Luxembourg, a window over the world by IKM HSE

Luxembourg, a window over the world

January 2012 Nicolas Fermaud (Associate in charge of the Russia-Luxembourg Desk)

ÂŠ Allen & Overy LLP 2012

Contents I.

Why Luxembourg?

II.

A&O Luxembourg

III. Investment Funds IV. Taxation V.

ICM

VI. SPF VII. IP/IT

I. Why Luxembourg ? Luxembourg  Population: 511,840  GDP per capita: EUR 58,792

 Founding member of the European Union and the EUR Zone

 Public debt: 18.4% of GDP

 “Neutrality” given its size

 Unemployment rate: 5.9%

 Central location in Western

 Employment in the financial sector: 42,615

Europe/Access to Europe

 Banks: about 150

 Political & economic stability

 Insurance companies: about 100

 Business friendly environment

 Investment and other financial sector

 Favourable tax situation/predictable

professionals: 270

tax planning

 Fund administrators: 70

 Regulatory safety/high standards

 Management companies: 357

 Competitive operating costs (income

 Investment Fund Industry: 2nd in the world in terms of AuM

tax and national insurance)  Highly skilled multi-lingual workforce

Source: Luxembourg public (August 2011) & Eurostat (April 2011) © Allen & Overy LLP 2012

I. Why Luxembourg?  Innovative & collaborative approach between government, regulator & finance industry  Rapid transposition of EU directives  Fully developed infrastructure of financial services and support functions  More than 20 years experience in global fund distribution  Flexible legal and tax framework  Predictability of tax and regulatory planning (tax ruling practice, grand-fathering)  Tradition of customised and pragmatic financial regulation  Platform and hub for structuring international investments of corporates, SWFs and PE Funds © Allen & Overy LLP 2012

EXPERIENCE INNOVATION INTEGRITY STABILITY SERVICE QUALITY NEUTRALITY

I. Why Luxembourg? Specific regulatory frameworks for:  Alternative investment funds  Venture capital and PE funds  Specialized investment funds for institutional investors  International pension funds  Covered bonds  Securitization vehicles  Vehicles for managing family wealth

I. Why Luxembourg ?  Only Grand Duchy in the world  Independent since 1839  Constitutional monarchy governed by Minister Jean-Claude Juncker  Political & economic stability based on a culture of consensus  Ratings agency Standard & Poors have confirmed Luxembourg’s long term AAA rating  “Neutrality” given its size  Business friendly environment

I. Why Luxembourg ? Luxembourg and Russia 2

1 2009 : 1st foreign investor in Russia 3 in all time investments rd

Major Russian companies with presence in Luxembourg include: Sistema GPB Evraz Renova Absolut Bank Evrofinance Mosnarbank

Major “Russian listings” include: Vimpel-Communications Gazprom The City of Moscow Bank Moskva The Russian Federation

I. Why Luxembourg? Success Stories - Home to major global players:

Foreign Investors Sistema Gazprombank Evraz Renova Absolut Bank

ÂŠ Allen & Overy LLP 2012

ICT sector Amazon AOL Digital River eBay iTunes Napster PayPal Skype

Host country to European Court of Auditors European Court of First Instance European Court of Justice European Investment Bank European Investment Fund Parliament Secretariat of the European

Contents I.

Why Luxembourg?

II.

A&O Luxembourg

III. Investment Funds IV. Taxation V.

ICM

VI. SPF VII. IP/IT

II. Allen & Overy Luxembourg Our Values: 1990 Zeyen Beghin Feider

 Excellence in everyone and everything  Dedication to clients

1993 LOEFF CLAEYS VERBEKE

 Working together as one global practice  Respecting and including every individual  Entrepreneurial spirit and energy 1998 NEW PREMISES RUE CHARLES MARTEL

2000

 Helping our people to achieve their potential 160

HEADCOUNT 140

2008 NEW PREMISES AVENUE J.F.KENNEDY

2010 2Oth ANNIVERSARY

2011 AROUND 95 LAWYERS INCLUDING: 11 PARTNERS & 14 COUNSELS

120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

II. Allen & Overy Luxembourg The combination of our international network and sound local knowledge enables us to provide our clients with a first rate service in:  Banking  Capital Markets  Competition  Corporate  Intellectual Property  Insurance Law  Investment and Pension Funds  Labour Law  Litigation  Real Estate  Tax © Allen & Overy LLP 2012

Our Lawyers advise:  International corporates  International banks  Asset managers  Private equity houses  Insurance and reinsurance companies  Public entities We deal with all types of domestic and cross-border transactions, from local matters to pivotal international transactions. Luxembourg Law Firm of the Year IFLR European Awards 2007, 2009 & 2010

