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AGEFI Luxembourg


Juin 2019

Fonds / Bourse

By Ralf HEUSSNER, Partner Tax |

Transfer Pricing, Deloitte Luxembourg


t is time to revisit transfer

pricing in the alternative

asset management sector.

New concepts introduced by

theOrganization for

Economic Cooperation and

Development (“OECD”) as

part of the Base Erosion and

Profit Shifting (“BEPS”) initia-

tive in 2015 – aimed at aligning

taxationwith the economic activi-

ty that generates profits – are fun-

damentally reshaping the

international tax

landscape. This

positions trans-

fer pricing as one

of themost


topics in today’s

tax environment.

Additionally, the BEPS

initiative has inspired many


follow their own interpretation of these new con-

cepts. Scrutiny extends to formalistic aspects (i.e.,

appropriateness of existing documentation and

support available) aswell asmaterial aspects based

on the local tax authorities’ own notion of appro-

priate substance, control over risk and financial

capacity. Specific to the alternative asset manage-

ment sector,weobservean increased level of scruti-

ny intransferpricingonhowtoremunerate thedif-

ferent key functions along the value chain. Going

forward, this scrutiny is likely to include reviewby

tax authorities of group’s country-by-country

reports, with the aim of identifying any potential

mismatches between the jurisdiction(s) in which

profits are recognized and the location of invest-

ment professionals.

Lastly, the interaction between the regulatory and

tax dimension is becoming increasingly complex.

This is especially valid considering the trend

towards regulated structures, especially on the pri-

vate equity side, and the resulting impact on exist-

ing operating/organizational models. The main

impact relates to the additon of an Alternative

Investment Funds Manager (“AIFM”) into the

structure and the resulting changes to the opera-

tional set-up, substance and functionalityof thedif-

ferent parties involved, changes to transaction

flows, integrating theAIFMintokeydecision-mak-

ingprocesses (such as investment committees) and

the impact on the role of GPs.


ing developments for alternative asset managers

andprovides insight into key issues and important

practical takeaways.

Impact of BEPSon sector-specific

transfer pricing approaches

Transfer pricing for alternative asset management

covers the question how to split management and

performance related fees across the key activities

along the value chain such as capital rais-

ing, deal-sourcing, portfolio manage-

ment, investment advisory or the

principal function of anAIFM.

Historically, we can identify two

main transfer pricing models that

materialized in the alternative

asset management sector:

- Centralized models where the

activities of foreign-related par-

ties are limited to routine func-

tions such as investment

research/advisory or capital rais-

ing/marketing-related support

activities that are remunerated

based on a cost plus-type

approach; or

- Integrated mod-

els based on a

fee or profit

split where


parties perform

routine as well as

non-routine func-

tions (incl. portfolio

management, capital



investment committees)

and their remuneration is

based on a share of the management and/or per-

formance fees (or profits) based on appropriate

allocation keys.

While it is generally correct that the basic value

chain of many businesses within the asset man-

agement sector is similar, the choice of a method

that is appropriate to remunerate, for example, a

distribution or investment advisory function is in

practice quite complex. In addition, the nature of

the asset class can often have an important influ-

ence on the transfer pricing approach. Typically, it

ismore feasible to apply centralizedmodels with-

in sectors such as private equity, where a relative-

ly small number of large transactions occur and

the decision-making role of the investment com-

mittee can be seen as paramount, than in other

sectors such as hedge funds, where decision-mak-

ing is disbursed (e.g. to locally based traders).

Indeed, what have traditionally been fairly

straight-forward pricing policies are now becom-

ing far more complex as the recognition of new

value drivers, greater split of fee flows, and addi-

tional cross-border transactions are being recog-

nized. As such, BEPS should be a trigger for any

asset manager to revisit the appropriateness and

defensibility of their transfer pricing models in

light of the functions performed by the local affil-

iates and the value-added of these functions.

The regulatory dimension

Considering the rise of AIFMD-regulated struc-

tures, alternative asset managers will also need

to consider the impact of the addition of regulat-

edAIFMs into the operating and transfer pricing


Since theAIFMwill often need to delegate portfo-

lio management, capital raising, and other func-

tions—as well as acting as the legal counterparty

to such transactions—this will affect both the

organizational and operational set-up of the

fund manager group and transaction flows. It

may also be necessary to reconsider the conse-

quential impact on other parties. For example,

since the AIFM will perform regulated fund

management functions, the role of the fund gen-

eral partner(s) may be limited to (what could be

best described as) legal oversight. This may

require some alternative asset managers to revis-

it the current role and remuneration approach

for their general partner(s).).

