WHERE DOES RUSSIAN MONEY
GO NOW?
LUXEMBOURG
TELFA MOSCOW CONFERENCE - June 7, 2013
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TELFA MOSCOW CONFERENCE, June 2013
LUXEMBOURG TAX OPPORTUNITIES
Philippe Raxhon
AGENDA
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LUXEMBOURG AS A FINANCIAL CENTRE - BUSINESS CLIMATE
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LUXEMBOURG AS AN OFFSHORE JURISDICTION : REGULATORY ASPECTS AND BANK SECRECY
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TAX RULES AND MAIN SPECIAL TAX REGIMES
-
RUSSIAN INBOUND AND OUTBOUND STRUCTURING USING Luxembourg
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LUXEMBOURG AS A FINANCIAL CENTRE – BUSINESS CLIMATE
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Constitutional Monarchy fully independent since 1867, about 500,000 inhabitants.
Founding member of the European Union. Currency : EUR
-
141 banks are active in Luxembourg, of which 5 are of Luxembourg origin, 37 from
Germany, 1 from Russia (East-West United Bank). Gazprombank, Sberbank,
Renaissance Capital are also active in Luxembourg.
Rosneft recently used several Luxembourg companies upon their USD 55 Bio
acquisition of 50% of TNK-BP, to become the world’s largest oil producer. Innova,
Sodrugestvo also established in Luxembourg.
-
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LUXEMBOURG AS A FINANCIAL CENTRE – BUSINESS CLIMATE (2)
•
•
•
Home of the European Investment Bank, The Court of Justice of the European Union and the
European Court of Auditors.
French, German and Luxembourgish are official languages, English widely spoken.
Stable political environment with a strong pro-business legislation and administration.
•
1st globally in GDP per capita : US$ 89,801 in 2011 (OECD (2013), “Size of GDP” in OECD Factbook 2013, OECD publishing.
•
2nd globally in International Labour Productivity –
GDP per hour worked, in USD, 2011
(OECD (2013), “Labour productivity levels”, in
OECD Factbook 2013.
•
Public debt as a percentage of GDP: 25.1% (OECD, estimate for 2013).
•
Budget deficit 2013 (est.) : -1.7% (OECD, estimate for 2013).
•
Growth rate GDP 2012 : 0.5% (estimate)
•
Unemployment rate : 6.4%
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LUXEMBOURG AS AN OFFSHORE JURIDICTION :
REGULATORY ASPECTS AND BANK SECRECY
•
•
Flexible company law which allows for:
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The division of the capital of a public limited liability company into different types of shares,
such as bearer or registered shares, voting and non – voting shares, shares with different
profit entitlement, ….
-
Organisation of the control of a company using shareholder’s agreements or via restriction in
the company’s articles of association.
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Limited liability company with a sole shareholder (S.à r.l. or SA).
-
The denomination of the contributed capital in EUR or in a foreign currency; and for the
possibility to draw up the company’s annual accounts in the currency of the share capital.
Attractive tax regime for a number of activities.
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LUXEMBOURG AS AN OFFSHORE JURIDICTION (2)
•
Regulatory environment
All EU rules and directives are strictly applicable in Luxembourg including laws on money laundering and
financing of terrorism.
The Financial Authority (« CSSF ») issues prudential rules and audits their proper application in the financial
sector; several investment company structures are subject to light or heavy regulation (SICAR, securitisation
vehicle, SIF, SICAV, SICAF, FCP).
•
Bank secrecy
Automatic exchange of information within the EU as from January 1st, 2015 announced in respect of interest
income of individuals (savings directive). Limited scope.
•
Exchange of information with a treaty country (Russia) applicable where foreseen in the double tax treaty (see
Protocol)
•
The commentary on Article 26 of the Model Tax Convention has been amended on July 2012 to address the
transfer of information on a « group » basis i.e. not targeted to a specific individual but to a group of persons of
foreseeable relevance. This may however not result in « fishing expeditions. So the requesting State will need to
demonstrate the relevance of the requested information and of the group of persons targeted.
•
Principle of bank secrecy remains valid and is strictly applicable in respect of Luxembourg residents.
