finland NO YES YES YES Discriminatory? Tax neutral? France NO NO NO NO Germany NO NO NO NO Ireland NO NO NO NO Italy NO NO NO NO Luxembourg NO NO NO NO Malta NO NO NO NO The Netherlands NO NO NO NO Spain NO NO NO NO Sweden NO NO NO NO UK NO NO NO NO = Generates no taxation = Generates taxation = Status changed compared to 2010 study Source: KPMG International, March 2012

18 16 Fill the glass to the brim II: have we broken through? Table 3: Does taxation arise at investor level in the following cases? Country Domestic merger Foreign merger Crossborder merger (inbound) Crossborder merger (outbound) Austria NO NO NO NO NO Belgium YES YES YES YES NO Cyprus NO NO NO NO NO Czech Republic NO YES YES YES YES Denmark YES/NO YES/NO YES/NO YES/NO NO Estonia NO NO NO NO NO Finland NO YES YES YES YES France NO NO NO NO NO Germany NO NO YES YES YES Greece NO NO YES YES YES Hungary YES YES YES YES NO Ireland NO NO YES YES YES Italy NO YES YES YES YES Luxembourg YES YES YES YES NO Malta NO NO NO NO NO The Netherlands NO NO NO NO NO Poland YES YES YES YES NO Portugal YES YES YES YES NO Romania YES YES YES YES NO Slovakia NO NO NO NO NO Spain NO YES YES YES YES Sweden NO NO NO NO NO United Kingdom NO NO NO NO NO Discriminatory Tax neutrality = Generates no taxation = Generates taxation = Status changed compared to 2010 study Source: KPMG International, March 2012

19 Fill the glass to the brim II: have we broken through? 17 on fund reorganization, tax discrimination could still arise in some cases based on the fund s residency. In Spain, for example, a domestic fund merger does not trigger tax on a reorganization; however, a foreign or cross-border merger of funds creates a taxable event in the hands of a Spanish resident investor. As pointed out in our first edition of Fill the glass to the brim, the situation becomes more complex when one considers the different legal forms of UCITS in different eu countries. The present directive distinguishes between three types of funds: 1. contractual funds 2. corporate funds 3. unit trusts. not all of these legal structures are available in all Member States (Appendix 1). In some countries, no taxable event arises when fund reorganizations are limited to domestic and foreign funds that have the same legal form. one of the main issues in a cross-border merger is the complexity arising from non-comparable legal fund structures. In addition, currently, most tax laws differentiate between domestic and foreign mergers and are silent when it comes to cross-border reorganizations. What actions are needed for UCITS IV to work? This situation clearly leaves promoters dealing with significant uncertainty and poses a serious obstacle to the realization of an efficient single market for funds within the eu, which is the bedrock of the UCITS IV directive s objectives. In moving toward a single european fund market, it will be important to provide further support in the form of a set of common rules on the taxation of cross-border fund operations. In the meantime, certain Member States have endeavored to reduce excess tax burden by changing their tax legislations or making commitments with regard to future administrative practice. Consider the following examples: According to the French tax authorities, in a crossborder merger situation, the benefit of the deferred taxation regime should be granted to mergers carried out between entities in accordance with UCITS IV for the operations realized in conformity with the regulations of the Member States. At the fund level, a cross-border merger should not entail tax consequences in ltaly because funds are now taxexempt. In this regard, Italy joined countries like Malta, Germany, Ireland, the netherlands and luxembourg in which funds are virtually tax exempt. Under new tax rules in Sweden, cross-border mergers between UCITS funds domiciled within the european economic Area (eea) will not trigger any Swedish exit taxation for the transferring funds. One of the main issues in a cross-border merger is the complexity arising from non-comparable legal fund structures.

20 18 Fill the glass to the brim II: have we broken through? Management Company Passport Country A Country B Country C UCITS UCITS UCITS Management Company Depositary Regulator Auditor Depositary Regulator Auditor Auditor Regulator Depositary Source: KPMG International, March 2012 Under UCITS IV, it is legally possible for a fund established in one eu jurisdiction to be managed by a management company located in a different eu jurisdiction. This can be achieved in several ways. For example, multiple management companies can be merged into one single management company, or the management company can be relocated from the fund s jurisdiction to another domicile.

21 Fill the glass to the brim II: have we broken through? 19 For example, the UK s Finance Act 2011 will treat corporate UCITS funds that are tax-resident in the State in which they are authorized as not being UK-resident for tax purposes. Single management company To achieve a single management company, no particular taxation issues should arise because management companies are generally set up as eu-resident corporations. The eu Merger Directive rules, as transposed into national law, should operate to render most of these operations largely tax-neutral. Cross-border management More complex taxation issues arise at the fund level for cross-border management companies. These issues hinge on whether the relocation of the fund s management company from one eu jurisdiction to another entails a change in tax jurisdiction at the fund level. Many eu countries define tax residency as the location where the business is effectively managed. The question arises as to whether the fund s residence is defined by its country of establishment or the place of establishment of its management company. In this regard, our study indicated that contractual funds managed by a foreign management company may become liable to tax in the country where the management company is established. For example, the United Kingdom s Finance Act 2011 will treat corporate UCITS funds that are taxresident in the State in which they are authorized as not being UK-resident for tax purposes. The measure will also apply to unit trusts and certain contractual funds but only for capital gains taxation purposes. New tax rules Certain member states have introduced rules and guidelines to eliminate the taxation risk associated with a single Management company passport, with the following results (among others). In Germany, a foreign contractual fund ( Sondervermögen, e.g. FCP*) managed by a German management company will be taxed like a German fund (i.e. tax-exempt), if the fund s country of origin accepts this right of taxation (and tax exemption) and does not refer back to Germany due to the German management company. In Ireland, the Finance Act 2010 provides further comfort that no negative Irish tax impact should arise for a non-irish UCITS with an Irish management company. Starting from 1 July 2011, investment funds are not considered liable to tax in Italy. In luxembourg, the non-attraction principle was confirmed and so no tax should be due in luxembourg for foreign funds remotely administered by a management company situated in luxembourg. new tax rules that came into force on 1 January 2012 entail that Swedish investment funds and comparable foreign investment funds with limited tax liability in Sweden will be exempt from Swedish income tax as of 1 January The netherlands have excluded UCITS undertakings from the effective Seat of Management doctrine. Remaining tax challenges Despite the efforts made by certain Member States, a broad range of taxation issues remain. Consider the following examples: no taxation rules currently exist for the relocation of a contractual fund or a unit trust from one eu jurisdiction to another and so some jurisdictions could consider the transfer to be a liquidation of the fund in their country. This may trigger taxation of unrealized capital gains. The jurisdictional separation of the management company and the fund could lead to double taxation or double tax exemptions at fund level. For example, a Spanish contractual fund that has a management company in luxembourg probably would not be subject to taxation in Spain. At the same time, the fund will not be subject to any taxation in luxembourg. But if a luxembourg fund is managed by a Spanish management company, both a subscription tax in luxembourg and a 1 percent Spanish tax on the fund income would be due. The relocation of the management company to a jurisdiction other than that of the fund could also entail taxation of the fund income in the management company s jurisdiction at current full rates. exemptions, partial exemptions or special low tax regimes are often restricted to domestic funds only. * FCP: Fond Commun de Placement