II. Allen & Overy Luxembourg - Awards  Luxembourg Law Firm of the Year IFLR European Awards 2007, 2009 & 2010

 Luxembourg Tax Firm of the Year ITR European Tax Awards 2010 & 2011

 Law Firm of the Year for Benelux FT Mergermarket Awards 2007, 2008, 2009 & 2010

 Intellectual Property Law Firm of the Year in Luxembourg Corporate Intl Magazine 2010 Legal Award

 Best brand Legal Services Luxembourg Marketing and Communication Awards 2009

 IP Firm of the Year for Luxembourg Managing Intellectual Property Global Awards 2009

 Prix de la Santé en Entreprise Luxembourg Health Ministry 2008 & 2010

 ICT Law Firm of the Year Luxembourg IT One Awards 2008 & 2009

 Run for Success Luxembourg Chamber of Commerce 2008 & 2009

 Benelux Law Firm of the Year Chambers Global Awards 2007

 Award for “Most Innovative Law Firm” Financial Times Innovation Awards 2007

 Labour Law Firm of the Year HR One Awards 2006 © Allen & Overy LLP 2012

II. Allen & Overy Luxembourg Less regulated

A vehicle for each investment profile

Law of August 10, 1915 Law of May 11, 2007

Law of March 22, 2004

More regulated

Law of June 15, 2004 Law of December 20, 2002 (Part II UCI)

Law of December 20, 2002 (Part I UCITS)

UCITS I

ÂŠ Allen & Overy LLP 2012

SICAR

Law of February 13, 2007

SoParFi

More Flexible

SPF

Securitization

SIF

UCI II

Less Flexible

Contents I.

Why Luxembourg?

II.

A&O Luxembourg

III. Investment Funds IV. Taxation V.

ICM

VI. SPF VII. IP/IT

III. Investment Funds Worldwide Investment Fund Assets (Market share in %) Luxembourg is the 3%

2%3% 3%

2nd largest investment fund

centre in the world

5% 49%

30%

USA Europe Brazil Australia Canada Japan China Others

after the USA

Source: European Fund and Asset Management Association (EFAMA) â&#x20AC;&#x201C; December 31, 2010 ÂŠ Allen & Overy LLP 2012

III. Investment Funds The 5 largest investment fund domiciles in Europe (by AuM) Luxembourg is the 1st place in the European 19%

market in terms of net

27%

sales and market Luxembourg

10%

France Germany

12%

18% 14%

Ireland UK Others

Source: European Fund and Asset Management Association (EFAMA) â&#x20AC;&#x201C; December 31, 2010 ÂŠ Allen & Overy LLP 2012

III. Investment Funds Investment funds in Luxembourg - a rapidly growing industry Net assets under management - EUR billion

Number of investment funds

4000 3500 3000 2500 2000 1500 1000 500 0

1995 1996 Source: CSSF/ALFI ÂŠ Allen & Overy LLP 2012

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

III. Investment Funds A changing world for fund managers  Loss of attractiveness of off-shore jurisdictions: Cayman, BVIs, Channel Islands, Mauritius, Cyprus  Upcoming regulatory changes (eg, increasing transparency requirements)  Increasing concern about investor protection  Tax efficiency – no double tax treaties, outside economic blocs, anti-tax haven legislation

Luxembourg has a competitive advantage over off-shore jurisdictions

III. Investment Funds Re-domiciliation from end 2007 to end 2009 Countries of origin

Target countries

Netherlands; 3% UK; 50% Mauritius; 3% Jersey; 3% Germany; 3%

Delaware; 3% Mauritius; 3% Malaysia; 3% France; 3%

Bahamas; 3%

Luxembourg; 31%

Channel Islands; 3% BVI; 3%

Luxembourg; 6% UK; 6% Ireland; 6% Jersey; 6% Bermuda; 6% Cayman islands;

Ireland; 6%

Hong Kong; 17%

50%

Guernsey; 8%

Guernsey; 8% BVI; 8%

Cayman islands; 11%

Over 30% of re-domiciliations of funds between 2007-2009 were to Luxembourg Source: PWC/Lipper ÂŠ Allen & Overy LLP 2012

III. Investment Funds Investment Vehicles Comparison: Undeniable success of the UCITS flagship in cross-border distribution Belgium

76.2% of all UCITS registered in at least 3 countries are Luxembourg funds

France

Ireland

Luxembourg 0

Source: CSSF/ALFI ÂŠ Allen & Overy LLP 2012

III. Investment Funds A wide range of investment vehicles adapted to your investment strategy Structures available

Initial decisions  Target investors

Regulated vehicles

 Target investment policy  Tax

FUNDS

SICAR

 Regulation UCITS

Part II UCIs

SIF

III. Investment Funds First decision - Target investors UCITS (2010 Act)

Part II UCIs (2010 Act)

SICARs (2004 Act)