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A FAVORABLE JURISDICTION FOR TAXATION
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Stable tax rules
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Pro-business attitude of tax authorities
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Possibility to secure tax treatment of transactions via advance rulings
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Favorable corporate and tax rules for (among others) :
 Holding activity
 Intellectual property rights licensing
 Financing activity
 Specialised investment funds
 Securitisation companies
 Investment companies in risk capital
 Family wealth management companies
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STABLE TAX RULES
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Corporate income tax rate
(including municipal business tax and employment fund contribution):
29.22%
-
Net Wealth tax applicable on net assets:
0.5%
-
Withholding taxes to foreign corporates:
 Dividends
 Liquidation proceeds
 Interests
 Royalties
0% to 15%
0%
0%
0%
-
Lowest VAT rate of the E.U.
15% (or less)
-
No capital duties
-
Personal income tax rate (progressive)
-
No wealth tax for individuals
-
No Luxembourg inheritance tax on estate of a deceased Luxembourg resident transferred
to his children and to his spouse, if they had children together. Otherwise, inheritance
rates vary from 0% to 48%
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0% to 43.6%
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FINANCIAL INVESTMENT COMPANY (“SOPARFI”)
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Basically a normal fully taxable company, possibly a mixed company running a commercial activity and/or
holding shares
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Access to double tax treaties (64 are in force) and to EU tax directives
-
Dividend income full exemption if:
 the participation cost is at least EUR 1.2 Mio or represents at least 10% of the share capital of the
subsidiary
 the subsidiary is fully subject to a tax similar to the Luxembourg corporate income tax (compulsory
tax, similar base as in Luxembourg, rate of at least 10.5%, tax paid by the company itself) or is a EU
company listed in the Parent-Subsidiary directive
 the SOPARFI must hold or commit to hold the minimum participation for at least 12 months

Capital gain exemption if:
 the participation cost is at least EUR 6 Mio or represents at least 10% of the share capital of the
subsidiary
 the subsidiary must be fully subject to tax (see above)
 the minimum participation in the subsidiary must be held for an uninterrupted period of at least 12
months
•
Thin capitalisation rules limit the ratio equity/debt to 15/85 as far as the financing of participations is
concerned

Wealth tax exemption : same criteria as for the dividend income exemption with no minimum holding
period
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FINANCIAL INVESTMENT COMPANY (“SOPARFI”) (2)
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Costs (i.e. interests, …) related to the holding of the subsidiaries during a year must be deducted
from the exempt dividend income of the year; accumulated costs deducted for tax purposes and
related to the holding of the subsidiary over the full holding period are deducted from the capital
gain amount to be exempted (claw back).
-
The 15% standard dividend withholding tax is reduced to 0% upon:
 the winding up/liquidation of the company
 payments to any EU company that fulfils the conditions foreseen in the EU parent subsidiary
directive, or to a treaty country, Swiss or EEA parent company subject to an income tax
similar to the Luxembourg corporate income tax, when the beneficiary company has held or
undertakes to hold at least 10% or at least EUR 1.2 Mio of the capital of the SOPARFI, for at
least 12 months.
If no exemption is available, reduced withholding tax rates may apply based on the double tax
treaty provisions.
-
SOPARFI having over 90% of their assets in the form of financial assets, securities and bank
deposits are subject to a minimum corporate taxation of EUR 3,210 per year. Other companies are
subject to a minimum taxation per year ranging from EUR 535 to EUR 21,400 (including the
solidarity surcharge) depending on their balance sheet total.