22 20 Fill the glass to the brim II: have we broken through? The separation of the management company and the fund could lead to withholding taxes on distributions from the fund to its investor in its country of establishment and/ or in the jurisdiction of the management company. An Irish or French contractual fund managed by a Spanish management company could be required to pay Spanish withholding tax on its distributions. Finally, the jurisdictional separation of the management company and the fund could alter the ability of the fund to access double taxation treaties. on the other hand, Spain may give access to its treaty network to foreign funds managed by a Spanish management company. A pragmatic approach might involve setting up a single management company that operates a branch in each fund location with enough substance to supervise the effective seat of management in the fund s country of establishment. Actually, the transfer of a management company out of France, Germany, luxembourg, Spain and United Kingdom could trigger taxation unless assets and liabilities remain assigned to a permanent establishment on these jurisdictions. However, due to recent eu Case law *, it should be possible to avoid taxation. The jurisdictional separation of the management company and the fund could lead to double taxation or double tax exemptions at fund level. The way forward We previously stated that it is of paramount importance to define new rules within the eu to determine the tax residence of funds and their management companies on a cross-border basis. So far, no progress has been made in this regard. Thus, the alternative approach of introducing national tax rules to exempt UCITS from the effective Seat of Management doctrine has crystallized as solution in some countries. The ultimate objective is to ensure that funds remain taxable in the country of supervision, even if they are being managed by a non-resident eu-based management company. A pragmatic approach might involve setting up a single management company that operates a branch in each fund location with enough substance to supervise the effective seat of management in the fund s country of establishment. * the National Grid Indus case

23 Fill the glass to the brim II: have we broken through? 21 Master-feeder structures Country A Country B Country C Feeder UCITS Feeder UCITS Master UCITS Management Company Management Company Management Company Depositary Auditor Regulator Depositary Auditor Regulator Depositary Auditor Regulator Source: KPMG International, March 2012 one objective of UCITS IV is to create an environment that allows for the pooling of assets into a master fund. The aim is to lower costs by developing economies of scale. The proposal allows for several feeder funds to invest in a single master fund, provided each of these feeders invest more than 85 percent of their assets in the master. Setting up a master-feeder structure with a local management company generally does not produce negative tax consequences. However, the same cannot be said on a cross-border basis. Since our first Fill the glass to the brim only limited progress has been made.

24 22 Fill the glass to the brim II: have we broken through? Another way of repatriating cash from the master to the feeder is by redeeming units of the master. Critical location issues UCITS IV provides for an extensive range of possibilities. It appears, however, that the pooling of assets in a master fund in order to streamline operations and gain economies of scale may be critical to the ultimate decision on the single management company s location. Ideally, introducing the master-feeder concept into the UCITS world implies transforming existing domestic UCITS into local feeder funds and transferring these assets into a newly created or existing master fund, located in the country of choice. restructuring of this kind inevitably raises tax considerations at the fund, investor and management company levels. The primary considerations are discussed below. Table 4: For a master-feeder structure, does withholding tax apply upon profit distribution? Taxation at fund level: are investment funds really paying no tax? Investment funds are generally not taxed. This is also true for domestic master-feeder relationships. When the master distributes to the feeder, no withholding tax is due. In a cross-border relationship, the situation might be different. Some local tax provisions have yet to integrate the concept of cross-border master-feeders. Countries like Ireland or luxembourg will not withhold taxes on such a distribution, while Germany or Spain might. The feeder funds could reclaim the withheld tax on the basis of the recent european Court of Justice (ecj) decision in Aberdeen (C-303/07), but the administrative burden and cash deferral disadvantage would still remain. Another way of repatriating cash from the master to the feeder is by redeeming units of the master. luxembourg used to have specific capital gains tax provisions on the sale of substantial holdings in domestic companies by non-resident taxpayers. Further to a change in luxembourg tax law, no tax should be due in luxembourg for gains derived by non-residents (e.g. foreign feeder funds) from the disposal of interests in domestic corporate funds (e.g. an incorporated master fund, or SICAV* ). Table 5: Is the levy of a withholding tax discriminatory? Country Finland France Germany Ireland Italy Luxembourg Malta The Netherlands Spain Tax neutrality Country Distribution from a company to a master fund Finland YES YES France YES YES Germany YES NO Ireland NO NO Italy YES NO Luxembourg NO NO Malta NO NO The Netherlands NO NO Spain 1 YES 1 YES 1 Distribution from a master fund to a feeder fund Sweden 2 2 UK Sweden 2 NO 2 NO 2 UK NO NO = No withholding tax = Withholding tax Source: KPMG International,March 2012 * SICAV: Société d Investissement à Capital Variable 1 In a cross-border situation, the withholding tax is not refundable. 2 Withholding tax on distributions to certain foreign investment funds is abolished as of 1 January 2012, see further under the country report pages as to which funds

25 Fill the glass to the brim II: have we broken through? 23 Discriminations: Two comparable situations are treated differently. Profit distribution to domestic and foreign funds should be treated the same. If a withholding tax is levied in a cross-border situation, whereas a pure domestic distribution is withholding tax-exempt, such situation would be considered as discriminatory. Domestic Country A Feeder Master NO WHT WHT Foreign Country B Feeder Tax consequences at investor level In today s world, the transformation of existing UCITS into feeder funds will be done at market value, and so gains not yet crystallized at the investor level could become taxable in some countries such as Germany. rollover provisions sometimes apply to funds restructurings under national law, but these rules do not always apply when the assets are transferred to a master fund domiciled in another Member State. In today s world, the transformation of existing UCITS into feeder funds will be done at market value, and so gains not yet crystallized at the investor level could become taxable in some countries such as Germany. Single management company: How to get the fee policy right? While a newly established master-feeder structure would be managed under the single management company passport concept, the situation could be different when converting an existing fund into a feeder. In the latter case, it seems unlikely to expect a single management company to manage the master fund in conjunction with the feeder funds. rather, we expect that the functions and duties of managing these funds would be divided among the management company responsible for the master fund and the various managing companies responsible for the feeder funds. UCITS IV foresees that the relationship between the feeder and master management company will need to be based on contractual arrangements. This process should give the fund industry the opportunity to clarify current practice and submit to an intensified transfer pricing review.

26 24 Fill the glass to the brim II: have we broken through? Indirect tax Differences between Member States in how they implement the European VAT Directive creates VAT distortions within the fund management sector. Other matters outside UCITS IV A key risk arising from UCITS IV is that a merger of funds may cause the transfer of assets to attract VAT in some instances. However, we expect that this risk could be mitigated through careful planning of the merger as a VAT-free transfer of a business as a going concern. Alternatively, we expect that a VAT exemption may apply in the majority of cases where the transfer is within the scope of VAT. Differences between Member States in how they implement the european VAT Directive creates VAT distortions within the fund management sector. These distortions include: Differences in the application of VAT exemption to fund management. There is clearly scope to address this distortion within the current negotiations on the rewrite of the european VAT Directive governing financial services.

27 Fill the glass to the brim II: have we broken through? 25 Differences in whether Member States consider a fund to be a taxable person. Providing fund management services across borders may affect whether the services are liable for tax in the manager s or fund s Member State. Members States could mitigate this distortion by taking a more uniform approach to when they consider a fund to be a taxable person. Differences between Member States in their interpretation of what activities constitute fund management. These VAT distortions will become more visible in light of the increases in volume of cross-border management services that will arise from UCITS IV.

28 26 Fill the glass to the brim II: have we broken through? Malta Spain Finland France Germany Country reports The following Country reports summarize the tax implications of UCITS IV by country. Under UCITS IV, numerous new business combinations are now theoretically possible. For most countries discussed in this report, we have analyzed the tax results under three scenarios the single management company, the cross-border merger and the master-feeder structure at the levels of the fund investor, the fund and the management company. For Finland, Italy and Sweden, however, the scope of our analysis is narrowed to focus on the tax consequences on the fund and investors level.