SIFs (2007 Act)

Public distribution (including retail investors)

 Public distribution (including retail investors)

Well-informed investors  Well-informed investors

UCITS passport

No UCITS passport (possibility to benefit from AIFMD passport)

No UCITS passport No UCITS passport (possibility to benefit from (possibility to benefit from AIFMD passport) AIFMD passport)

Open-ended

 Closed-ended or open-ended

Closed-ended or open- Closed-ended or openended ended

Supervision by CSSF Structuring flexibility © Allen & Overy LLP 2012

III. Investment Funds Second decision – Target investment policy UCITS (2010 Act)

Part II UCIs (2010 Act)

SICARs (2004 Act)

SIFs (2007 Act)

Investment in transferable securities, money market instruments, bank deposits, funds and derivatives

Unrestricted range of assets

Risk capital only Private equity / venture capital only

Unrestricted range of assets

High level diversification requirement

Medium level diversification requirement

No diversification requirement

Low level diversification requirement

Supervision by CSSF Structuring flexibility © Allen & Overy LLP 2012

III. Investment Funds Second decision – Target investment policy (contd) 2010UCITS Act – (2010 Part I Act) (UCITS) Investment in diversification transferable Stringent risk securities, money market requirements instruments, bank deposits, -100% in TS/MMIs / max 10% funds and derivatives with the same body (5/10/40 rule) - 100% in deposits / max 20% with the same body - 100% in UCITS / max 20% with the same body - Max 30% in other UCIs (investing in eligible assets) / max 20% with the same body -Derivatives: look through principle, counterparty risk and exposure limit

Part IIAct UCIs (2010 2010 – Part II Act) UCIs Unrestricted range of 20% maximum assets concentration ratio

SICARs 2007 Act (2004 (SIFs) Act) Unrestricted range of No risk diversification assets requirement

2004 SIFsAct (2007 (SICARs) Act)  Risk capital only 30% maximum Private equity / venture concentration ratio capital only

Borrowings limited to 10% of the NAV (not for investment purposes)

III. Investment Funds Third decision – Tax 2010UCITS Act – (2010 Part I Act) (UCITS) Investment in transferable No corporate taxation or securities, money market wealth tax bank deposits, instruments, funds and derivatives

Annual subscription tax: 0.05% of NAV which could be reduced to 0.01% -Monetary funds -ETFs -Certain funds of funds

No WHT on distributions to investors

Part IIAct UCIs (2010 2010 – Part II Act) UCIs Unrestricted range of Taxation similar to assets

UCITS

SICARs 2007 Act (2004 (SIFs) Act) Unrestricted range of but Fully taxable entity, assets

•exemption of income and capital gains from investment in securities

2004 SIFsAct (2007 (SICARs) Act)  Riskcorporate capital onlytaxation No Private equity or wealth tax/ venture capital only

Annual subscription tax: 0.01% of NAV

•exempt from wealth tax •in principle, can claim treaty protection

No WHT on distributions to investors

III. Investment Funds Fourth decision – Regulation 2010UCITS Act – (2010 Part I Act) (UCITS) Investment transferable Substancein requirements securities, money market instruments, bank deposits, funds and derivatives • Appointment of a

Part IIAct UCIs (2010 2010 – Part II Act) UCIs Unrestricted range of High level substance assets

requirement will be introduced by AIFMD

SICARs 2007 Act (2004 (SIFs) Act) Unrestricted range of High level substance assets

requirement will be introduced by AIFMD

2004 SIFsAct (2007 (SICARs) Act)  Risk capital only High level substance Private equity /will venture requirement be capital only

introduced by AIFMD

management company OR • Self-managed EU passport for management companies

Promotorship requirement

No promotorship requirement

III. Investment Funds Setting up an Investment Vehicle

Key structuring aspects you should consider Multiple compartments (umbrella funds) Set up and service providers FCP / SICAV structure

ÂŠ Allen & Overy LLP 2012

III. Investment Funds Setting up an Investment Vehicle Initial decisions – umbrella funds Multiple ring-fenced compartments • Compartments are fully segregated (i.e. no risk of cross-contamination) • Each compartment may display specific features

Umbrella fund Compartment A

Compartment B

(closed-ended)

(open-ended)

Investment manager A Investors A Target A © Allen & Overy LLP 2012

Class B1 shares

Investors B1

Class B2 shares

Target B

Investors B2 28

III. Investment Funds Setting up an Investment Vehicle Contractual fund (FCP) vs. Investment company (SICAV)

FCP

SICAV

•No legal personality

•Legal personality

•Managed by a regulated management company

•Managed by a board of director (or separate general partner)

•Tax transparent from a Luxembourg

•Fiscally opaque

perspective

•Not subject to Luxembourg company law

•No decision making power to unitholders

•Derogations to Luxembourg company law

(e.g., variable capital, no restrictions on dividend distributions, redemption of shares, etc.)