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SHIPPING ACTIVITY
Investor
0%WHT
(conditions)
Lux Co
•
Subject to full corporate income rate of 22.47%
•
Exempt from municipal business tax
•
Investment tax credits (ITC) of up to 14% in aggregate
•
LOW/NIL
effective Tax rate •
Income
from shipping
activities
Most of the ITC can be carried forward for 10 years;
General provisions for large scale repair and maintenance are deductible
•
Accelerated depreciations may be applied (3 times linear, maximum 30%)
•
Capital gains realised as asset deals may be rolled over to new assets including
shareholdings
•
Tax losses may be carried forward indefinitely
•
Net Wealth tax 0.5% can be reduced for profitable companies by booking a 5 years
reserve up to the corporate income tax due
•
Seamen taxable in Luxembourg under favourable regime : 10% rate on 90% of salary
less a lump sum allowance of EUR 1,800 per month (EUR 72 per day)
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INTELLECTUAL RIGHTS LICENSING (via a “SOPARFI”)
•
Qualifying Intellectual Property net positive income enjoys an 80% exemption of corporate tax,
which results in a 5.84% effective tax rate
•
The 80% exemption is also applicable upon capital gains realised on the qualifying assets
•
The qualifying assets also enjoy a 100% exemption from net wealth tax
•
The qualifying assets are :
•
IP rights must be acquired from not directly related companies, or developed by the company after
31 december 2007 in order to qualify.
- Patents
- Trademarks
- Designs
- Models
- Software copyrights
- Internet domain names
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FINANCE COMPANY
•
Low capitalisation requirement : 1% of the nominal value of loans granted or 2 millions EUR for group finance
companies with possible confirmation of the tax treatment through advance tax agreement (subject to some
substance requirements with delivery of a transfer pricing report).
•
No withholding tax on interest paid to foreign companies.
•
The margin between interest received and paid must be at arm’s length.
•
Hybrid instruments can be found with a number of countries in view to optimise the cash repatriation by providing
for a divergent qualification (i.e. debt for Luxembourg tax purposes and equity from the perspective of the
investor’s jurisdiction).
dividend
hybrid loan 1
FOREIGN PARENT
dividend
LUX FIN CO
hybrid loan 2
AFFILIATE 2
AFFILIATE 1
+
interest
-
Interest -
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INVESTMENT COMPANY IN RISK CAPITAL (SICAR)
Foreign investors
•
Lightly regulated investment vehicle in (high) risk capital; approval from
Luxembourg financial authority (CSSF) is required upon set up, reporting twice a
year to the CSSF. Limited prospectus obligation if no offer is made to the public.
•
Can take the form of a company or of a limited partnership. Restricted to wellinformed investors. No risk diversification requirement. Total subscribed share
capital and share premium must reach EUR 1 million within 12 months of
authorisation.
•
Flexible from a structural point of view (multiple compartments possible with
possibility to create a compartment for a single asset)
•
Income tax exemption for income derived from transferable securities. Other
income not connected with investments in risk capital subject to the 29.22%
corporate income tax rate. No dividend withholding tax, no wealth tax.
•
A SICAR established in the form of a limited partnership will be treated as a tax
transparent entity and is not subject to municipal business tax.
•
VAT : exemption on management services
•
Access to double tax treaties : foreign tax treatment should be checked on a caseby-case basis
•
Depositary bank and auditors have to be based in Luxembourg.
Shares or bonds
Luxembourg SICAR
Shares or bonds
Holding
Shares or bonds
Start-up
company
Target company
Private
equity
investment
structure
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SPECIALISED INVESTMENT FUND (SIF)
•
Regulated investment fund : approval from CSSF required upon set up, monthly reporting to CSSF
•
Targeted to institutional, professional and experienced investors.
•
Structured either as a single fund or as an umbrella fund.
•
May invest in all types of assets provided it is well diversified
•
May be set up as a contractual co-ownership scheme (FCP - FIS) having no legal personality or as an investment
company with variable capital (SICAV / SICAF – FIS) or use the underlying legal form of an SA, SàRL, SCA or SCo
SA.
•
Favourable tax regime: 0.01% annual subscription tax and, where incorporated as a SICAV/FIS, should benefit from
a number of tax treaties (including Lux-Russia …).
•
Exempt from income tax, net wealth tax, withholding tax (except if EU Savings Directive applies), VAT (on
management services).
Profit Shares
(no voting right)
Shares with
voting right
Fund 1
Nominee bond
(private bond)
Fund 2
…..
Board of Directors
SICAV – SIF
Real estate
Art
Listed stock
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SECURITIZATION VEHICLE
Obligors
Payment
over time
Goods
or services
Securities
Assets
Securitisation vehicle
Originator
–
–
–
–
–
–
–
–
–
Cash
Investors
Cash
Securitisation allows the company to raise finance and to optimise its balance sheet. Risks are transferred to
investors via the securities issued by the SPV;
Securitisation vehicles can be set up as a company or as a fund managed by a separate management company.
