Client Memorandum

On 29 September 2011, the EU Commission announced that it formally requested the Netherlands to amend its rules on the VAT treatment of a participation in supervisory boards. Under the Dutch VAT rules, individuals are not obliged to register for VAT, pay VAT on the compensations received or file VAT returns, if they hold no more than four positions as members of supervisory boards. As per the Commission’s views, the concept of an entrepreneur for VAT purposes results from an economic rather than from a civil or commercial law approach (“organ theory” not applicable for VAT purposes). Therefore, the activity of serving as a member of even one supervisory (management) board is to be considered as an economic activity subject to VAT in case this activity is carried out on a regular basis and against remuneration. In as far as Luxembourg is concerned, the practical impacts of this binding position in terms of VAT compliance and payments obligations will have to be determined on case-by-case basis, taking also into consideration specific VAT provisions which might also be applicable, such as VAT exemption and VAT registration threshold measures. We stay at your disposal for any further information in that respect.

A bill of law amending the law of 13 February 2007 relating to specialised investment funds (“the SIF Law”) has been deposited with Luxembourg Parliament on 12 August 2011.

The contemplated changes are the result of recent developments in the legal and regulatory framework of the European Union as well as in the administrative practice of the Commission de Surveillance du Secteur Financier (the “CSSF”).

The bill focuses in the main on the following key points:Introduction of new conditions under which SIFs or their management companies may delegate specific tasks and functions to third parties, notably in light of the requirements of the law of 17 December 2010 on undertakings for collective investments. In particular, the third party will in principle need to be authorised or registered for the purposes of asset management and subject to prudential supervision. If the authorised third party is located in a third country, cooperation between the CSSF and the supervisory authority of the third country must be ensured. In those cases where the delegation does not fulfill these conditions, the delegation may only be effective if the CSSF approves the delegate who/which must be of sufficient good repute and appropriate experience.The bill foresees a grand-fathering period which will lapse on 30 June 2013 in relation to these new delegation requirements.Introduction of the obligation for SIFs to follow clear rules for the minimization of potential risks arising from conflicts of interests and to put in place an appropriate risk management process.Introduction of prior authorisation of the SIF by the CSSF before commencement of the SIF’s activities.Introduction of a specification requiring any person entrusted with the management of a SIF to be of sufficiently good repute and to have sufficient expertise. The relevant person shall need to be approved by the CSSF.Introduction of the possibility of undertaking cross-investments between sub-funds, such as for UCITS, under specific conditions.
Please find attached a consolidated version of the SIF Law showing the changes which are proposed by the bill of law.