Luxembourg Defends Investment Vehicles To OECD
Luxembourg’s fund management industry has responded to proposals put forward by the Organisation for Economic Cooperation and Development (OECD) on preventing treaty abuse, with a particular focus on the treatment of collective investment vehicles (CIVs).
The response, from the Association of the Luxembourg Fund Industry (ALFI), concerns proposals put forward by the OECD in September 2014, as part of Action 6 of its base erosion and profit shifting (BEPS) work. The OECD has proposed changes to the OECD Model Tax Convention and the OECD Commentary concerning the limitation-on-benefits (LOB) rule and issues relating to the treaty entitlement of CIV and non-CIV funds.
The Association’s response seeks to highlight that collective investment vehicles are widely held, diversified, and subject to investor-protection regulation in the country of establishment of the CIV, as identified by previous work of the OECD, and should therefore not be subject to the stringent rule changes proposed.
The Association stated: “ALFI takes the view that CIVs are principally set up for genuine commercial reasons, and given their economic characteristics it is reasonable to conclude that CIVs cannot, in principle, be effectively used for treaty shopping. This is the reason why the main focus of the BEPS Action Plan is – and should remain – multinationals and not CIVs. ALFI further believes that there are good grounds to consider that all CIVs set up as UCITS should always be considered as residents for treaty purposes.”
“Consequently, ALFI believes that the final report on Action 6 should foresee that all CIVs set up as UCITS as well as all other widely distributed non-CIVs whose characteristics are similar to those of UCITS will automatically qualify as resident for the purpose of Article 1 of the OECD Model Convention and that they will also be considered as qualified residents for the purpose of the LOB clause. Finally, ALFI also suggests to include a statement that Contracting States are encouraged to consider that UCITS and comparable non-CIVs will not be considered as creating opportunities for treaty shopping.”