•Shareholders have the right to vote 29

III. Investment Funds Setting up an Investment Vehicle Contractual fund (FCP) vs. Investment company (SICAV) Custodian

FCP

Investment management

Board of directors Administration

Management company Distribution

SICAV Investment management

Administration

Administrative agent

LUXEMBOURG Investment Manager/Adviser

ABROAD

Distributor ÂŠ Allen & Overy LLP 2012

Distribution

III. Investment Funds

AIFMD Alternative Investment Fund Managers Directive

ÂŠ Allen & Overy LLP 2012

III. Investment Funds Key objectives of the AIFMD

Key objectives

What does the AIFMD regulate?

►

Extend appropriate regulation and oversight to all actors and activities that embed systemic risks

►

Improve financial stability

►

Ensure that the Alternative Investment Fund Managers (AIFMs) are subject to a regulatory framework

►

Increase transparency towards regulators and investors, and public accountability for the actions of AIFMs

►

Enhance investor protection

►

Develop the EU internal market in the area of alternative investment, i.e., passports enabling AIFMs to offer their management services and market their AIF throughout the EU

►

Direct regulation of AIFMs

►

Indirect regulation of AIFs

►

Creation of a European market for alternative investments via passports for management and marketing activities

III. Investment Funds Key definitions An Alternative Investment Fund (AIF) is any collective investment

undertaking: • which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors • that does not require authorisation under UCITS An Alternative Investment Fund Manager (AIFM) is any legal person whose

regular business is managing one or more AIF • Where the AIF is internally managed and does not appoint an external AIFM, the AIF is the AIFM • ‘Managing’ means always at a minimum Portfolio Management and Risk Management, but may in addition also include e.g. administration

III. Investment Funds AIFMD scope

ÂŠ Allen & Overy LLP 2012

III. Investment Funds AIFMD scope matrix AIF M

AIF

Investors

In Scope

Date

Marketing EU

YES

2013

Passport

Full directive applies

Non EU

YES

2013

None

Full directive applies

None

• Full directive applies, except depositary and annual report requirements • Cooperation arrangements must be in place

NPPR

• Full directive applies , except depositary requirement • Cooperation arrangements must be in place • The non EU country may not be listed by the FATF

Scenario

Non EU

YES

2013

2013 2018 4

Non EU

YES

2015

Possible access to passport

Requirements

• Full directive applies • Cooperation arrangements must be in place • A tax agreement must be signed • The non EU country may not be listed by the FATF

III. Investment Funds Scenario

AIFM

Non EU

AIF

Investors

Non EU

In Scope

YES

Marketing EU

Requirements

None

• Full directive applies • Appointment of a Member State of Reference and of a legal representative • Cooperation arrangements must be in place • A tax agreement must be signed • The non EU country may not be listed by the FATF

NPPR

• Obligation to comply only with transparency and controlling interests provisions • Cooperation arrangements must be in place • The non EU country may not be listed by the FATF

2015

Possible access to passport

2013 2018

NPPR

• Same requirements as for Scenario 2 above

2015

Possible access to passport

• Same requirements as for Scenario 2 above

Date

2015

2013 2018

Non EU

YES

None

• None

Contents I.

Why Luxembourg?

II.

A&O Luxembourg

III. Investment Funds IV. Taxation V.

ICM

VI. SPF VII. IP/IT

IV. Taxation A. Double Tax Treaties network

64 DTT in force today 22 DTT in negotiation

Source: Luxembourg For Finance - Septembre 2011

ÂŠ Allen & Overy LLP 2012

IV. Taxation Basics of Luxembourg tax law

What is a SOPARFI Taxation  Corporate taxation at 28.80% (Lux-City)  Wealth tax at 0.5% on net value of assets  15% WHT on dividend distributions

Interest vs debt financing  Interest payments are tax deductible  In principle no WHT on interest payments  Dividend distributions subject to 15% WHT (subject to treaty protection and domestic participation exemption)  Dividend distributions are in general not tax deductible © Allen & Overy LLP 2012

IV. Taxation Basics of Luxembourg tax law

Corporations Thin capitalisation  15% equity / 85% debt (arm’s lenght ratio applied by tax administration)  If not respected, excessive interest payments may be requalified as dividends (15% WHT) and are not deductible

IV. Taxation Basics of Luxembourg tax law

Participation exemption

EU EU/ /treaty treatycompany company

Conditions  Subsidiary / investor and Lux HoldCo must be fully taxable companies  Subsidiary / investor must be a Luxco, a company falling under the scope of the Parent-Subsidiary directive, or be established in a country which has entered into a DTC with Luxembourg

