Baker McKenzie's EMEA Tax Practice group is inviting you to attend its new webinar series: 360° insight into Private Equity current tax topics – from investors' to portfolio companies' level", a series of webinars that will not only explore what are the current tax challenges currently faced by Private Equity funds, but also will provide for the views how they could be tackled from different perspectives to help preserve investment returns.

Designed for Private Equity professionals – asset managers and acquisition teams - this series will in a "user friendly" and practical manner address changed tax climate around investment holding and financing structuring (ATAD 2, business substance and beneficial ownership requirements), increased compliance requirements (DAC 6) and specific aspects relevant for distressed assets acquisition and for Sovereign Wealth Funds.

The webinar series will start on October 27 with a session focusing on the practical impact of the MLI and the PPT on the structuring and governance of private equity funds and continue to run regularly until spring 2021 with a break in December and January.

All webinars will begin at 04:00 pm GMT / 05:00 pm CEST / 11:00 am EDT / 08:00 am PDT (unless otherwise stated) and are scheduled to run for 30 to 45 minutes.

If you have a question relating to a specific webinar topic, please include it when completing your registration. If you have any issues registering, please contact Jana Hanysova.

Series Overview

 

Date

Session

27 October 2020

Does the traditional structuring and governance of private equity investments still stand the current tests? (Part One)

Over recent years, the tax landscape around investment and asset management activity has changed tremendously, due to the enhanced beneficial ownership test (as it results from the decisions of the European Court of Justice in the so-called "Danish cases"), as well as the new anti-abuse provisions introduced by the MLI, and in particular the Principal Purpose Test (so-called "PPT").

This changed approach affects the traditional structuring and governance of private equity funds. During this first session, we will briefly remind you of the context and evolution caused by these changes, we will explain - in a practical way - the interaction between the respective concepts of residence, beneficial ownership, abuse and substance, and we will eventually discuss how to adapt structuring and governance to better be prepared against possible challenges from tax authorities in investment jurisdictions.

 

10 November 2020

Does the traditional structuring and governance of private equity investments still stand the current tests? (Part Two)

Over recent years, the tax landscape around investment and asset management activity has changed tremendously, due to the enhanced beneficial ownership test (as it results from the decisions of the European Court of Justice in the so-called "Danish cases"), as well as the new anti-abuse provisions introduced by the MLI, and in particular the Principal Purpose Test (so-called "PPT").

This changed approach affects the traditional structuring and governance of private equity funds. During this second session on the topic, our panel will build on the learnings from the first session, discuss some more specific cases, and provide the perspective and recent experience from specialists based in a number of typical investment jurisdictions (including Germany, Italy, Spain and the Netherlands). Some countries have already reacted to the decisions in the Danish cases, or perhaps provided some helpful guidance on how to apprehend the Principal Purpose Test in practice, and these elements will also be shared during this session and their application discussed in the context of practical examples.

After this second session, you should know whether your current or contemplated structure is likely to meet the tests, or whether an adjustment may be needed.


 

24 November 2020

Private credit and distressed debt

Private credit and distressed debt, are essential tools in the economy, providing a non-banking solution to help raise capital, stimulate growth and address liquidity issues.

Discussions on debt funds are ongoing at a European level with e.g. ESMA’s opinion of 11 April 2016 on loan origination by funds, or most recently, ESMA’s letter dated 18 August 2020 to the EU Commission reiterating the need for a specific framework in the AIFMD. The Luxembourg regulator confirmed a few months after ESMA’s opinion of 2016 that alternative investment funds could carry out loan origination/participation activities. Given the significant development of Luxembourg private debt funds, and COVID-19 opening a window for regulators to improve lending rules, Luxembourg will pay close attention to developments to come.

At the same time, from a tax perspective, the structuring of private credit and distressed debt investment platforms are considerably impacted by the enhanced beneficial ownership test (as it results from the decisions of the European Court of Justice in the so-called "Danish cases"), the new Principal Purpose Test (introduced by the MLI), the interest tax deduction limitation rules and anti-hybrid rules (from ATAD 1 and ATAD 2). In addition, the budget crisis brought on by COVID-19 will more than likely lead to an increase of tax audits and pressure on the tax treatment of interest payments. Asset managers should upgrade to the new sound tax positions and operate in control of new pitfalls.

Join us for a discussion on the Luxembourg legal, regulatory and tax framework applicable to debt funds, the investment structures, opportunities and areas to be mindful of in the future.


 

8 December 2020 Intra-group debt financing post ATAD 2: Innovative alternatives to the current structures

The implementation of the EU Anti-Tax Avoidance Directive has a significant impact on the intra-group financing of PE investments. It is generally no longer possible to finance such investments with the use of hybrid instruments or through hybrid entities because of the implementation of income inclusion rules or interest deduction limitation rules. During this session we will discuss a number of alternative financing scenarios that can still be considered involving offshore regimes and notional interest deduction regimes.


 

2 February 2021

PE Funds' portfolio companies - financing aspects

Interest deducibility has faced increasing levels of restriction in recent years following the outcome of the first OECD BEPS project with the introduction of interest limitation regimes and anti-hybrid financing measures in a number of jurisdictions. This includes all EU member states by virtue of the EU's anti-tax avoidance directives. Likewise, the end of the implementation period under the UK/EU withdrawal agreement will bring about the real effects of Brexit, with UK companies facing withholding tax costs for the first time on interest receipts sourced from certain EU member states.

