EFAMA believes that the starting point for any discussion regarding the treaty entitlement of non-CIVs lies in the clear definition of a CIV (calculated intangible value).
EFAMA would strongly recommend to limit the definition of non-CIVs. Regulated investment vehicles that are sold to the public or that are open-ended and capable of having an unlimited number of investors should qualify as CIVs, irrespective of the legal form and the kind of assets the vehicle is invested in.
The 2010 CIV Report defines CIVS as investment funds that are widely held, hold a diversified portfolio of securities and are subject to investor protection regulation in the country in which they are established. However, no further definitions regarding “widely held “or “diversified” are provided in this context.
EFAMA has concerns that the consequences of this lack of definitions are widespread feelings of legal uncertainty. This uncertainty is also reflected in the concerns that have been sent to the OECD in relation to the treaty entitlement of non-CIVs. Especially among the different states very deviating definitions regarding non-CIVs exist. EFAMA would therefore recommend to spend more time on clear definitions.
EFAMA would strongly recommend to find solutions for the following difficulties which have to be faced by non-CIVs before implementing a LOB clause for non-CIVs:
• Different tax rates: In case the contracting states have deviating tax rates a recognition of the investors as equivalent beneficiaries might become difficult
• Special Purpose Vehicles (SPVs): Due to the often complex structures of non-CIVs that include several SPVs it is very likely that also non-CIVs will have difficulties to comply with the LOB conditions in practice. Investors, fund entities, fund SPVs and source country investments will frequently be in different jurisdictions. However, tax treaties regulate the outcome of bilateral transactions e.g. an investment by a resident of one country into an asset located in another country. This raises issues for non-CIV funds as to which bilateral treaty should in principle be relevant for any particular investment
• Deviating percentages of investors that are required to be resident of either contracting state
In addition, EFAMA would strongly recommend to put more attention on the actual structure of the investment vehicle rather than just implementing the same LOB clause for all CIVs / non-CIVs. In our view it is not appropriate to implement additional clauses, tests or rules for vehicles that are even not suitable for treaty shopping.
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© EFAMA - European Fund and Asset Management Association
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