Challenges of 2015 for Management Companies
Do you have the right angle of approach?
In the framework of the fast evolving legal and regulatory environment, it is crucial for management companies to identify and understand which challenges they will be confronted with as from January 2015 on. To this extent, the three main angles of the forthcoming challenges can be summarised as described below.
All tax jurisdictions are nowadays putting focus and efforts on collecting taxes. In this context, Luxembourg taxpayers and the tax administration are receiving an increasing number of requests from foreign tax authorities to ensure that the taxpayers are able to justify that the remuneration for intra-group transactions is in line with the market price.
Following this trend, taxpayers should therefore take action to ensure compliance with the arm’s length principle and prepare transfer pricing documentation to be able to respond to enquiries made by Luxembourg or foreign tax authorities and in the worst cases to avoid a tax adjustment.
The investment management industry needs to pay careful attention to VAT since it is particularly exposed to potential large amounts of non-deductible VAT. It is therefore key for management companies to implement an appropriate monitoring of VAT in their organisations to ensure that they are compliant with the VAT Authorities’ requirements and take actions where appropriate to manage both their VAT position and their VAT costs accordingly.
In parallel, growing substance and organisational requirements are impacting Luxembourg management companies (CSSF 12/546 & AIFMD mainly). Additional requirements are expected with the coming regulation (UCITS V & ESMA guidelines on Compliance function).
Key regulatory requirements can be summarised as follows:
- A ‘sponsorship letter’ and ad-hoc guarantees can be required by the CSSF
- More detailed qualification requirements and stringent incompatibility regime to be observed for Directors and Conducting Officers
- Challenges on operating models and extent of centralisation
- Ensuring that internal governance and delegated control frameworks are in line with regulations, and that adequate policies are maintained
- Expertise and extent of decision-making, application of proportionality to meet substance requirements, and adequate support in terms of human and technical aspects
- Delegation and sub-delegation due diligence requirements and necessary approvals through the CSSF
- Impacts on control framework through UCITS V