29 Fill the glass to the brim II: have we broken through? 27 Sweden The Netherlands United Kingdom Ireland Italy Luxembourg

30 28 Fill the glass to the brim II: have we broken through? Finland Antti Leppanen KPMG in Finland The absence of tax framework presents challenges in using UCITS IV as a platform for pan-european fund products. In Finland, funds are tax-exempt, but a number of tax issues and uncertainties still remain, especially at the investor level. Even if the preferred fund structure and business model are selected primarily based on business considerations, tax issues will undoubtedly have an important impact. Finnish domestic tax legislation should be amended to ensure that UCITS IV can be fully used to produce economies of scale, cost savings and improved efficiency in fund industry. I) Single management company The merger of management companies (inbound and outbound) and the conversion of a management company into a branch does not trigger any taxation at investor s level as long as the potential change in tax residency of the UCITS does not imply the disposal of the units. The transfer of a management company does not trigger any taxation at fund level. The same is true on the full or partial transfer of the management company s activities. II) Cross-border merger Domestic merger: At the fund level, a domestic merger should not trigger taxation as the funds are not subject to income tax in Finland. Cross-border merger: legally, Finnish funds cannot currently merge across borders. As the merger would not be regarded as a merger from legal point of view, Finnish transfer tax would be due on the transfer of Finnish shares. However, after the implementation of the directive (on 31 December 2011) also a cross-border merger should be regarded as a merger for transfer tax purposes and thus no Finnish transfer tax is due. A merger should not trigger corporate income taxation as the funds are not subject to income tax in Finland. Domestic merger: The merger of the funds does not trigger taxation at the investor level if it is carried out in accordance with Finnish Business Income Tax Act. These special provisions apply to a merger in which one or more Finnish companies are dissolved without liquidation and all of the assets and liabilities of the dissolved company are transferred to another Finnish company. The dissolved company s shareholders,

31 Fill the glass to the brim II: have we broken through? 29 who may be residents or non-residents, must receive shares in the receiving company as compensation in proportion to their shareholding. A small part of the compensation, limited to 10 percent of the nominal value of the shares received as compensation, may consist of a cash payment. The cash payment is taxable for the Finnish resident unit holders. Cross-border merger: Cross-border fund mergers have not yet been tested in Finnish tax law, and so Finnish funds cannot currently merge across borders. However, after the implementation of the directive on 31 December 2011 a cross-border merger of funds is legally possible. Currently, Finland has no tax legislation to guarantee that a cross-border merger could be carried out tax neutrally for the Finnish investor. According to the Finnish Courts, a merger of two SICAVs can be carried out tax neutrally from a Finnish investor s point of view. Thus, corporate and unit trust mergers could be expected to be tax neutral at the investor level if carried out in a way that corresponds with the merger described in Finnish Business Income Tax Act, but this result is uncertain. even more uncertain is whether a merger of contractual funds can be tax-neutral from a Finnish investor s point of view. III) Master-feeder Where the master fund is located in Finland and the feeder fund is located abroad, withholding tax applies when distributions are made from the domestic (Finnish) master fund to the foreign feeder fund. If the foreign feeder is eligible for tax treaty benefits, the tax treaty may prevent this treatment. Also, no withholding tax applies when the domestic master fund redeems its units. However, withholding tax might be levied when the master fund makes distributions of profit. In both domestic and cross-border situations, the conversion of a fund into a master or feeder fund should not trigger taxation at the investor level if the investor keeps the original units.

32 30 Fill the glass to the brim II: have we broken through? rance FYves Robert Fidal* in France While not addressed by UCITS IV, tax issues will play a crucial role both at the time of any restructuring and going forward. No matter where the management company, newly merged fund or post-conversion feeder fund is located, accounting principles and declaration obligations must be met to permit investors, resident in another state, to benefit from their relevant tax regime. The full tax exemption of French funds may ensure more tax neutrality in the framework of a European collective investment market. I) Single management company Management company level Under UCITS IV, it will be possible to transfer an existing management company to or from France. However, the transfer of an existing management company outside France could give rise to taxation unless the assets and liabilities remain assigned to a French permanent establishment (under certain conditions). The transfer of an existing management company into France would not trigger any taxation in France. However, any income and gains on business activities carried out in France will be subject to French corporate income tax at the standard rate (34.43 percent) from the time of the transfer. As a result, the transfer of activities could lead to taxation in the case of a partial or full transfer of functions outside France. However, should all the assets and liabilities (and consequently the functions) remain assigned to a French branch, the event is tax-neutral. The transfer of a management company to France should not constitute a taxable event in France. Any result of the French management company will be taxable in France from the time of the transfer. * Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.

33 Fill the glass to the brim II: have we broken through? 31 Outbound: The transfer of a French management company abroad should not raise any tax residence questions in France since funds are not considered as having a tax residency from a French tax standpoint. Inbound: The change of the domicile of a non-french contractual fund to France would be tax-neutral (from a French viewpoint) as long as funds domiciled in France continue not to be liable to tax in France. Change in location of the fund There is no requirement to disclose unrealized gains at the investor level as long as the potential change in the tax location of the UCITS fund s management company would not imply a disposal of the shares/units. ongoing taxation UPDATe: Dividend distributions from a French domiciled fund to a foreign investor will be exempt from withholding tax (except for the part of dividends corresponding to French source dividends subject to withholding tax at a rate of 25 percent or a reduced treaty rate if applicable). The levy of French withholding tax on dividend distributions to foreign investors could be considered discriminatory since French investors would not suffer French withholding tax. II) Merger From a French regulatory point of view, French funds (FCPs or SICAVs) can presently merge with other French funds (FCPs or SICAVs). In principle, no French tax issues should arise from such a merger insofar as funds are not liable for taxation in France. For the investor, the neutrality would depend on whether or not the merger is carried out under a transaction covered by the French tax neutrality regime, with the following exception. Domestic merger: In principle, mergers of funds are tax-neutral for the investor, provided certain conditions are met (e.g. regarding the level of the cash payment). UPDATe: Cross-border merger: According to the French tax authorities, the benefit of the deferred taxation regime should be granted to mergers carried out between entities in accordance with UCITS IV for the operations realized in conformity with the regulations of the member states. III) Master-feeder Master-feeder funds are also not liable for taxation in France. The conversion of a French fund into a feeder fund may benefit from the deferred taxation regime provided the feeder fund is wholly invested in units or shares of the master fund and ancillary cash. At the time of writing, the French tax authorities have not yet commented on the tax consequences of the conversion of a fund into a master fund, and so some uncertainty remains in this regard. ongoing taxation Withholding tax UPDATe: Dividend distributions from a French master fund to a feeder fund located in another Member State will be exempt from withholding tax (except for the part of dividends corresponding to French source dividend, where the fund splits its income into different coupons subject to 25 percent withholding tax, only on French source dividend coupons). Status changed compared to 2010 study

34 32 Fill the glass to the brim II: have we broken through? Germany Andreas Patzner KPMG in Germany The translation of the UCITS IV directive into German national law has met some expectations. For example, the right of taxation of a fund is now connected to the country applying its investment supervision s law, ending the discrimination of funds with management companies from a different country. On the other hand, discrimination against cross-border mergers and masterfeeder transformations remains. Together with the implementation of UCITS IV, changes were made to the German withholding tax system. So far, the UCITS IV implementation act has been used as a Trojan Horse to close fundamental loopholes in matters of fraudulent cum-/ex-trades. I) Single management company Management company level Under UCITS IV, it will be possible to transfer an existing management company to or from Germany. However, the transfer of an existing management company out of Germany could give rise to taxation unless the assets and liabilities remain assigned to a German permanent establishment. UPDATe: Inbound: A foreign contractual fund, ( Sondervermögen, e.g. FCP) managed by a German management company, will be taxed similar to a German fund (i.e., tax-exempt), if the country, from which the fund origins, accepts this right of taxation (and tax exemption) and does not refer back to Germany due to the German management company. For corporate funds, new regulations are still due. There are no immediate tax consequences for the investor in case of a cross-border management company. However, any additional tax burden crystallized at the fund level would be passed on to the investor (as cost).