Dividend No WHT No taxation of dividend income

Dividend

 Investor / Lux HoldCo must hold at least 10% (or acquisition value of EUR 1.2 Mio) during at least 12 months

10% 12 months

Lux LuxHoldCo HoldCo

10% 12 months

EU EU/ /treaty treatycompany company

IV. Taxation Basics of Luxembourg tax law

Participation exemption

EU EU/ /treaty treatycompany company

Tax treatment  No WHT on dividend distributions from subsidiary if subsidiary is a Luxco or an EU company falling within scope of Parent-Subsidiary Directive  No taxation of dividend income at level of Lux HoldCo if subsidiary is EU company or established in a treaty country

Dividend No WHT No taxation of dividend income

Dividend

 No WHT on dividend distributions to the investor if Luxco or EU company falling with scope of EU Parent-Subsidiary Directive

Lux LuxHoldCo HoldCo

10% 12 months

EU EU/ /treaty treatycompany company

 New: No WHT to investor if company established in a treaty country © Allen & Overy LLP 2012

10% 12 months

IV. Taxation Basics of Luxembourg tax law

Capital gains exemption  No taxation of capital gains if transfer of participation in subsidiary

Conditions

Transfer

Lux LuxHoldCo HoldCo

No taxation on capital gains taxation

 Subsidiary must be a fully taxable company

10% 12 months

EU EU/ /treaty treatycompany company

 Subsidiary must be a Luxco, a company falling under the scope of the Parent-Subsidiary directive, or be established in a treaty country  Lux HoldCo must hold at least 10% (or acquisition value of EUR 6 Mio) during at least 12 months

Purchaser Purchaser

 Recapture of acquisition value adjustments and costs if deducted in previous years

IV. Taxation Basics of Luxembourg tax law Investor Investor

Financing company  Back-to-back financing

FTL

 Loan flows from investor to Subsidiary (flow through loan)

Lux LuxHoldCo HoldCo

 Lux HoldCo needs to retain adequate spread (arm’s length principle)  Spread is taxable  No thin capitalisation rules apply

Interest

Loan

Taxable Spread

Interest

Subsidiary Subsidiary

IV. Taxation Basic holding structures Dividends

85/15 structure  Adapted to requirements

Luxembourg

Interest Investor Investor

thin

cap

 85% interest bearing loans  15% equity / interest free loans

15% Equity & IFL

85% IBL

Lux LuxHoldCo HoldCo

 No WHT on interest payments  15% WHT on dividends (may be reduced under applicable DTC)

Target Target

 Suitable when low annual returns

IV. Taxation The double holding structure Investor Investor

Financing  1% equity

1% equity

 99% flow through loans (FTL) / profit participating loans (PPL) or profit participating preferred equity certificates (PECs)  Similar to back-to-back loan  Loans are limited recourse  PECs may be considered as equity in certain jurisdictions, whereas as debt instrument in Luxembourg (i.e., hybrid structure!)

99% FTL

Lux LuxHoldCo HoldCo

99% PPL

1% equity

Lux LuxSubHoldCo SubHoldCo

IV. Taxation The double holding structure Investor Investor

Profit extraction At the level of SubHoldCo

Interest 100% of the profits minus annual spread

Dividends

 99% via PPL (no WHT / tax deductible)  Remaining 1% = taxable (at 28.80%)

Lux LuxHoldCo HoldCo

 And distributed via dividends (no WHT)

At the level of HoldCo  100% via FTL (no WHT / tax deductible)

Interest

Dividends

99% of the profit

 Minus annual taxable spread (at 28.80%)  Rest via Dividends (15% WHT)

Lux LuxSubHoldCo SubHoldCo

IV. Taxation The double holding structure Investor Investor

Scalable  Unlimited investors via multiple share classes and tracking loans

Investor Investor

Class A shares

Class B shares

Lux LuxHoldCo HoldCo

 Unlimited targets: simply add new SubHoldCo  Increase / decrease of investment

Lux Lux SubHoldCo SubHoldCo

Target Target11

Lux Lux SubHoldCo SubHoldCo

Target Target11

IV. Taxation The double holding structure Investor Investor

Investor Investor

Exit  Target and SubHoldCo will be liquidated

PPL reimbursement + share buy-back

Lux LuxHoldCo HoldCo

 Liquidation bonus exempt from WHT  Reimbursement of PPL at level of HoldCo  Share buy-back at level of HoldCo  HoldCo still investments

operational

for

other

Liquidation Bonus

Lux Lux SubHoldCo SubHoldCo

Liquidation Bonus

Target Target11

Contents I.

Why Luxembourg?

II.

