BEPS and substance

Many of the OECD's BEPS Project recommendations made in 2015 are now being implemented - fully and robustly - by countries worldwide. The EU has taken a clear lead, with strong political momentum not only pushing progress, but pressing Member States to police existing measures much more forcefully.

For the Real Estate industry - especially funds - this is already having a very visible effect on business operating models, and pressure for change is set only to increase. Under changes to the global network of double tax treaties likely to kick in in 2019 - under a Multilateral Convention signed by 67 countries (including 27 EU Member States) in June 2017 - tax-treaty benefits, such as the protection of exit gains from double taxation, and low or zero withholding-tax rates on interest and dividend flows, will only be available if a "principal purpose test" is passed. Taxpayers must be able to demonstrate that the principal purposes of any holding or financing structure do NOT include tax-treaty protection. OECD guidance on how this test could work was published in July 2017; this included very practical examples that describe real-estate fund operations in detail. The guidance sets the level of operational and decision-making activity that is needed - often termed "substance" - at a new, higher level than some fund managers have so far put in place.


Find out more  about the "principal purpose test" and other ways in which BEPS is affecting the industry, by reading our BEPS Industry Bulletin "Where does the Real Estate Fund industry now stand?".


Contact us

Alexandre Jaumotte

Partner, PwC Luxembourg

Tel: +352 49 48 48 5380

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