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Tax oversight, tax and regulatory reporting

Tax oversight

Tax Governance and Tax consulting services

More than ever, a strong tax governance is needed, don’t forget that we are in an ESG world where G stands for good governance in the tax field.

What? In a post-BEPS world, substance is a key element of international tax law and varies depending on domestic laws and double tax treaties.  In this context, business players were supposed to adopt a strong corporate tax governance policy to remain compliant.

Am I at risk? If in a post-BEPS world, you have adopted a good corporate governance in terms of substance, permanent establishment and tax residency, and you are supervising and monitoring your (delegated) tax functions, then the current pandemic situation should not constitute a risk for you. 

However, if you are not currently monitoring and supervising the delegated tax functions of your business and you do not have a robust tax governance policy, you are at high risk. For instance, depending on the different domestic laws, tax residency may be constituted where the place of effective management is. In the absence of a strong substance policy before the pandemic outbreak, you are at risk of having a double tax residency if (1) the statutory seat of the company is in Luxembourg, (2) the decisions are taken virtually outside of Luxembourg due to the pandemic restrictions and (3) you have no documentation prior to the outbreak.

How we can help? Our services cover assistance in designing and implementing a robust Tax function, support regarding ATAD, BEPS, etc.

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Portfolio tax management

Return on investment and management of the liquidities are part of your daily job. However, do you also monitor and supervise regularly the taxes arising from your worldwide investments and which are a material component of your return on investment?

What? Investment funds invest at a European or worldwide level depending on the portfolio's strategy. Income received by investment funds, such as dividends and capital gains, generally suffer withholding tax in the investment country. 

How to optimise my portfolio taxation? If the portfolio’s taxation is not properly monitored and supervised, you are at risk of a lack of tax efficiency, which ultimately will affect the investors’ cash return.  It is therefore crucial to set-out a withholding tax management policy to optimise the taxation of your investment funds and to make sure that you reclaim the full withholding tax potentially reclaimable (not only the double tax treaty amount).

Does the current situation increase my tax risks? Possibly, your current service provider may not be able to provide you anymore with the usual tax services, such as double tax treaty reclaims. In general, you need to check if all the possible reclaims are made by your delegate in all the possible countries and that your delegated tax functions are still properly functioning on a day to day basis.

How we can help? Our services cover assistance with regards to Withholding taxes, Abonnement tax,  capital gain taxes, Tax representation, Tax reclaim etc.

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Tax reporting

Investor tax reporting and fund tax regime

Today, satisfying the local tax and regulatory reporting requirements is fully part of the distribution strategy of the asset managers. However, navigating through the complex European tax legislation landscape is hard. Our Global Tax Compliance team assists you in understanding the various reporting schemes and in making sure you comply with the local requirements. 

What? Cross-border fund distribution calls for the fulfilment of the different tax or regulatory reporting requirements in Europe. Each distribution country requires different reporting figures (annually but also daily, quarterly...). The tax regimes of the main fund distribution demand significant effort to fulfill the reporting requirements and reduce the risk of publishing incorrect figures. In many countries, meeting these reporting requirements is seen as a hurdle that must be overcome to achieve market entry.

What are your challenges? Tax or Regulatory reporting includes highly complex tax computation for each jurisdiction with non-standardised reclassification of accounting figures/financial instruments. In addition it implies having a strong knowledge for the interpretation of highly complex regulatory requirements. Some reporting may also require having access to certain external data sources. 

Besides, legislation is constantly evolving, so it is crucial to monitor these changes to assess the impacts on the reporting and to implement new procedures when needed. 

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Exchange of information

While FATCA and CRS are in force in Luxembourg for several years, the amendments to the laws that are in effect since 1 January 2021 creates additional obligations in terms of governance.

What? Investment Funds are subject to two tax transparency regulations applicable worldwide, namely FATCA and CRS. Based on FATCA and CRS rules, an Investment Fund should obtain certain documents (self-certifications, W-8) from their investors upon subscription to collect information such as tax residence, tax identification number and FATCA/CRS status. Depending on the information collected, the Investment Fund may have to report annually to the Luxembourg tax authorities (which will transmit the information to the relevant foreign tax authorities) the value of the participation of the investor in the Fund together with any payments derived during a given year.

Am I at risk? As the quality of the reporting largely depends on the reliability of the investor documentation collected, Investment Funds (or in practice their service providers) should not only verify that those forms are complete but also reasonable.

Tax authorities are expected to conduct audits in the near future and are now requesting Investment Funds to make sure to have a sound governance around FATCA/CRS as they have for AML purposes and to document their compliance actions. As such, Investment Funds are expected to have policies and procedures and an oversight mechanism to ensure that their service providers are duly completing their tasks and maintaining an audit trail in an IT system.