It is also important to remember that AIFMs play

a unique role. Their functional profile can vary

significantly, from a more limited profile where

the AIFM typically focuses on risk management,

oversight of delegated functions and compli-

ance/reporting to a more fully-fledged profile

where the AIFM also performs part or all of the

investment management, distribution and fund

administration related activities. As such, the

other key challenge will be to develop an appro-

priate transfer pricing approach to remunerate on

the new role of the AIFM based on the functions

and risks profile and delegation model.

Status of tax authorities

Many tax authorities still lack the relevant experi-

ence and technical expertise needed in the asset

management sector. As a result, certain tax

authorities relied on rather formalistic criteria (i.e.,

whether reasonable efforts were made to docu-

ment the arm’s length (i.e., market) nature of

transactions, the non-documentation of certain

transactions, the non-recognition of a permanent

establishment or the lack of sufficient cooperation

under audit) as basis for their assessments invok-

ing presumptive taxation. Other tax authorities in

the past decided to focus on less complex transac-

tions such as the provision of intra-group services

instead. Nonetheless, this is likely to change in the

future as the tax authorities gainmore experience.

It is important to keep inmind that there are often

centralized operating models where there is one

regulated entity (i.e., the ManCo/AIFM) engag-

ingwithanumber of related (or unrelated) parties

across a range of jurisdictions linked to the activi-

ties that are being delegated. One of the key tax-

related concerns associated with the cross-border

delegationmodel is that all transactions flowback

to theManCo/AIFM, which in practice can cover

a large number of jurisdictions and even greater

number of transactions. In case of any transfer

pricing audits and resulting adjustments, the

ManCo/AIFMwould thus be the counterparty to

such transactions that could result in double taxa-

tion and/or penalties.

Given the potential impact of tax audits and

resulting controversy in light of centralized oper-

ating models on the asset management sector,

both tax authorities as well as financial regulators

are currently focusing on tax as a governance

topic. We are witnessing that tax authorities are

requesting more and more information as part

of—or even outside—their regular tax audits to

gauge the readiness of asset managers.

For example, duringmid-2018, the tax authorities

in Luxembourg contacted a range of asset man-

agers to request support that any intra-group

transactions adhere to the arm’s length standard

and as such probe how well-positioned asset

managers are with respect to transfer pricing as

part of their tax governance. At the same time,

financial regulators have started to focus on tax as

an indicator of proper management of regulated

entities as part of their inspections andon-site vis-

its. This shows that both tax authorities and

financial regulators recognize the importance of

pro-actively managing the potential rise of tax

controversy cases and their impact on the asset

management sector.

Practical implications

Taxpayers will need to respond to the challenge

by considering the following key questions:

-Are transfer pricingpolicies inplace and are they

consistently implemented?

- Are the transfer pricing policies applied defend-

able in light of BEPS and any recent functional

changes that may have occurred as a result of reg-

ulatory factors (especially the move to AIFMD-

regulated structures)?

- How is the role of the ManCo/AIFM remuner-

ated in case of AIFMD-regulated structures?

-What is the impact of the group’s transfer pricing

policies on its country-by-country report, in terms

of the jurisdictions inwhichprofits are recognized

and how does this compare with the profile of

where investment professionals are based?

- Is appropriate transfer pricing documentation in

place and are the functions and risks as described

within this documentation consistent with the

regulatory characterizationof the various entities?

- How can the existing transfer pricing and legal

documentation be improved as a first layer of

defense against potential tax audits?

- Is the ManCo/AIFM involved in the process of

setting the tax strategy and managing potential

tax position?

- How are tax audits being managed to avoid

potential inconsistencies in the overall transfer

pricing model?

- Is management of the ManCo/AIFM involved

in any audits/controversies within local markets

(bearing in mind that the Manco/AIFM would

often be the transacting counterparty under a cen-

tralized operating model)?

- Ismanagement aware of the options available to

manage tax audits/controversies ranging from

domestic appeals, MAP and/or APAs (e.g. as

“lighthouse” APAs that can be used to support

the transfer pricing positions towards tax author-

ities in other jurisdictions)?


The ongoing discussions show the complexity of

transfer pricing in the asset management sector

given the range of operating models and trends.