These changes are against a back drop of growing momentum for the Pillar 2 regime as proposed under the OECD's latest BEPS project. The "subject to tax rule" within that regime raises the prospect of a rising tide of withholding tax costs on interest payments, whilst the broader proposal for a global minimum tax will likely see an increase in effective tax rates if implemented. Away from tax, debt markets have not escaped the effects of COVID-19; widespread Government support schemes will likely distort financing costs making benchmarking more difficult. The impact on the comparability of rates is compounded by the continued transition away from pricing debt by reference IBORs, with risk free rate alternatives adopted in their place.

Join us for a discussion on the latest market trends and where the upcoming head winds may take us.


 

16 February 2021

ATAD 2 impact on investment fund structures. The "associated enterprise" and "acting together" definitions under Luxembourg law and UK law

EU Member States have implemented into their domestic law the Anti-Tax Avoidance Directives I and II with the aim, amongst others, to tackle hybrid mismatch arrangements in the EU and in transactions involving third countries.

The recent anti-hybrid rules apply when there is a "double deduction" or "deduction without inclusion", under a "structured arrangement" or between "associated enterprises", which result from the difference in the characterization of a financial instrument or an entity. The anti-hybrid rules, if applicable, trigger tax adjustments that can affect the tax neutrality of investment fund structures and holding companies through the denial of relevant tax deductions or inclusion of the relevant payments in the taxpayers' corporate income tax base.

For asset managers (GPs), in practical terms, it means that the tax attributes of one or several investors (LPs) resident in a given jurisdiction can, even involuntarily, cause additional taxation at the level of the investment fund structure or holding companies, if those LPs reach "associated enterprise" thresholds or are considered "associated enterprise" as result of the aggregation of their voting rights or capital ownership under the concept of "acting together". Ultimately, subject to legal documentation, the IRR may be impacted and such additional tax cost shared by all, GP and LPs.

GPs assessing the impact of anti-hybrid rules on their investment fund structures and holding companies need to, as a first step, establish the perimeter to which the provisions of anti-hybrid rules would apply based on the "associated enterprise" and "acting together" definitions. While LPs generally do not have effective control on the investment fund structure, the question on how to apply the concept of "acting together" in the context of investment funds is critical.

Join us for a discussion through several worked examples on Luxembourg and the UK state of play regarding anti-hybrid rules and their impact on investment fund structures.


 

2 March 2021

Key DAC 6 hallmarks that Asset Managers must know

From 1 January 2021, all member states of the EU (and the UK) will require live reporting under the DAC6 mandatory disclosure regime. The regime impacts all intermediaries by requiring them to disclose details of certain matters on which they have provided advice or services to their clients. Where there are no intermediaries involved in the arrangement, the reporting obligation can shift to relevant taxpayers. "Arrangements" has a broad meaning, including any scheme, structure, transaction or series of transactions on which an intermediary may be advising or is otherwise involved in.


 

16 March 2021

Addressing tax due diligence findings with insurance products:
Case studies

Over the past few years, the use of warranty and indemnity insurance has become common practice in relation to buy and sell side private equity deals and has seen the allocation of risk on transactions being shifted to the insurance market with many deals being undertaken with very low or nominal financial caps on the seller's liability. Tax risk is generally covered under such insurance policies but is not a perfect solution compared to a traditional tax indemnity from the seller given that disclosure or knowledge will prevent a buyer claiming under a policy.

Specific tax risk insurance policies have therefore been developed to fill this gap and this session will discuss the use of such policies and the situations in which it may be appropriate (and also when it may not be appropriate) to make use of such policies. We will consider the types of tax risks that can be covered, the process for putting in place a policy and also what happens if a claim needs to be made.

We will be joined in this session by a tax risk underwriter who will provide the perspective of the underwriter on this fast developing area of the insurance market.


 

30 March 2021

New approach to taxation of carried interest

The taxation of carried interest, as capital gains or employment income,
has traditionally been a highly controversial matter, with very different
approaches from policymakers and Tax Authorities. In this session we
will analyze potential legislation changes, recently issued guidance, policy developments, court decisions and industry trends concerning carried interest in some of the most relevant jurisdictions for fund managers, with a particular focus on the US, UK, Germany and Spain.

 

 


 

 13 April 2021

Sovereign Wealth Funds

In this session we will discuss how the new international tax environment impacts investment structures for sovereign wealth funds.

Transparency as a new pillar of the international tax arena puts pressure on the industry to disclose and report ever more information (e.g., UBO, exchange of tax rulings between authorities, international administrative assistance, DAC 6, etc.). From portfolio companies, to asset managers and now advisers, most of the market participants face increasing reporting obligations. As the ultimate investors, sovereign wealth funds must monitor and control this flow of information as well as reconcile the increasing compliance obligations with what is often a desire to maintain confidentiality in relation to their investment portfolio.

The fight against aggressive tax planning launched with BEPS is still unfolding. A number of anti-evasion rules apply very broadly and sometimes affect sovereign wealth funds due to their specific tax status. We will focus on how the multi-lateral instrument may restrict treaty benefits for some fund and investment structures and also how the use of intermediate holding companies can be challenging in this new world. New European anti-hybrid rules (ATAD II) and their impact on tax-exempt sovereign funds will also be addressed.

Finally, we will touch on sovereign immunity from taxation (particularly under the U.S. Code Section 892 regime), how this influences the structuring of investments made by sovereign wealth funds and how to avoid the traps.