Securitisation vehicle is fully subject to corporate income tax and to municipal business tax except if it is set up
as a fund.
However, the remuneration of investors is tax deductible as interest even if paid as a return on equity (but
subject to the European Savings Directive). This achieves a tax neutrality.
Securitisation vehicles are not subject to net worth tax. Management services rendered to the Securitisation
vehicles are in principle exempt from VAT.
Distributions are exempt from dividend withholding tax;
Securitisation vehicles set up as a company do have access to double tax treaties, those set up as funds do not.
Regulated vehicle : agreement by CSSF required prior to set up if issuance of securities to the public ; halfyearly reporting to CSSF if it issues securities to the public on a continuous basis.
Lux GAAP or IFRS may be applied.
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FAMILY WEALTH MANAGEMENT COMPANY (« SPF »)
–
–
–
–
–
–
–
–
–
Set up as a limited liability company (SA, SàRL, SCA) where the reference « SPF » is added to the
company form
Capital can be represented by bearer shares, no public placement possible (family estate management)
No advance clearance by the CSSF
Activity limited to private wealth management : holding of financial instruments such as shares, bonds and
other debt instruments in addition to cash and other types of bank products
Strictly forbidden to interfer in the management of its subsidiaries; exclusion of any commercial activity
May not hold directly real estate nor intellectual property rights
Partners : trusts, private foundations, investor groups, family groups or individuals
Taxation limited to an annual subscription tax of 0.25% of the paid up capital increased by the share
premium and the debt exceeding eight times the paid up capital plus the said share premium, with a
maximum of EUR 125,000 a year
Excluded from double tax treaty benefits and cannot benefit from the Parent-Subsidiary directive.
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RUSSIAN INBOUND STRUCTURING
HOLDING ACTIVITY
RUSSIAN DIVIDEND WITHHOLDING TAX :
INVESTOR
-15% if Lux resident is the beneficial owner
LUXEMBOURG
HOLD CO
RUSSIA
OP. CO’S
FIN CO
Interests
-10% if Lux beneficial owner holds at least 30% and acquisition price is at
least EUR 75,000
- 5% under Protocol (approval pending in Luxembourg) if Lux beneficial
owner owns at least 10% and if acquisition price is at least EUR 80,000
RUSSIAN INTEREST WITHHOLDING TAX :
0% whitholding tax (no specific beneficial ownership clause in DTT in respect
of interest)
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RUSSIAN INBOUND STRUCTURING (2)
REAL ESTATE
INVEST CO
•
ART 6 (current) of DTT : real estate taxable in the source country
•
ART 6 § 5 (Protocol) of DTT : income of Luxembourg resident
from Russian investment fund in real estate is taxable in Russia
•
Practical issues (OECD com art. 10)
LUXEMBOURG
INVESTCO
CO
INVEST
–
–
–
THIRD COUNTRY ?
RUSSIA
Definition of « FUND »
Definition of revenue (repurchase of shares by a REIT?)
Timing : upon earning by the fund or upon distribution ?
RUSSIAN FUND
REAL ESTATE
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RUSSIAN INBOUND STRUCTURING (3)
EUROBONDS
INVESTOR
INVESTOR
•
Russian interest withholding tax issue (case of Irish
SPV)
•
Luxembourg can be a favourable juridiction because
of no beneficial ownership requirement in the interest
article, and a 0% withholding tax rate under the treaty
•
Luxembourg SPV taxable on arm’s length spread
which can be secured by an advance ruling
INVESTOR
SPV
LUXEMBOURG
LOAN
RUSSIAN BORROWER
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RUSSIAN INBOUND STRUCTURING (4)
LUXEMBOURG FINANCING STRUCTURE
PARENT
equity
•
Hybrid loan feature (Profit Participating)
–
–
–
–
LUX CO
Hybrid loan
Long term (30 years)
Interest is profit dependent
Subordinated loan
Minimum 10% participation in Russian Op.Co.