A&O Luxembourg

III. Investment Funds IV. Taxation V.

ICM

VI. SPF VII. IP/IT

V. ICM

Luxembourg Stock Exchange

ÂŠ Allen & Overy LLP 2012

V. ICM (International Capital Market) Luxembourg Stock Exchange - an international listing centre  3,500 issuers from 105 countries

Issuers by region

 45,000 securities listed  64 sovereign states and

12.50%

15.81% 0.77%

quotation lines/month on average  Approximately 90% of issues are EMTN programmes  Listing in 54 different currencies © Allen & Overy LLP 2012

9.30%

0.36%

11 supranational institutions  More than 750 new

61.26%

V. ICM Luxembourg Stock Exchange Leader in the listing of international bonds Others Euronext 4.95%

London Stock Exchange

8.57%

3.19%

Strong listing activity Luxembourg Stock Exchange

Quotation lines (as at 30 Sept 2010)

41.79%

Bonds

29,764

Warrants Deutsche Börse 17.48%

7,332

Shares/GDRs

324

Domestic Foreign

34 290

Investment Funds Irish Stock Exchange 24.03%

Domestic Foreign

7,254 7,101 153

Total

44,674 53

V. ICM Luxembourg Stock Exchange Markets operated: Luxembourg Stock Exchange Markets

A. European regulated market “BdL Market” since May 1929

B. Exchange regulated market “EURO MTF” since July 2005

V. ICM Luxembourg Stock Exchange A. The main regulated market named ‘Bourse de Luxembourg’ On the EU list of regulated markets held by the European Commission Eligible for investment according to EU rules and for Eurosystem collateral requirements Easy procedure for cross offers of securities (simple notification in accordance with the provisions of the Prospectus Directive) The CSSF (Financial sector supervisor) is in charge of the approval of prospectuses. The Exchange deals with the listing application Combination of a listing fee plus a maintenance fee (annual fee) The fees cover three elements: the official listing, the admission to trading and the access to the trading system.

V. ICM Luxembourg Stock Exchange B. The Euro MTF Market  It is a Multilateral Trading facility (MTF) as defined in Article 4 (15) of the MiFID Directive and is not a regulated market on the list of EU regulated markets. Its name is a direct reference to this new category of market recognised in EU legislation  The Luxembourg Stock Exchange is responsible for the approval of prospectuses prior a listing of securities on the ‘Euro MTF’ market (Art 61 of the Luxembourg Law on prospectuses).  Contents of the prospectus defined by reference to the repealed 80/390/EEC Directive (Listing Particulars Directive). See Part II and the annexes of the rules and regulation of the LuxSE. Aternatively, the use of the schedules contained in the European Commission Regulation 809/2004 is possible.  Prohibition of market abuse (insider dealing and market manipulation) contained in the Luxembourg Law on Market Abuse  Out of scope of the Transparency Directive © Allen & Overy LLP 2012

V. ICM Luxembourg Stock Exchange B. The Euro MTF Market – Main advantages  Less stringent requirements for financial reporting and auditing in the case of non EU issuers (Prospectus and Transparency Directive requirements, 8th company law Directive)  No obligation to determine a home competent authority for debt securities with individual denomination of less than 1 000 Euros (non EU Issuers)  Lack of financial statements for SPV  One stop shop for the listing and the approval of the documentation  Eurobond tax exemption agreed by UK tax authorities  Eligibility to the Eurosystem operation (ECB)  Eligible market for investments done by UCITS

V. ICM Luxembourg Stock Exchange Admission to Regulated Markets in Europe  Condition: Prospectus Directive compliant prospectus  Prospectus must be approved by the Competent Authority of the country where the securities will be listed  In Luxembourg: • CSSF – competent for the prospectus approval • language regime generally in English. Luxembourg accepts 4 languages • Luxembourg Stock Exchange competent for the admission to trading • The application for admission must be signed and filed by the applicant or by any other person duly authorised to intervene for this purpose by the applicant (Issuer, listing agent, law firm, lead manager,...)

V. ICM

Investment Structuring

ÂŠ Allen & Overy LLP 2012

V. ICM Investment structuring (Debt / Equity) Repackaging of Equity - Holding model Group Parent Company 100% equity

LuxCo LuxSeCo (in principle not appropriate)

100% equity

Group Company

ÂŠ Allen & Overy LLP 2012

100% equity

Group Company

V. ICM Investment structuring (Debt / Equity) Repackaging of Equity - Investment model

Investor

equity/debt

LuxCo LuxSeCo (in principle possible)

equity

Fund/Company

(as, for example, German KG, UCIT, LP, REIT, etc.)

