Mastering Alternative Investments in Luxembourg: Tax Framework, Structuring & Compliance

Luxembourg is the location of choice for the implementation of alternative investments (private equity, private debt, real estate, infrastructure,...). As the largest fund center in Europe (and the second in the world), Luxembourg holds an impressive 56% of the global market for cross-border investment funds.

Over the last years, the tax framework in Luxembourg and Europe has changed significantly as a result of the OECD Base Erosion and Profit Shifting ("BEPS") project. But what makes the so-called Luxembourg toolbox so interesting for international investors? How can alternative investments be structured in Luxembourg? What is the meaning of substance and what substance requirements should be met? What is a reasonable approach to transfer pricing and related documentation? And when are there potential reporting obligations under the mandatory disclosure regime (DAC 6)?

All of these questions will be covered in five seminars led by Oliver R. Hoor (Tax Partner, ATOZ) and Adrian Sedlo (Founding Partner, Sedlo Law Firm). The seminars are designed to give participants a 360-degree view of all relevant topics in the area of alternative investments. However, participants are free to choose specific modules.

Session 1 - The Luxembourg toolbox by Oliver R. Hoor & Adrian Sedlo

Overview of the Luxembourg toolbox

Luxembourg tax regimes and legal forms

• Luxembourg companies (SOPARFI)
• Partnerships (SCS, SCSp, …)
• Specialised Investments Fund (SIF)
• Investment company in risk capital (SICAR)
• Reserved Alternative Investment Fund (RAIF)
• Securitization vehicle (SV)
• Private wealth management company (SPF)
• Considerations from a regulatory perspective

Financing investments

• Holding activities
• Financing activities
• Investments in distressed debt
• Case studies

Session 2 - Structuring aspects of alternative investment by Oliver R. Hoor

When choosing Luxembourg as a (fund) location

Typical investment structures

• Real estate
• Private equity
• Infrastructure
• Private debt

Design principles to be considered

• Debt vs. equity funding
• Bottom-up approach
• Flexibility in terms of cash repatriation

Interest limitation rules
Hybrid mismatch rules
Reverse hybrid mismatch rule
General anti-abuse rule
Considering the tax treatment in the investment jurisdiction
Exit planning
Case studies

Session 3 - Substance requirements by Oliver R. Hoor

The notion of substance

Analysing the importance of substance in international tax

• Requirements from a Luxembourg tax and regulatory perspective
• Requirements from a foreign tax perspective
• Requirements from a tax treaty perspective
• Requirements from a transfer pricing perspective
• Reputational risks
• Limits of anti-abuse legislation in an EU context

Considering typical substance models

• Master holding company
• Management or service company
• Outsourcing model
• Tactics of foreign tax authorities when challenging substance
• Challenging tax residency
• Construing a management permanent establishment
• Construing an operational permanent establishment
• Challenging beneficial ownership
• Challenging transfer pricing
• Considerations regarding ATAD 3 (the “Unshell Directive”)

Case studies

Session 4 - Transfer Pricing and related documentation? by Oliver R. Hoor

Snapshot of the Luxembourg transfer pricing landscape

The arm's length principle

Tax risks in relation to transfer pricing

Typical controlled transactions in Luxembourg

Intra-group loans and other debt instruments

• Financing activities
• Intra-group services
• Fund management services
• The new reporting obligations on intra-group transactions

The transfer pricing regime applicable to Luxembourg finance companies

Transfer pricing documentation

• Documentation requirements under Luxembourg tax law
• Management of tax risks in the absence of tax rulings
• Guidance provided under the OECD Transfer Pricing Guidelines
• Best practice recommendations

Session 5 - The Mandatory Disclosure Regime (DAC 6) by Oliver R. Hoor

Key features of the mandatory disclosure regime

Analysing the hallmarks that may trigger reporting obligations

The importance of the main benefit test (“MBT”) when determining reportable cross-border arrangements

How to ensure compliance with the MDR in practice (intermediaries vs. taxpayers)

Developing a pragmatic approach

Consider DAC 6 implementation in other EU Member States

Case studies

Oliver R. Hoor, International Tax Partner - ATOZ Tax AdvisersOliver is a Partner in the International and Corporate Tax department of ATOZ. He is the Head of Transfer Pricing.

A tax professional since 2003, Oliver has experience in Luxembourg and international taxation with a focus on Alternative Investments (private equity, real estate, infrastructure, private debt), mergers & acquisitions and multinational groups. Oliver advises clients on all direct tax aspects regarding deal structuring, maintenance, reorganisations and exit planning.

Oliver is a member of the tax working groups of the Association of the Luxembourg Fund Industry (ALFI) and the Luxembourg Private Equity Association (LPEA). He is further the Co-chair of the tax and regulatory committee of the Luxembourg Alternative Administrators Association (L3A), a founding member of the Luxembourg Transfer Pricing Association (LTPA) and a member of the International Fiscal Association (IFA).

Oliver is the author of more than 300 articles and books on Luxembourg and international taxation including Transfer Pricing and related documentation requirements, the OECD Base Erosion and Profit Shifting (“BEPS”) Project and the EU Anti-Tax Avoidance Directives (ATAD 1 & 2), reporting obligations of tax intermediaries (DAC6), current initiatives of the EU Commission in the field of direct taxation (ATAD 3, BEFIT, DEBRA, SAFE, DAC8, …), the OECD Model Tax Convention and Tax Treaties, EU Law and the State Aid investigations of the EU Commission (see www.atoz.lu/media-room). He is a regular speaker at conferences and a lecturer with Legitech and the Luxembourg Institute of Governance (ILA).

Oliver is qualified as a Chartered Accountant in Luxembourg (“Expert-Comptable”) as well as a certified German tax adviser (“Steuerberater”). He holds a post-graduate degree in Luxembourg Tax and a degree in Business Administration with a major in Tax from the University of Applied Sciences of Trier (Germany).

Adrian Sedlo, Partner of Sedlo Law FirmAdrian Sedlo is the Founding Partner of Sedlo Law Firm. He is admitted to the Bar of Luxembourg as "Avocat à la Cour".

He has worked for many years at the Luxembourg offices of Clifford Chance and Linklaters and has been partner at leading Luxembourg firms.

Adrian Sedlo has been recommended regularly by Chambers & Partners and Legal 500 as a Leading Lawyer.

For 2019, he has been selected for Best Lawyers by his peers as one of the best lawyers in Luxembourg for his work in Banking & Finance.

Co-financing:Our training courses are eligible for co-financing.

Legitech is authorised to manage a continuing professional training organisation.

Accreditation

Legitech has obtained the approval of the Luxembourg Bar.