The BEPS initiative has a major impact on the

defensibility of existing transfer pricing approach-

es. The remuneration of captive regulatedAIFMs

is a complex issue that needs to be carefully con-

sidered in the transfer pricing model. It is also

essential that any analysis be alignedwith the reg-

ulatory dimension given the critical interaction

between both dimension on aspects of substance

and control over risk. An increasing number of

regulators are currently looking into transfer pric-

ing as an indicator of proper management of the

AIFM so the topic is not only relevant for tax pro-

fessionals, but also for management at the level of

theAIFM itself.

Revisiting transfer pricing in the alternative asset management sector

Par Luca PAOLINI, Chief Strategist et

Patrick ZWEIFEL, Chief Economist,

Pictet Asset Management


es effets d’une guerre com-

merciale à grande échelle

s’étendront bien au-delà

des États-Unis et de la Chine et

font peser la menace de la stag-

flation sur le monde entier.

Quand le commerce s’enraie, tout le

monde y perd.

Les investisseurs doivent donc se pré-

parer à subir certaines retombées de la

surenchère menée par la Chine et les

États-Unis : Pékin a annoncé des droits

de douane supplémentaires en repré-

sailles à la décision de Washington

d’augmenter les taxes sur l’importation

de 200milliards USDdemarchandises


Nos calculs indiquent qu’une guerre

commerciale à grande échelle entre la

première économie de la planète et la


mondiale dans la récession et causer un

fort recul des actions dans lemonde.

Notremodèlemontre que si des droits

de douane de 10% sur le commerce

américain étaient intégralement réper-

cutés sur les consommateurs, l’infla-

tionmondiale augmenterait d’environ

0,7 point de pourcentage. Cela pour-

rait ensuite réduire les bénéfices des

entreprises de 2,5% et causer une

chute des ratios cours-bénéfice pou-

vant atteindre 15%.

Tout cela signifie que les actions mon-

diales pourraient céder quelque 15 à

20%. Cela risque donc de ramener les

marchés boursiers mondiaux à leur

niveaud’il ya trois ans. Les rendements

obligataires américains pourraient chu-

ter, mais l’ampleur de la baisse serait

limitée, en raison de l’effet inflationnis-

te des droits de douane.

Washington et Pékin pourront peut-

être encore parvenir à un accord d’ici à

la réunion du G20 de juin, mais, en cas

d’échec, les hausses de droits de doua-

ne prévues pourraient peser sur leurs

deux économies : nous estimons que

les mesures actuelles sur le commerce

pourraient faire perdre 0,5% à la crois-

sance chinoise et 0,2% à la croissance


Pour couronner le tout, les effets d’une

guerre commerciale se feront sentir

bien au-delà des deux premières éco-

nomies de la planète. Des économies

ouvertes comme celles de Singapour

et Taïwan, en Asie, ou encore de

Hongrie, de République tchèque et

d’Irlande, en Europe, pourraient être

plus exposées que les États-Unis et la

Chine (

voir le graphique


Parmi les marchés d’actions, Wall Street

souffrirait davantage d’une escalade de

la guerre commerciale que les autres

places boursières, contrairement aux

idées reçues.


ché le plus onéreux de notre modèle de

valorisationet sa compositionsectorielle

est plus sensible aux variations de la

situation économique. D’après les ratios

cours-bénéfice de 2019, les valeurs du

marché américain s’échangent à un

niveau 30% plus élevé que leurs homo-

logues d’Europe, du Japon et des mar-

chés émergents. Ce sont les actions


plus chers, comme les biens de consom-


de l’information, qui souffriront proba-

blement le plus, tandis que les titres des

exportateurs chinois devraient égale-

ment êtremis sous pression.

Les investisseurs ne doivent pas parier

sur le fait que laFedva apporter unsou-


déjà prévu – les marchés financiers ont

déjà intégré la perspective d’une baisse

de 25 points de base des taux d’intérêt

avant la finde l’année.

Le portrait dressé par notre analyse est



financiers nous amontré que la levée de





500 a ainsi perdu 10% au cours du tri-



à lami-1971.

Comme l’expérience n’a de cesse de

nous le rappeler, les guerres commer-

ciales n’ont jamais de vainqueur.

Les répercussions sur les investissements de la guerre commerciale sino-américaine

La guerre et pas de paix

Les économiesmondialisées courent un risque

Taux de participation aux chaines de valeurmondiales*, pourcentage des exportations totales

* L’OMC définit le taux de participation comme le contenu étranger à valeur ajoutée des exportations d’un pays

+ la valeur ajoutée fournie aux exportations d’autres pays.