ÂŠ Allen & Overy LLP 2012

V. ICM Investment structuring (Debt / Equity) Intragroup financing - Standard model Group Parent Company equity/debt

LuxCo LuxSeCo (in principle not appropriate)

loan

Group Company

ÂŠ Allen & Overy LLP 2012

loan

Group Company

V. ICM Investment structuring (Debt / Equity) Intragroup financing - Repackaging of loans Group Parent Company € 1 equity/debt securities

equity equity

LuxCo LuxSeCo

€ 2

€

equity

Group Company

loan 4 € 3

Investor (restrictions if LuxSeCo used)

•LuxCo/LuxSeCo issues securities 1 + 2 . •LuxCo/LuxSeCo uses issue proceeds to acquire loan (portfolio of loans) from Group Company 3 + 4 . •After acquisition, LuxCo/LuxSeCo is lender under the loan. •Payments received under loans will be used to make the payments due under the equity/debt securities issued by LuxCo or LuxSeCo.

V. ICM Investment structuring (Debt / Equity) Financial institutions balance sheet cleaning

Investor € vs bonds 1

€ 2

Bank

swap payment (payments due under bonds) 6

LuxCo LuxSeCo

pool of assets 3

Swap swap 4

Counterparty

swap payment (payments under pool of assets) 5

•LuxCo/LuxSeCo issues bonds 1 . •LuxCo/LuxSeCo uses issue proceeds to acquire a pool of 2 + 3 . •Payments received under pool of assets are paid to the Swap Counterparty (which may be the Bank) under a swap entered into by LuxCo/LuxSeCo to hedge its payment obligations under the bonds4 + 5 . •Swap Counterparty pays to LuxCo/LuxSeCo the sums that LuxCo/LuxSeCo 6 must pay under the Bonds . •In the case of a default by the Swap Counterparty, the swap is terminated and payments under the pool of assets are paid by LuxCo/LuxSeCo to Investor rather than to Swap Counterparty). •At maturity, pool of assets realised (at pre-agreed price under swap or at market value) and sale proceeds used to redeem the bonds. © Allen & Overy LLP 2012

V. ICM Investment structuring (Debt / Equity) Structured note issuance

Investor € vs bonds 1 (index linked)

LuxCo LuxSeCo 3

INDEX

2 swap

Swap Counterparty 4

Collateral (for swap)

• LuxCo/LuxSeCo issues index linked bonds 1 • LuxCo/LuxSeCo enters into swap that provides LuxCo/LuxSeCo with monies payable under the bonds (amount payable under the bonds is determined by performance of index) 2 + 3 . • Issue proceeds will be invested in collateral. The cash flows under the Collateral and realisation proceeds will be paid under the swap to Swap Counterparty. In case of default of Swap Counterparty, swap is terminated and cash flow under Collateral and realisation proceeds of Collateral will be paid directly to Investor (rather than the Swap Counterparty). 4 This considerably reduces credit risk that investors are taking on Swap Counterparty. © Allen & Overy LLP 2012

V. ICM

Securitisation

ÂŠ Allen & Overy LLP 2012

V. ICM Issue vehicles – Securitisation Act 2004

uxembourg securitisation vehicles (SV) are governed by Securitisation Act 2004

ecuritisation Act 2004 expressly recognises: Limited recourse Subordination Non-petition Compartmentalisation

V is a fully taxable company but all commitments are deductible expenses (→ tax neutrality); no subscription tax; in principle no withholding tax; SV qualifies as taxable person for VAT

V. ICM Issue vehicles – Large Flexibility

SV may issue all types of securities (equity, notes, certificates, etc); financing by way of loans possible in certain circumstances

Any type of risks or assets may be securitised by an SV

No restriction as to Rating agencies are eligible investors for comfortable with the Securitisation Act an SV 2004 regime

(→ no risk diversification requirement)

V. ICM Issue vehicles - Supervision

 SV is subject to the supervision of the CSSF only if it issues securities to the public on ongoing basis (→ light regulation)  Luxembourg custodian only needed if SV is regulated  Accounts are reviewed by a statutory auditor (réviseur d’entreprises agréé)  SV is not required to publish a prospectus unless Prospectus Act 2005 applies (public offers; listings) © Allen & Overy LLP 2012

V. ICM Issue vehicles - Conclusion

SV is a suitable vehicle for simple and

complex transactions

SV may attract a broad range of investors

Securitisation is important feature to procure

ÂŠ Allen & Overy LLP 2012

financing to corporates and banks

V. ICM Securitisation vehicles To that effect, the Securitisation Act 2004 contains, and recognises the enforceability of, provisions on bankruptcy remoteness true sale compartments (segregation of assets and ring fencing) limited recourse (by operation of law) subordination no seizure of assets no petition © Allen & Overy LLP 2012

V. ICM Securitisation vehicles - Legal framework The Luxembourg act dated 22 March 2004 relating to securitisation, as amended (the Securitisation Act 2004)  covers all types of securitisation transactions  covers all types of assets  aims at isolating the securitised assets within a specific estate (patrimoine) and shifting the risks relating to these assets to the investors and creditors

