Towards the end of treaty benefits for funds?


Towards the end of treaty benefits for funds?

Executive Summary

In the last couple of years, there has been a tightening of the rules and practice around treaty benefits. This is not news for fund managers and investors, but this seems to be more common than before and for distribution to a wider range of beneficiaries. This is partly due to the OECD BEPS project that aims at tackling tax evasion. However, this goes beyond the sole purpose of fighting tax evasion, as it allows states to restrict treaty access to certain categories of tax payers.
Let us dive into the details of the OECD BEPS proposals and see the position of France and Luxembourg, regarding treaty access for funds.

The position of the OECD

The OECD BEPS proposals address a wide range of themes throughout 15 action plans, with a view to adapt the existing international tax rules to enable countries to combat tax fraud and tax avoidance more efficiently. One of these “actions,” namely Action 6, looks at developing model treaty provisions and recommendations regarding the design of domestic rules to prevent granting treaty benefits in appropriate circumstances. Treaty access for investment funds and pension funds is specifically covered in this action.

Pension funds

The response of the OECD for pension funds is relatively clear: pension funds should be considered as “resident” for
treaty purposes in the country where they are constituted, as long as they fall within the definition of a “recognized
pension fund.”1 Under the proposed rules, a “recognized pension fund” should mean “an entity or arrangement established in that state that is treated as a separate person under the taxation laws of that state and: (i)
that is constituted and operated exclusively to administer or provide retirement or similar benefits to individuals and that is regulated as such by that state or one of its political subdivisions or local authorities; or (ii) that is constituted and operated exclusively to invest funds for the benefit of entities or arrangements referred to in subdivision i).” The definition is rather generic and clear; we expect that, if implemented, it should not raise particular difficulties.

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Performance magazine issue 22, January 2017

Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients.

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