35 Fill the glass to the brim II: have we broken through? 33 II) Merger There is no impact at the fund level as funds are taxexempt in Germany. UPDATe: German law allows for tax-free mergers only between funds that are subject to the same investment supervisions law. Consequently, all cross-border mergers are currently considered as taxable exchanges of fund units. III) Master-feeder UPDATe: Payments of a German (master) fund to a foreign (feeder) fund are subject to withholding tax to the extent they consist of German dividends. The transformation of a fund into a master would imply that the investor redeems all the units held in the original fund and receives new units in a feeder; this would be regarded as a taxable exchange of fund units. The transformation of a fund into a feeder would imply transferring the fund s assets to the master and so capital gains would be realized at the level of the transferring fund. Some of these capital gains would then pass to the investor on distribution/deemed distribution, and taxation would result. Currently, the acquisition of units of foreign feeder funds that comply with the German provisions on indirect risk diversification is tax-neutral for German investors, as they would be treated as regular investors in foreign funds. The redemption of fund units held by another fund does not affect the taxation at the fund level as funds are tax-exempt in Germany.

36 34 Fill the glass to the brim II: have we broken through? Ireland Seamus Hand KPMG in Ireland Ireland s investment fund industry has welcomed the introduction of UCITS IV. The continued expansion and success of the investment fund industry in Ireland following the introduction of UCITS IV and related developments is fully supported by local industry and government. The Irish government has already introduced tax amendments to remove barriers to taking advantage of UCITS IV in the country. As a result, investment funds established in Ireland are well placed to access benefits made available on introduction of UCITS IV. Further, the general tax environment makes Ireland an attractive location for investment managers providing cross-border management services within Europe. I) Single management company Management company level The transfer of all or part of the business of a management company out of Ireland could have tax implications as the transfer could be subject to capital gains tax and/or stamp duty depending on how it is implemented. Capital gains tax would apply based on the market value of any capital assets transferred (e.g. goodwill). Where the management company retains a branch in Ireland, reorganization relief may apply to avoid any capital gains tax charge. Alternatively, the transfer could be affected through a migration of tax residence, which, in certain circumstances, is not subject to capital gains tax. From a stamp duty perspective, an exemption for transfers between associated companies may be available. The transfer of all or part of the activities of a foreign management company into Ireland should not attract any Irish taxation on set-up. The company s future profits would typically be regarded as trading for Irish tax purposes and would be subject to tax at the rate of 12.5 percent. Where the management company retains a foreign branch, the profits of the branch would be taxable in Ireland, with a credit for foreign tax paid in the branch (typically resulting in no additional Irish tax). A non-irish fund that is managed by a management company in Ireland would typically not be subject to Irish tax. A specific investment manager exemption confirms that the activities of a regulated management company in Ireland would not create a permanent establishment for an unconnected non-irish fund. The only exception in this regard is where the fund is a trading fund and the activities of the manager constitute a trade being carried on in Ireland, which is not likely to be applicable to UCITS. UPDATE: The Finance Act 2010 provides further comfort that no negative Irish tax impact should arise for a non-irish UCITS with an Irish management company. This comfort was achieved by extending the investment manager exemption (see above) to specifically include situations where a non-irish UCITS is managed by an Irish management company.

37 Fill the glass to the brim II: have we broken through? 35 The transfer of the management company typically would not have any tax implications for investors unless the transfer resulted in a transfer of residence of an Irish fund outside of Ireland. even in such a situation, no significant Irish tax implications should arise for the investors. Irish investors would remain subject to an exit tax, which would be administered under self-assessment if the fund moved offshore. II) Cross-border merger There would normally be no Irish tax issues for the fund on a merger. The transfer of assets would be treated as a disposal for tax purposes but would not be subject to Irish tax at the fund level under the gross roll-up rules. To the extent any Irish equities are in the portfolio, there could be Irish stamp duty implications at a rate of one percent. Certain reliefs may be available depending on the circumstances. The disposal of shares in the fund by an investor as part of a merger (on liquidation) could be subject to tax for Irish investors (non-irish residents are exempt where declarations of non-irish tax residence are provided). reorganization relief is not available for a transfer of UCITS out of Ireland. The transfer of UCITS into Ireland as a part of a merger could have tax implications for the investors. reorganization relief is available to address this issue for a transfer of UCITS into Ireland. The ongoing tax treatment of investors following a transfer of UCITS into Ireland should not be significant as non-irish investors should be entitled to an exemption from exit tax (based on declarations) and Irish investors would continue to be subject to exit tax, albeit based on deduction by the fund as opposed to under self assessment for offshore funds. III) Master-feeder structure The Irish taxation regime for UCITS funds is determined based on their regulatory status and is not connected to the investment strategy. As a result, the Irish tax treatment for a master fund should be the same as that for a feeder fund where provided for under the UCITS directive. Therefore, under both scenarios, the fund should benefit from exemption under the gross roll-up regime. A foreign feeder fund should not typically be subject to Irish exit tax in respect of an investment in an Irish master fund (subject to providing a non-resident declaration). The transfer of assets by an Irish feeder fund to a foreign master should not have any tax implications for an Irish fund as it is exempt from tax. The acquisition of assets by an Irish master from a foreign feeder should not have any Irish tax implications (unless there are Irish equities). An Irish investor is subject to tax only on an exit event and so it should not be impacted where an Irish fund becomes a feeder as the investors position is not affected. The feeder should also not be taxable on distributions from the foreign master as it is essentially tax-exempt.

38 36 Fill the glass to the brim II: have we broken through? Italy Sabrina Navarra KPMG in Italy UCITS IV must be the turning point in harmonizing the tax treatment of mutual funds within Europe; otherwise the aim of the Directive to realize an efficient single market for funds within EU would be thwarted by the resulting adverse tax consequences of the cross-border transactions following implementation. With this in mind, the Italian government cannot waste this opportunity to overhaul the tax treatment of Italian mutual funds, as announced several times over the last few years. Reform is also strongly recommended by asset management industry players in order to eliminate any discrepancy in the tax treatment of foreign and domestic funds that are being penalized by the application of a 12.5 percent substitute tax on the accrued year-end result. I) Single management company There are no specific rules on the tax residency of investment funds in Italian legislation. The Italian rules governing the tax treatment of Italian collective investment funds apply only to those funds that are ruled by Italian law, irrespective of the place of effective management of the fund. UPDATE: As of 1 July 2011, investment funds are not considered liable to tax in Italy, since the 12.5 percent substitute tax provided for by the previous tax regime was abolished. In the future, if an Italian investment fund will be managed by a foreign management company, the fund should remain subject to the Italian tax rules. On the other hand, a foreign fund managed by an Italian management company should not be subject to the Italian tax rules. As highlighted above, a change in the residence of the management company should not affect the tax treatment of the funds. Subsequently, it should not imply any tax adverse consequence for the investors. II) Merger UPDATE: Because the Italian government amended the tax regime for investment funds as of 1 July 2011, note that, in connection with the abolition of the substitutive tax at the investment fund level the taxation has shifted to investors, with a 12.5 percent withholding tax rate on income from capital and a 12.5 percent substitutive tax on capital gains (both the rates have risen to 20 percent as of 1 January 2012). However, the withholding is not levied on income cashed by non-resident investors established in so-called white-list states (i.e. states or territories that have an adequate exchange-of-information system with Italy). Fund Level Current Italian tax rules do not cover mergers between investment funds (SICAVs and contractual funds). However, according to the tax authorities interpretations and guidelines issued by the Italian association of investment management companies, mergers between Italian funds (managed by the same Status changed compared to 2010 study

39 Fill the glass to the brim II: have we broken through? 37 management company) are tax-neutral for the fund and the investors if and to the extent that: the assets and liabilities of the merged fund are transferred to the merging fund without any interruption of the management by the fund manager the merger implies for the investors only an exchange of units in the merged fund against units in the merging fund. There are no guidelines regarding cross-border mergers between investment funds. UPDATE: There is no impact at the fund level as funds are now tax-exempt in Italy. There are no guidelines regarding cross-border mergers between investment funds. At the investor level, there is a potential risk of taxation of unrealized gains. III) Master-feeder structure The Italian taxation regime for UCITS funds is determined based on their regulatory status and is not connected to the investment strategy. As a result, the Italian tax treatment for a master fund should be the same as that for a feeder fund. UPDATE: Under both scenarios, corporate and contractual funds are not considered to be liable to tax in Italy. No Italian withholding tax should be levied on income derived from an Italian feeder investing in a EU master fund or on payments from Italian master funds to EU feeder funds. No taxation should arise in Italy at the investor level to the extent that the investor will keep units/shares of the same funds.