Luxembourg
Russia
•
Result :
OP. CO.
–
–
–
Interest treated as (exempt) dividend income at
Luxembourg level
Interest deductible in Russia at Op. Co. Level
provided local conditions are fulfilled
Advance pricing agreement possible in Luxembourg
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RUSSIAN OUTBOUND STRUCTURING
RUSSIAN PARENT
•
Luxembourg participation exemption
on dividends and capital gains
•
No withholding tax on dividend
payments to Russia
RUSSIA
LUXEMBOURG HOLDING CO
LUXEMBOURG
INDIA
CHINA
EUROPE
S-E ASIA
AMERICA
……..
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DTT PROTOCOL OF 21 NOVEMBER 2011
•
What’s new ?
-
•
Dividends
Real estate
Other income
Exchange of information
Limitation of benefit
Additional amendments
The Russian law has been signed by the Russian President in January 2013 and the Protocal should be approved
soon by the Luxembourg Parliament. It should be applicable as from 1 January 2014.
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DTT PROTOCOL OF 21 NOVEMBER 2011 (2)
•
Dividends :
–
Decrease of the reduced whithholding tax rate from 10% to 5% for a recipient which :
• Is the beneficial owner of the dividend
• Holds shares representing at least 10% (currently 30%) of the capital of the distributing company
• Holds a shareholding with an acquisition price of a least EUR 80,000 (currently EUR 75,000) or the
equivalent in roubles
–
Clarification of Dividends concept for WHT purposes which includes :
• income derived from units in mutual investment funds and other collective investment vehicles
(except for investments in immovable property)
• Income received on depositary receipts
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DTT PROTOCOL OF 21 NOVEMBER 2011 (3)
•
Real estate properties :
–
–
•
Income deriving from units in mutual investment funds organised to invest mainly in real estate properties
are regarded as « income from real estate properties », thus taxable in the country where the properties are
located
Capital gains realised upon the sale of shares in a company deriving more than 50% of its value from real
estate properties located in the other country will also be taxable where the properties are located, except if :
• The sale takes place in the course of a corporate reorganisation
• The shares are listed on a recognised stock exchange
• The seller is a pension fund or the government
Other income :
Income not specifically covered by another provision (e.g. Russian-source liquidation payments) is taxable in
the country of residence but may also be subject to WHT in the source country (with a corresponding tax
credit) according to the Protocol
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DTT PROTOCOL OF 21 NOVEMBER 2011 (3)
•
•
Exchange of information :
–
Procedure extended to all taxes (not limited to the ones covered by the treaty)
–
Two additional paragraphs added to comply with article 26 of the OECD Model Convention, stating that
the following arguments cannot be raised to deny to obtain/supply the information :
• Because the country does not need the requested information for its own tax purposes, within the
standard limitations (e.g. public policy, permitted under domestic laws, professional secret)
• The second one states that the fact that the information is held by a bank, financial institution is not
sufficient to decline to supply the information
The Annex depicts the conditions to request information (e.g. identification of person)
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DTT PROTOCOL OF 21 NOVEMBER 2011 (4)
•
Limitation on benefits :
–
•
Benefit of DTT denied if the tax authorities of both countries decide that the companies involved are
established mainly for treaty shopping
Additional amendments :
–
Mutual agreement and criteria for determining tax residence (e.g. board of directors, day-to-day
management, work location of senior executives)
–
Definition of permanent establishment (OECD Model in addition to involvement of individuals by a
company for more than 183 days whithin a 12-month period)
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CONTACT
Mrs Véronique Wauthier
Managing Partner
TABERY & WAUTHIER
10, rue Pierre d’Aspelt
B.P. 619
L-2016 Luxembourg
Telephone :+352-251.51.51
Fax : +352-45.94.61
Email : avocats@tabery.eu
www.tabery.eu
Disclaimer :
This presentation contains general information only, and Tabery & Wauthier is, by means of this presentation, not rendering professional advice or services. Before
making any decision or taking any action that may affect your business or your finances, you should consult a qualified professional adviser.
Tabery and Wauthier shall not be responsible for any loss whatsoever sustained by any person who relies on this presentation.
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