FutureGen Network: Intro to Fund Structures and Tax

1. To ask questions during this event please search Slido.com into your web-browser and enter the code #X127 AREF FutureGen Network Back to Basics – Intro to Fund Structures and Tax Wednesday 26th June 2019

2. Welcome Patrick Groves Member of the AREF FutureGen Committee Senior Associate, CMS

3. Speakers Alex Moss Cass Business School Leonie Webster Deloitte James Mulholland Carey Olsen

4. Poll Question:Please select which topics you are familiar with. To answer this poll please search Slido.comin your web-browser and enter the code below: Slido.com Ref:#X127

5. Alex Moss Director, Real Estate Research Centre Cass Business School Alex.moss.1@city.ac.uk

6. Cass Real Estate Research Centre Building the bridge between theory and practice • Launched in Q4 2018, theCentre’s purpose is to provide a dynamic link between the academic community and practitioners involved in real estate. • Key objectives: • Produce reports on a commissioned and ad hoc basis on under-researched areas of industry interest • Host events on topical issues for the industry • Facilitate the production of academic papers for  publication in journal and conferences • Offer dedicated Executive Education courses for industry practitioners • Funding is via sponsorship from industry partners • Sign up to the mailing list on the website to receive details of forthcoming events • https://www.cass.city.ac.uk/faculties-and-research/centres/real-estate

7. Leonie Webster Partner at Deloitte Changes in tax landscape and the impact on fund structuring

8. Historical Fund Structures Tax outcome driven by the structure – investor profile less relevant Lux Fund or ELP Debt Sale of shares Master Luxco Lux participation exemption on gains/dividends. Instruments used to repatriate cash. Low/nil rates of WHT on interest/dividends under treaties and directives Dutch Holdco French Propco Lux Propco Jersey Propco Spanish Propco UK Assets German Assets French Assets Spanish Assets Arm’s length equivalent interest deductions generally available at the Propco level Gains exempt due to preferential treaties

9. The changing tax and fund environment What has happened? • General • Focus on tax in the media • OECD initiated the BEPS (Base Erosion and Profit Shifting) project • Global and EU changes to treaties and domestic legislation • Changes to taxation of income • European interest deductibility restrictions (local and EU changes) • Growth of REIT/REIT like structures (e.g.UK REIT/Spanish Socimi/French OPCI/Italian REIF)

10. The changing tax and fund environment • Taxation of gains/RETT • Real estate rich clauses • UK introduction of NRCGT – taxation of gains but exemption for certain investors • RETT changes • Repatriation of income • Restrictions on treaty access, increasing focus on beneficial ownership and substance, changes recommended by the OECD • Changes in fund environment • Increased regulation e.g. AIFMD – affecting choice of fund vehicles • Luxembourg ruling processes and substance

11. Fund Structures today In the future tax outcomes may increasingly be driven by investor profile Lux SCSP Currently - increased uncertainty on tax outcomes due to changing legislation e.g. ATAD in Europe Lux chosen for fund expertise, flexible vehicles etc Master Luxco? Currently more scrutiny on access to treaties and directives – in the future this will continue - impact could be greater level of tax on cash repatriation UK structure (see overleaf) Lux Propco? Lux Propco? Lux Propco? UK Assets Restricted interest deductibility increasing the tax liability at the local level Uncertainty on how this may develop as a result of EU proposed changes Spanish Assets German Assets French SCI Tax on exit in local jurisdictions as a result of local and treaty changes French Assets Debt Sale of shares

12. UK Structuring Traditional UK structures • Goingforward • Transition for NRLs from income to corporate tax. Significant change in tax regime bringing inter alia introduction of interest limitation rules. Tax likely to increase. • Introduction of non-resident capital gains tax. • New and old regimes bring more choice, e.g: Jersey/Lux Holdco REIT Exemption regime Transparency regime Standard corporate structure Offshore Propco Move the tax point up to the investor level JPUT UK Assets UK Assets • Greater choice of vehicles and regimes – as well as above we have ACS, PAIF, EUUT • Onshore/offshore structures? • Investors may have different preferences New NRCGT rules and NRL transition to CT

13. Trends for the future Tax outcomes may be increasingly influenced by the tax profile of investors rather than the structure itself Growing trend for distinctions between investors Tax risk/reputation being considered and queried at the highest level Funds/JV partners will require more information about an investor’s tax status; investors will seek to ensure the benefits of their status flow to them Greater focus on purpose of arrangements Growing use of retrospective legislation and significant changes in tax treatment during life of investment - uncertainty BEPS related increases in tax

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15. James Mulholland Partner at Carey Olsen

16. Our credentials

17. Funds: The Basics What is a "fund"? A fund pools together money from a number of individuals (or investors) and invests it – for example, in UK commercial real estate. Key features –risk spreading at asset level AND multiple investors Aim– help investors grow their money and provide an income or 'return on their investment'

18. Funds: The Basics Legal constitution of a fund • There are three main types of fund vehicles:

19. Funds: The Basics Why are most funds regulated? • Investor protection • Degree of regulation varies depending on: • how sophisticated investors are • how widely available the fund is • Consequences of regulation: • regulatory oversight from Jersey regulator • cost • Marketing into the EU – the Alternative Investment Fund Managers Directive (AIFMD)

20. Funds: The Basics Why are most funds regulated? • Degree of regulation varies according to sophistication and number of target investors • The Jersey Financial Services Commission or "JFSC" has different 'products’. For example: • Listed Funds • Expert Investor and Eligible Investor Funds • Jersey Private Funds • Retail/Quasi-retail (similar to UCITs) • Not all funds are regulated

21. Structure Diagram – a typical unit trust structure Unitholders (investors) Trustee Manager invest £ Trust Instrument Distributions Other service providers Trust Instrument Fees Fees Fees Unit Trust Bank (provides financing) Service provider agreements Fees Limited Partnership General Partner Holding Company Rent Rent Rent

22. Funds: The Basics Key service providers to the unit trust

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24. Conclusions

25. Thank you