40 38 Fill the glass to the brim II: have we broken through? Luxembourg Claude Poncelet KPMG in Luxembourg Tax implications will play an important role in the success of UCITS IV. The fund industry will need to address these implications proactively in order to fully benefit from the cost savings, enhanced EU market access and other benefits of UCITS IV. In line with its longstanding tradition of transposing UCITS-related directives rather quickly, on 17 December 2010, Luxembourg was the first EU Member State to transpose the UCITS IV Directive as well as the UCITS IV implementing directives, regulations and CESR guidelines into national law. At the same time, the Luxembourg government introduced new income tax measures that should increase Luxembourg s attractiveness as a center for cross-border fund administration, distribution and management.

41 Fill the glass to the brim II: have we broken through? 39 I) Single management company Management company level The transfer of a management company abroad should not be subject to exit tax, provided that a branch continuing the activity is left in Luxembourg. A branch may qualify as a permanent establishment for tax purposes. In principle, the profits of a foreign permanent establishment are subject to tax in Luxembourg, with tax credit under domestic law. However, if Luxembourg has concluded a tax treaty with the country in which the permanent establishment is located and the treaty provides for the exemption method, the permanent establishment will be taxed in that country. Luxembourg has double tax treaties with most EU countries. The transfer (full or partial) of an existing management company (or its activities) of a UCITS from Luxembourg to another Member State (outbound situation) will trigger an exit tax on the hidden reserves and unrealized capital gains. The transactions set out above (i.e. full or partial transfer into Luxembourg, out of Luxembourg, etc.) may potentially lead to a negative tax impact where an existing UCITS management company has tax losses carried forward. The location of the management company in Luxembourg should not affect the residence of the fund. UPDATE: As of 1 January 2011, the non-attraction principle was confirmed. Thus, no tax should be due in Luxembourg on income and profits derived by foreign Undertakings for Collective Investment (UCIs) remotely administered by a management or advisory company situated in Luxembourg. No taxation of unrealized gains at investor level may arise as long as the potential change in tax residency of the UCITS fund would not imply the disposal of the shares/units. II) Merger At the level of the fund, an inbound or outbound merger should not trigger taxation (i.e. in relation to unrealized capital gains) as the funds are not subject to capital gains tax in Luxembourg. At the investor level, the merger should be considered to be a sale of shares followed by an acquisition of new shares, which may trigger taxation. III) Master-feeder No income taxes will be due as all forms of funds are not subject to income tax. In addition, feeder and master funds should only be subject to one level of subscription tax if they are both located in Luxembourg. In principle, where the master fund is located in Luxembourg, no withholding tax would arise on payments made by the master fund to the feeder fund. Where a Luxembourg feeder fund makes a crossborder investment in a master fund set up in another EU country, the Luxembourg feeder fund will be subject to a subscription tax. Before UCITS IV was transposed into national law, the redemption of fund units held by a foreign feeder in a Luxembourg master could lead to taxation in certain conditions. In particular, where double tax treaty protection was not available, if a non-resident feeder fund that had a participation of at least 10 percent in a Luxembourg incorporated master fund (SICAV only) realized a capital gain on the sale of its participation less than six months after its acquisition, the feeder fund would have been taxed in Luxembourg (so-called speculation gain). UPDATE: As of 1 January 2011, no tax is due in Luxembourg for gains derived by non-residents (e.g. foreign feeder funds) from the disposal of interests in domestic corporate UCIs (e.g. an incorporated master fund, or SICAV). Generally, no taxation should arise on transforming a Luxembourg fund into a feeder fund or a master fund as long as investors keep their initial units or shares. Status changed compared to 2010 study

42 40 Fill the glass to the brim II: have we broken through? Malta Juanita Brockdorff KPMG in Malta Malta s financial services industry has seen steady growth for a number of years and is now one of the EU s fastest growing fund domiciles. This growth is driven by a robust regulatory environment for funds of all types, an attractive tax regime for funds and advantageous tax treatment for highly qualified expatriate staff working in the industry. I) Single management company Management company level Under UCITS IV it is possible to transfer an existing management company to or from Malta. An outbound transfer on its own would not give rise to any additional Maltese taxation. Outbound: A Maltese fund managed by a foreign management company remains tax-resident in Malta due to its place of establishment in Malta. The fund s income will be tax-exempt in Malta and will bear no additional tax consequences from a Maltese tax point of view. Inbound: A foreign fund managed by a Maltese management company will not become tax resident in Malta because its place of effective management would be deemed to have shifted as a result of the movement of the management company. II) Merger No impact would arise at the fund level because the funds are tax-exempt in Malta. Maltese law allows for tax-free mergers between funds, whether they are located in the same jurisdiction or other Member States. Such mergers would not have any implications for the non-resident investors. No tax consequences for investors in the case of a cross-border transfer of the management.

43 Fill the glass to the brim II: have we broken through? 41 III) Master-feeder Withholding tax: A Maltese (master) fund does not have to withhold tax on payments to a foreign (feeder) fund derived from foreign dividends. The redemption of fund units held by another fund does not affect the taxation at the fund level as the income of funds is tax-exempt in Malta. The transformation of a fund into a master would imply that the investor redeems all the units held in the original fund and receives new units in a feeder; this would be regarded as an exempt exchange of units in the fund for the non-resident investors. The transformation of a fund into a feeder would imply transferring the fund s assets to the master and so capital gains would be realized at the level of the transferring fund. Such capital gains are tax-exempt.

44 42 Fill the glass to the brim II: have we broken through? The Netherlands Valentijn van Noorle Jansen KPMG in the Netherlands In the Netherlands, UCITS IV changes regarding master-feeder structures and Management company passport have made their way into tax law amendments. These amendments were designed by the Dutch government in cooperation with the fund industry a proven formula for success. However, it proved more difficult to create a fully flexible tax system for all different types of cross-border merger situations. We would welcome a tax paragraph in the UCITS Directive, especially for cross-border mergers. This represents a new challenge for UCITS VI Directive designers.