V. ICM Securitisation vehicles - what can be securitised ?  any risks relating to (i) receivables, (ii) moveable or immoveable assets or (iii) obligations assumed by third parties or inherent to all or part of the activities carried out by third parties  by way of illustration (any assets which produce a regular and predictable flow of funds)  residential and commercial mortgage loans, corporate loans, credit card receivables or trade receivables

V. ICM Securitisation vehicles - what can be securitised ?  debt securities and equity securities (→constraints)  rights and claims relating to financial contracts (such as rights under derivative agreements; rights in respect of synthetic transactions where there is no transfer of assets but where risks are transferred under, e.g., a credit default swap)  rights and claims relating to operating businesses (such as airports, private hospitals, water utilities, pubs or forests → whole or partial business securitisations)  risks relating to insurance policies (→ impact of Directive 2005/68/EC relating to reinsurance) © Allen & Overy LLP 2012

V. ICM Securitisation vehicles - how are securitisations financed?

through the issue of securities (valeurs mobilières) the value or return of which depends on the securitised assets securities means any kind of (i) debt securities and (ii) equity securities including shares (→ constraints) and beneficiary shares

V. ICM Securitisation vehicles - who can securitize assets? choice between a securitisation company and a securitisation fund managed by a management company securitisation undertakings must be located in Luxembourg:  for a securitisation company, the registered office must be situated in Luxembourg  for a securitisation fund, the registered office of the management company of the fund must be situated in Luxembourg

possibility to use a two-tier structure comprising an issuing vehicle and an acquisition vehicle © Allen & Overy LLP 2012

V. ICM Securitisation vehicles A securitisation company may take the form of a:

public limited liability company

partnership limited by shares

(société anonyme)

(société en commandite par actions)

private limited liability company (société à responsabilité limitée (→ constraints))

co-operative society organised as a société anonyme

V. ICM Securitisation vehicles Regulated securitisation undertakings Securitisation undertakings will be regulated and must obtain an authorisation (agrĂŠment) from the CSSF if they issue securities to the public on a continuous basis (â&#x2020;&#x2019; if these two conditions are not met cumulatively, the securitisation undertaking will be unregulated and the CSSF will not be competent)

ÂŠ Allen & Overy LLP 2012

V. ICM Securitisation vehicles This implies:  Securities issued to the public  absence of legal definition  different notion as that used under the Prospectus Directive  CSSF guidance → two (rebuttable) presumptions: - professional investors (→ MiFID) - minimum denomination of EUR125,000

V. ICM Securitisation vehicles

 Securities issued on a continuous basis  absence of legal definition  CSSF guidance → more than three issues to the public per calendar year

V. ICM Securitisation vehicles Unregulated securitisation undertakings license requirement does not exist where the securitisation undertaking does not issue securities to the public on an ongoing basis benefit from all the provisions of the Securitisation Act 2004 must appoint one or more external auditors

V. ICM Securitisation vehicles Safe harbour - no insurance contract Securitisation transactions that are subject to the Securitisation Act 2004 do not constitute contracts of insurance (→ safe harbour provisions, among other things, for credit derivative transactions and for the assumption of risks relating to insurance policies)

Securitisation of financial assets, intellectual property, private equity, real estate, ....

Contents I.

Why Luxembourg?

II.

A&O Luxembourg

III. Investment Funds IV. Taxation V.

ICM

VI. SPF VII. IP/IT

VI. SPF Trading platform

Few Facts  Private investors or entity acting exclusively on behalf of private patrimony or intermediaries acting on a fiduciary basis on behalf of the private investors  SPF will take the form of a stock corporation

Beneficiary

Tax efficient repatriation

 No regulation. Activity and investment restrictions (non involvement in the business of the subsidiaries, no intra-group financing activity, no public issue of securities, no flotation on a stock market, no direct holding in real estate) Taxation  General tax exemption from CIT / MBT / NWT

SPF

 Annual subscription tax of 0.25% (min EUR 100 / max EUR 125.000)  Tax-free dividend distributions to investors

Nasdaq listed companies

RTS listed companies

Contents I.

Why Luxembourg?

II.

A&O Luxembourg

III. Investment Funds IV. Taxation V.

ICM

VI. SPF VII. IP/IT

VII. IP/IT 2009 IP Legislation offers: 80% exemption on net income and capital gains deriving from certain IP rights Exemption from wealth tax Eligible IP rights: patents, trademarks, designs, models, domain names and software copyrights Infrastructure support in IP management, seed funding, logistics and industry collaborations

Your Key contact at Allen & Overy

Nicolas Fermaud Associate â&#x20AC;&#x201C; in charge of the Russia-Luxembourg Desk Allen & Overy + 7 495 662 6543 nicolas.fermaud@allenovery.com

These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings.

ÂŠ Allen & Overy LLP 2012