Institutional investors, but also wealthy private investors, are often confronted with the situation that a certain investment cannot be acquired directly for legal and/or tax reasons. This applies in particular to the area of alternative investments (infrastructure, private equity, renewable energies, private equity, real estate, private debt, hedge funds, etc.), which is unavoidable for many investors in the current zero interest rate environment in order to generate the minimum return required by their own investors or policyholders.
Such target investments are typically set up in the form of foreign companies or funds. Direct investment by investors is often ruled out for (regulatory) legal reasons. However, direct investment is often also associated with significant tax disadvantages, e.g.
- Double taxation and definitive withholding taxes in various jurisdictions, which can lead to a significant reduction in after-tax returns,
- Deterioration/endangerment of the investor's own tax status (commercial infection of tax-exempt investors and special funds, cf. TAXGATE Blog from 10/02/2016),
- Complex tax declaration obligations abroad and at home (e.g. AStG declarations),
- Non-granting of investment income exemptions in accordance with section 3 no. 40 EStG and section 8b KStG,
- No application of the final withholding tax rate iHv. 25% at the level of private investors,
- Loss of the so-called fund privilege for investors who invest via special funds.
Indirect investments via securities that reflect the performance of the target investments are often an alternative investment option to avoid the disadvantages mentioned above. As part of such a securitisation, either target investments already held or new investments to be acquired are transferred to a so-called securitisation company, which issues securities to the investors that pass on the performance of the target investments to the investors. Luxembourg securitisation vehicles in particular have established themselves on the market. At the WM Seminar "Luxembourg Securitisation Vehicles - Investment Alternatives for Institutional Investors and Family Offices" on 17 March 2016 in Frankfurt am Main, experts with many years of practical experience will provide an in-depth insight into the possible uses and functioning of Luxembourg securitisation vehicles.
Dr Thomas Elser is a tax consultant at TAXGATE, a tax law firm specialising in transactions, investments and tax compliance.