45 Fill the glass to the brim II: have we broken through? 43 I) Single management company Management company level The transfer of all or part of the business of a management company out of the Netherlands could have tax implications as it could trigger corporate income tax on capital gains (e.g. regarding goodwill). Should the management company retain a branch in the Netherlands, assets could remain behind and taxation could be avoided. Furthermore, the European Court of Justice recently ruled in the National Grid Indus case that this immediate exit taxation is in breach of EU legislation. Therefore, it should be possible to avoid taxation upon transfer. The transfer of all or part of the activities of a foreign management company into the Netherlands should not attract any Dutch taxation on set up. With the implementation of the UCITS IV Directive, a specific stipulation has been introduced confirming that the tax residence for a UCITS fund is located in its home Member State. Thus, a non-dutch fund that is managed by a management company in the Netherlands should not be subject to Dutch corporate income tax. The transfer of the management company should not have any Dutch tax implications for investors as the tax residence of the fund should not change. II) Merger Normally, no Dutch tax issues arise for funds on a merger as all favorable Dutch tax regimes for investment funds (tax transparent, exemption status, fiscal investment institution status) effectively do not lead to taxation. However, if the discontinuing Dutch fund has opted for the fiscal investment institution status, it needs to fulfill its dividend distribution obligation (subject to Dutch dividend withholding tax) prior to the merger. In domestic merger situations, this obligation can be advanced to the continuing fund. This fund must then fulfill the obligation within eight months. Further, the discontinuing fund may have opted for a different tax status than the continuing fund (e.g. where a fund with fiscal investment institution status mergers with a SICAV). This could lead to different tax consequences for the investor after the merger. III) Master-feeder All favorable Dutch tax regimes for investment funds (tax transparent, exemption status, fiscal investment institution status) are in principle available for UCITS funds and can be used as a master fund and/or feeder fund. In particular, all types of UCITS qualify under the shareholder requirements for the fiscal investment institution status, and so master funds could also acquire this status and possibly benefit from Dutch income tax treaties. In that situation, dividend withholding tax is due on profit distributions, but application of the remittance reduction (i.e. the possibility to offset withholding tax withheld on fund income against withholding tax payable on fund distributions) may ultimately lead to a tax-efficient structure. A foreign feeder fund should not be subject to Dutch corporate income tax with regard to an investment in a Dutch master fund. The Dutch government has proposed to further clarify this rule by amending the corporate income tax act (with effect from 1 January 2012). The transfer of assets by a Dutch feeder fund to a foreign master fund should have no Dutch tax implications. A Dutch master fund s acquisition of assets from a foreign feeder also should not have any Dutch tax implications. The transformation of a Dutch master fund into a feeder fund should not trigger any taxation at the investor level as long as investors keep their shares in the feeder fund. Investors should not be taxed on legal mergers in domestic or cross-border situations (excluding additional cash payments), assuming business reasons (other than tax avoidance) for the merger can be substantiated. However, Dutch legislation does not provide legal merger possibilities for contractual funds. In practice, the tax authorities apply the legal merger conditions to a restructuring with a contractual fund involved.

46 44 Fill the glass to the brim II: have we broken through? Spain Victor Mendoza KPMG in Spain UCITS IV may prompt a change in Spain s tax rules to eliminate uncertainty on the tax residence of non-spanish contractual funds that are managed remotely in Spain. Spain s quite simple system of taxing funds and the relatively easy access to treaty coverage for contractual and non-contractual funds helps make Spain an attractive jurisdiction for master funds. I) Single management company Management company level Under UCITS IV, it is possible to transfer an existing management company to or from Spain, but certain tax issues may result. The transfer of an existing management company out of Spain could give rise to a taxable event unless the assets and liabilities remain assigned to a permanent establishment. The transfer of an existing management company into Spain would subject its worldwide income to Spanish corporate income tax at a rate of 30 percent. The transfer of activities will have tax effects, where some or all functions are transferred out of Spain. Where all the assets and liabilities (and consequently the functions) remain assigned to a Spanish branch, tax neutrality could be achieved by applying the Mergers Directive. The transfer of a management company to Spain may not be considered tax neutral where the effective tax rate of the management company is lower in the transferor country of residence. The transfer of a management company could give rise to potential tax residence issues as long as the management company s tax residency is relevant in determining the fund s tax residency. A Spanish manager of a non-spanish UCITS can make the non- Spanish UCITS tax-resident in Spain. Corporate funds would be in a better position to remain tax-resident in their country of incorporation as they have their own asset management body, i.e. board of directors. Spanish tax resident funds are taxed on their worldwide income at a 1 percent tax rate. As a result, where a non Spanish contractual fund becomes tax-resident in Spain, it may not be tax-neutral as long as Spanish tax-resident funds are taxable at the 1 percent tax rate. No taxation of unrealized gains at investor level should arise as long as the potential change in the tax residency of the UCITS fund would not imply the disposal of the shares/units. Dividend distributions from the Spanish tax resident fund to a foreign investor will be subject to withholding tax at 21 percent (reduced by treaty where applicable). Redemption and transfers could be taxable in Spain in the case of non-eu investors who are not treaty-protected.

47 Fill the glass to the brim II: have we broken through? 45 II) Merger From a Spanish regulatory and commercial point of view, Spanish funds currently may be merged both with funds or sub-funds, provided the merged funds correspond to the same class (i.e. financial/non financial). The regulatory rules on domestic mergers of funds will not allow a merger of, for example, an equity fund (financial) with a real estate fund (nonfinancial). Normally, no Spanish tax issues arise for the fund, as long as the funds are taxed on a mark-tomarket basis. Thus, on a merger, there would be no unrealized capital gains or hidden reserves. At the investor level, a tax-neutral event would depend on whether or not the merger is carried out under a transaction covered by the Spanish tax neutrality regime with the following characteristics. Domestic merger: The merger of funds or sub-funds belonging to different funds is considered tax-neutral for the investor. However, mergers of sub-funds belonging to the same fund are not entitled to apply the regime to the extent that they do not have an independent character for tax purposes. Cross-border merger: In the case of a cross-border merger, it would need to be determined whether the merger is carried out between entities adopting a listed legal form as per the annex of the Merger Directive 90/434/EEC. Certain restructuring operations (e.g., contractual fund-contractual fund, corporate fund-contractual fund) might not achieve tax neutrality. This result could be considered discriminatory where the merger of Spanish funds is generally tax-neutral for the investor. III) Master-feeder Master-feeder funds are taxed under the same special tax regime applicable to other funds (i.e. at a 1 percent tax rate). Dividend distributions from the Spanish master fund to a feeder fund located in another Member State would be subject to 1 percent taxation on net basis. The standard 21 percent withholding tax will be applied at source, and the foreign feeder will have to claim a refund from the Spanish tax authorities by filing the relevant claim forms. Redemptions/ transfers are generally exempt from withholding tax in Spain. However, uncertainty exists on the application of the exemption in case of a non-treaty FCP holding participations in the Spanish master of 25 percent or more. No taxation will arise in Spain at the investor level to the extent that the investor will keep units/shares of the same fund. This is true for a local feeder with a foreign master and vice versa.

48 46 Fill the glass to the brim II: have we broken through? Sweden Ann Törner KPMG in Sweden Sweden plays an important role in the European fund market. As a consequence of the UCITS IV Directive, the Swedish government has attempted to make Swedish investment funds more competitive by adjusting the tax rules. UCITS IV was implemented into Swedish law on 1 August New tax rules on cross border mergers were approved and took force on the same date. Further, new tax rules on taxation of investment funds and fund unit holders have taken force as of 1 January In short, the new tax rules entail that investment funds are exempt from Swedish income tax, that most fund unit holders instead are subject to tax on a deemed income, as well as on capital gains and dividend distributions, and that Swedish withholding tax on dividend payments to certain foreign investment funds is abolished. I) Single management company The tax residency of a Swedish management company should not influence the tax residency of a foreign fund. However, depending on the circumstances, the foreign fund might be seen as having a permanent establishment in Sweden. UPDATE: New tax rules that came into force on 1 January 2012 entail that Swedish investment funds and comparable foreign investment funds with limited tax liability in Sweden will be exempt from Swedish income tax as of 1 January Since Swedish investment funds are contractual, there is a small risk that a fund would be seen as tax-resident in the country of its effective management, i.e. where its foreign management company is tax resident. No disclosure of unrealized gains is required at the investor level. II) Merger A merger between Swedish funds does not entail any Swedish tax consequences for the funds. Before UCITS IV was transposed into national law and certain tax law amendments were made, no Swedish tax rules applied on cross-border fund mergers. Under general rules, there was a possible risk for tax consequences in case of a cross-border merger. UPDATE: Under new tax rules that came into effect on 1 August 2011, cross-border mergers between UCITS funds domiciled within the EEA will not trigger any Swedish exit taxation for the transferring funds. A merger between Swedish funds does not entail any Swedish tax consequences for the investors. In the case of a merger between foreign EEA domiciled funds that are UCITS, no Swedish tax consequences arise for the investors, provided the merger is in line with the foreign country s legislation. Status changed compared to 2010 study