How we can help? PwC specialized team has a broad experience in providing clients with  FATCA/CRS investor on-boarding and reporting services via an on-boarding and reporting platform in line with best practices in terms of audit trails. Our team can also assist you in drafting or reviewing your policies and procedures and can give you comfort on the quality of the information contained in the FATCA/CRS reports prepared by other service providers.

Those services are delivered through PwC Tax Information Reporting, the PSF of PwC Luxembourg. 

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Indirect taxation

What are your challenges? VAT can be a significant cost to the asset management industry. A VAT exemption applies to the management of special investment funds, and so a range of services supplied to funds are not subject to VAT. However, certain services cannot benefit from the exemption. There are different interpretations of the scope of the exemption across different EU Member States and there is a growing volume of EU case law on the subject.

Furthermore, suppliers providing exempt services (management companies, administrative agents, etc.) have to determine how to recover VAT on their purchases.

Funds and asset managers must consider both VAT risks and opportunities when setting up and developing their product range.

How we can help?

  • We review the VAT treatment of services supplied and received and assist with VAT reporting obligations to monitor VAT risks;
  • We provide assistance in securing VAT treatment (advising on supporting documents/reviewing fee arrangements); and
  • We propose solutions to mitigate the cost of irrecoverable VAT and we identify savings opportunities.

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Regulatory reporting

AIFMD

After 6 years of existence, AIFMD faces a turning point as from 2021 with its review and its implications.

What? Managing and marketing units of AIFs in the EU implies navigating through the complex and extensive requirements of AIFMD. 

Which difficulties may I face? On top of the regulatory compliance aspect, reporting aspects since the introduction of the ESMA checks complexify the task. In addition, for Non-EU AIFMs, reporting under AIFMD requires applying local specificities even if the AIFMD has a European reach. A steady and robust reporting policy is therefore required to ensure compliance with this directive.

Investor regulatory reporting

To complete your fund distribution to professional investors, Investor regulatory reporting (solvency II, CRR II, VAG, GroMiKV...) is a must. 

What? When distributing your funds either to certain type of investors and/or in certain countries, being ready and offering investor regulatory reporting contributes to the success of your fund distribution. 

Which difficulties may I face? Although regulatory reporting is not mandatory, Professional Investors, in order to comply with their own requirements, will impose from the funds in which they invest to provide regulatory reporting. 

Assessing the type of reporting required per type of investors and per country is required to successfully answer the investors requirements. 

Therefore, having a global fund distribution to several types of investors asks knowing all the reporting types, classification to make according to the type of reporting, managing properly the data and handing out the reporting within short time frames.

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EMIR/MIFID

EMIR

The European Market Infrastructure Regulation (EMIR) has introduced a broad range of regulatory requirements for OTC derivatives within the European Union. 

The regulatory updates in recent years have brought new challenges, risks and opportunities to the derivatives market participants.

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MiFID

Since 1 January, 2018, Market in Financial Instrument regime (MiFID II/MiFIR) is live and has significantly  affected the banking and asset management industries at several levels. Between 2015 and 2018, market players invested a lot of effort and energy to ensure that their organisations and operations are compliant with this new regulatory environment.

However, with its complex implementation and significant impacts on organisations, MiFID II/MiFIR generates on-going concerns. Combining both compliant and efficient processes with business constraints is a key success factor for market players under this challenging regime.

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PRIIPS / UCITS KID

In force since January 2018, the PRIIPS (Packaged Retail Investment and Insurance Products) reporting will face a significant evolution in 2022 with the extension of the application to UCITS funds and new developments in the Regulation. 

What? As a finance industry player (asset manager, banker or insurer) who manufactures financial products (e.g. Investment funds, Life-insurance products, structured products, derivatives etc.) sold to retail clients, you have to provide a KID (Key Information Document) to your final clients prior to the sale. The aim of the PRIIPS KID is to enable more transparency and comparability between PRIIPS for retail investors. The KID has to be designed according to the standards laid down by the PRIIPs regulation. 

Which difficulties may I face? On 1 July 2022 (date to be confirmed), the current exemption for UCITS funds (and to AIF producing a UCITS KID) will not be longer applicable and the UCITS KIID will have to be replaced by the PRIIPS KID.

In addition, newly proposed amendments to the PRIIPS Regulation will introduce various changes in the current KID, in the information to be provided into the document but also in the way future performances are calculated and disclosed and notably by introducing reference to past performances. PRIIPs manufacturer should consider the operational impact of these changes to make sure they will be ready to comply with the new requirements of the Regulation.

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Contact us

Oliver Weber

EMEA AWM Tax Leader, Luxembourg AWM Leader, Partner, PwC Luxembourg

Tel: +352 49 48 48 3175

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