ALFI, the Association of the Luxembourg Fund Industry, has moved to clarify the position of Luxembourg-domiciled funds in relation to the recent discussions on the so-called “LuxLeaks”.
Luxembourg-domiciled investment funds are subject to an annual subscription tax (“taxe d’abonnement”) calculated on their assets under management. In contrast, the vast majority of other countries do not apply any taxation at all on a fund level.
The quasi-totality of Luxembourg investment funds, and more specifically ‘UCITS’ funds, do not need, nor do they obtain, rulings.
At times, real estate or private equity funds, which represent only a few tens of billions of the EUR 3000 billion of total assets under management by Luxembourg funds, need to use ‘special purpose vehicles’ (SPV) at the level of which rulings may be granted. SPVs are common market practice and used in many jurisdictions, primarily for legal and regulatory reasons[1]. Rulings applied to SPVs mainly aim to ensure that fiscal neutrality is maintained. In other words, an investor should not be fiscally disadvantaged when he invests in real estate or private equity through a foreign fund rather than directly.
Camille Thommes, Director General of the Association of the Luxembourg Fund Industry (ALFI), says: “There is no tax advantage by domiciling an investment fund in Luxembourg. Fund managers and international investors select Luxembourg as a domicile because of the track record and unequalled expertise of the investment fund industry in Luxembourg.”
He adds: “Regulated investment funds are an important source of funding for the economy, i.e. for small- and medium, as well as for multinational companies, for infrastructure projects, environmental or social entrepreneurs. They are well-regulated financial products for investors around the world. There is no reason to draw such investment funds into the recent discussion on tax practices in Luxembourg.”
Camille Thommes emphasises that: “Investment funds play no role in enabling people or companies to avoid tax: investors in Luxembourg investment funds will be essentially taxed in their home country, according to the local tax rules, on the income derived from their investment.
“In the meantime, everybody knows that tax rulings are legal and commonly used in many jurisdictions. They are not a ‘Luxembourg-specific’ practice, contrary to what the LuxLeaks press seems to suggest. It is difficult to get rid of the feeling that LuxLeaks is a targeted campaign against Luxembourg”.