49 Fill the glass to the brim II: have we broken through? 47 Before UCITS IV was transposed into national law and certain tax law amendments were made, no Swedish tax rules applied on cross-border fund mergers. The tax rules covered mergers between Swedish funds only or between foreign EEA domiciled UCITS funds only. Potential taxation could arise on cross-border mergers since no rules existed. UPDATE: Under new tax rules that came into effect on 1 August 2011, cross border-mergers between UCITS funds domiciled within the EEA will not trigger taxation for the unit holders. However, any cash merger consideration will be taxed. Where the unit holders have limited tax liability in Sweden, such cash consideration will be regarded as dividend and may be taxed under the Swedish Withholding Tax Act. III) Master-feeder In case of a master-feeder structure, a Swedish master may withhold tax on dividends paid to a foreign feeder. The withholding tax depends on the foreign feeder s legal form and the qualification as foreign legal entity under the Swedish Withholding Tax Act. The Swedish withholding tax on certain foreign funds may be discriminatory. UPDATE: New tax rules that came into effect on 1 January 2012 abolish withholding tax, on dividends paid to foreign investment funds that are fund companies ( fondföretag ) as defined in the Swedish Investment Fund Act and are domiciled within the EEA or in a country with which Sweden has concluded a tax treaty containing an article on exchange of information. Potential controlled foreign company rules might also be applicable in case a Swedish feeder would invest in certain foreign masters, if the holding is more than 25 percent. UPDATE: New tax rules that came into effect on 1 January 2012 exempt Swedish investment funds and comparable foreign investment funds with limited tax liability in Sweden from Swedish income tax. No taxation will arise in Sweden at investor level to the extent that the investor keeps the units of the same fund. However, a taxation risk exists where the investor receives an additional cash amount as mentioned in the UCITS IV Directive. Status changed compared to 2010 study

50 48 Fill the glass to the brim II: have we broken through? United Kingdom Rachel Hanger KPMG in the United Kingdom HM Treasury has listened to the industry and has amended the legislation to remove the risk of corporate foreign UCITS funds being taxed in the United Kingdom if they are managed by a UK management company (subject to same conditions). It is also now expected that a framework for UK contractual funds will be introduced in 2012 that will facilitate transparent UK master funds. An existing obstacle to the operation of feeder funds in the UK (relating to stamp duty reserve tax) has also been removed. The latter two changes should enhance the attractiveness of the UK as a location for master funds. I) Single management company Management company level The transfer of an existing management company out of the UK could give rise to taxation on gains unless the assets and liabilities remain assigned to a permanent establishment. The transfer of an existing management company into the UK would subject its worldwide income to corporation tax at a rate of 26 percent. UPDATE: As of 1 April 2012, the rate of corporation tax is 25 percent. This rate will fall by one percent per year until it reaches 23 percent as of 1 April Status changed compared to 2010 study The UK corporate residence rules can create uncertainty for management companies wishing to manage non-uk funds remotely. A company is resident in the UK if it is incorporated there or if its central management and control is exercised from the UK. If the fund is dual resident, double tax treaties tend to look to the place of effective management. If a corporate UCITS becomes UK resident, it is likely to be subject to tax as an ordinary company, i.e. with income and gains subject to corporation tax at a rate of 26 percent. Provided that the non-uk fund has a board that exercises central management and control from outside the UK, this risk can be managed. The treatment of unit trusts and contractual funds is less clear. Although they are deemed to be companies for purposes of the Taxation of Chargeable Gains Act 1992, their legal structure is different. The treatment of contractual funds is particularly unclear because the

51 Fill the glass to the brim II: have we broken through? 49 UK has no complete tax, regulatory or legal regime for them. As the UK tax authorities typically regard contractual funds as transparent, the potentially complicated direct tax and VAT effects may arising from having a UK management company for foreign funds. UPDATe: The Finance Act 2011 introduced a provision that, subject to certain conditions, treats corporate UCITS funds that are resident for tax purposes in the State in which they are authorized, not as resident for tax purposes in the UK. The conditions include a requirement that the overseas UCITS be resident in that overseas State for the purposes of any tax imposed under that law on income. This change in law took effect from 19 July The measure will also apply to unit trusts and certain contractual funds, but only for the purposes of taxation of capital gains. Trading funds bear the additional risk that management from the UK could create a permanent establishment of the fund (The presumption is that most UCITS funds do not trade). An established safe harbor, the Investment Manager exemption, applies provided the manager and fund are independent of one another. A transfer of the management company would not typically have any tax implications for UK resident investors unless it resulted in a transfer of residency of the UK fund outside of the UK. In this situation, if the fund became required to obtain UK distributor/ reporting fund status and did so, the UK investors essentially would be in the same position as before.

52 50 Fill the glass to the brim II: have we broken through? II) Mergers To the extent that UK equities are transferred from the discontinuing to the continuing fund, a scheme of arrangement ought to qualify for relief from UK stamp duty and stamp duty reserve tax. The position is clear for mergers of UK funds. However, the position is unclear for cross-border mergers, and an approach to HM revenue and Customs would be recommended. established rules provide relief for UK investors when corporate funds or unit trusts merge. Provided that the merger qualifies as a scheme of reconstruction or the merger is structured as a share-for-share exchange, a tax charge or loss is not crystallized on merger. Mergers of UK funds are typically carried out as Financial Services Authority (FSA) schemes of arrangement that qualify as schemes of reconstruction. (Scheme of reconstruction is a tax definition, whereas scheme of arrangement is a regulatory term.) There are certain criteria to meet to fall within the scheme of reconstruction tax definition. Also, the merger must be for bona fide commercial purposes to enable those with a greater than a fivepercent holding in the discontinuing fund to qualify for this treatment. It is common practice to seek clearance from HM revenue and Customs that this is the case. FSA-approved schemes of arrangement (or non-uk equivalent schemes) generally qualify. Thus, the treatment should be straightforward when the merger is equivalent to a scheme of arrangement and involves corporate funds or unit trusts. However, the following complications could arise with non-uk funds. 1. If the event is to be tax-neutral for investors, the merger must meet the scheme of reconstruction definition or qualify as a share-for-share exchange. 2. The continuing and discontinuing funds are likely to seek reporting status to help ensure that UK investors are subject to capital gains rather than income tax on disposals. If the discontinuing fund does not have reporting status but the continuing fund does, an income tax charge is crystallized. 3. The treatment of contractual funds has changed from 1 December 2009 so the capital gains tax treatment for UK individuals should be on a par with that in respect of corporate funds and unit trusts. 4. The ongoing tax treatment must be considered. The treatment of UK investors in a non-uk UCITS should be broadly equivalent to that of UK investors in a UK UCITS, provided the non-uk UCITS qualifies for reporting status. In broad terms, UK retail investors are not accustomed to investing in contractual funds, which are treated as transparent as far as income is concerned, and they are used to receiving composite dividends rather than streamed information.

53 Fill the glass to the brim II: have we broken through? 51 III) Master-feeder regarding the ongoing position, some groups will prefer master funds to be tax transparent so that they do not distort the withholding tax analysis of the feeder funds. For example, if the feeder funds are resident in treaty countries and the master fund is resident in a non-treaty country, a higher rate of withholding tax is likely to be applied by some countries of investment. UK funds can be sensitive to this, as they tend to qualify for treaty benefits. The UK does not have an appropriate transparent UCITS vehicle. However, if transparency is not important, authorized unit trusts or open-ended investment companies could produce a favorable outcome. As noted above, these entities tend to qualify for treaty benefits and do not impose withholding tax on distributions to corporate feeder funds or unit trusts. UPDATe: The UK government released a consultation on introducing a transparent contractual fund in the United Kingdom, with expected implementation during This would facilitate the location of transparent master funds in the UK. Additional technical aspects of the UK legislation will need to be updated to allow for master-feeder structures, such as the genuine diversity of ownership rules that apply to some authorized funds. The 2010 Budget announced changes to the fund-specific stamp duty reserve tax rules; these changes are expected to remove an obstacle to UK feeder funds. UPDATe: The Finance Act 2011 amends the stamp duty reserve tax rules for funds that invest in certain other collective investment schemes (such as master funds). The government has also introduced a fund specific (rather than a share class specific) genuine diversify of ownership condition. A UK feeder should not give rise to new tax concerns at the investor level. To the extent that an existing fund range is being converted to a master-feeder structure, similar matters arise as for mergers. UK feeder funds will need clarification on how to account for returns from master funds. To the extent that the master fund is transparent, there could be discrepancies between information in the accounts of the feeder fund and the information the fund needs to complete its UK tax return.

54 52 Fill the glass to the brim II: have we broken through? Appendix 1 Different types of funds existing in the eu Member States based on the categories stated under UCITS IV: Type of funds Country Corporate funds Contractual funds Unit trusts Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Lithuania Luxembourg Malta The Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom Source: KPMG International, March 2012

55 Fill the glass to the brim II: have we broken through? 53 Appendix 2 Transposition of the UCITS IV Directive and the Implementing Directives into national law: Country Directive 2009/65/EC Implementing Directives 2010/43/EU and 2010/44/EU CESR Guidelines on UCITS IV Implementation law Austria YES YES YES 1 Law (regulation) entered into force 1 September Belgium NO NO Bulgaria YES NO 2 NO 3 Cyprus NO NO NO Czech Republic YES YES YES 4 The laws were published on 15 July Denmark YES YES YES Law of 18 May 2011, with effect as of July Estonia YES 5 YES 6 NO Finland YES YES YES France YES 7 NO 8 NO 9 Germany YES YES YES Greece NO NO NO Hungary YES YES YES Ireland 10 YES YES YES Italy NO 11 NO NO The law with regard to the implementation of UCITS IV directive into Hungarian law was passed on 29 December Latvia 12 NO NO NO Implementation in progress. Lithuania NO NO NO Implementation in progress. Luxembourg YES YES YES Law enacted on 17 December Malta 13 YES YES NO Regulations came into force on 1 July The Netherlands YES YES YES Bill came into force on 22 July Poland NO NO NO Implementation in progress. Portugal NO NO NO Romania NO NO NO Slovakia 14 YES YES YES Slovenia YES 15 NO NO 16 National Central Bank guidelines took effect on 15 August 2011.

56 54 Fill the glass to the brim II: have we broken through? Country Directive 2009/65/EC Implementing Directives 2010/43/EU and 2010/44/EU CESR Guidelines on UCITS IV Implementation law Spain NO 17 NO NO Implementation in progress. Sweden YES 18 YES YES The bill 2010/11:135 took force as of 1 August United Kingdom YES Source: KPMG International, March 2012 FSA released policy statement released on 2 September 2011; the HMT Treasury's rules were published on 30 June Regulation issued by MOF in respect of CESR/ CESR s guidelines on the Transition from the Simplified Prospectus to the Key Investor Information document, CESR/ CESR s guidelines on the methodology for the calculation of the synthetic risk and reward indicator in the Key Investor Information Document, CESR/ CESR s guidelines on the methodology for calculation of the ongoing charges figure in the Key Investor Information Document und CESR/ CESR s guidelines on the Selection and presentation of performance scenarios in the Key Investor Information document (KII) for structured UCITS. 2 The provisions of the Directive were transposed into the Law on the activity of the collective investments and of the collective management companies, effective as of 8 October The two Directives shall be transposed into Ordinance on the requirements for the activity of the collective investments, collective management close-end companies and management companies. Expected to be issued by the Financial Supervision Commission by the end of CESR Guidelines will not be implemented into law, but the Czech regulator will follow them. 5 Most of the changes related to Directive 2009/65/EC were implemented as of 18 July According to the information received from Ministry of Finance, they are planning to implement the rest of the changes in Autumn. 6 Draft bill of a local regulation implementing the Directives 2010/43/EU changes has been published. Planned enforcement is January Draft bill to implement Directive 2010/42/EU is under preparation. 7 order adopted by meeting of the Cabinet but did not yet in force, which will occur after publication of the Order in the state s journal. 8 Directive 2010/43/EU and 2010/44/EU will be taken in consideration in the French Supervisory Authority regulations, which are still under consultation by the French assets managers. 9 CESR s guidelines will be included in the French Supervisory Authority regulations. 10 eu legislation and ESMA Guidance implemented through statutory instrument and regulatory rules issued by the Central Bank of Ireland. 11 The Treasury Department has prepared a draft legislative decree transposing into national legislation the amendments introduced by Directive 2009/65/EC. To date, the legislative decree is still going through Parliament. 12 Draft bills have been available but still to be approved by local Parliament (expected to be done in early November). In line with the law, there will be Regulations or Guidelines issued from local Regulator. 13 The Commission Directives 2010/43/EU and 2010/44/EU and the CESR Guidelines have yet to go through the procedure of formal transposition into Maltese law, but they have been already incorporated into the various Rules promulgated by the Authority in terms of the primary legislation and are applied in this manner pending the conclusion of formal transposition procedures where necessary. 14 The guidelines of National Central Bank No. 4/2011; 5/2011; 6/2011; 7/2011; 8/2011 implemented on 26 July 2011, effective date on 15 August November 2011, Bylaws will be amended within six months after the Directive has been implemented. 16 Implemented by (i) Law 31/2011, of October 4th, modifying the current UCITs Law (published in the Spanish Official Gazette on October 5th); (ii) Circular 2/2011 (on information to be submitted regarding foreign UCITS); (iii) Circular 6/2010 (on transactions regarding derivatives) and 6/2009 (on internal control of UCITS management companies). 17 It is expected that the regulation developing Law 31/2011 will also amend the Circular issued by the CNMV implementing Directive 2009/65/EC. The regulation is expected to be issued within a year. 18 The bill 2010/11:135 on the implementation of UCITS IV into Swedish law (in the Investment Fund Act) in a certain manner has been approved by Parliament and will take force as of 1 August 2011.

57

58 Contact us Chairman European Investment Management & Funds Tax Practice Georges Bock T: E: Finland Antti Leppanen T: E: [email protected] France* Yves Robert T: E: [email protected] Germany Andreas Patzner T: E: [email protected] Ireland Seamus Hand T: E: [email protected] Italy Sabrina Navarra T: E: [email protected] Luxembourg Claude Poncelet T: E: [email protected] Malta Juanita Brockdorff T: E: [email protected] Spain Victor Mendoza T: E: [email protected] Sweden Ann Törner T: E: [email protected] The Netherlands Valentijn van Noorle Jansen T: E: [email protected] United Kingdom Rachel Hanger T: E: [email protected] kpmg.com 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 endeavor 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. *Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Designed by Evalueserve. Publication name: Breaking through: Has progress been made? Publication number: Publication date: March 2012