Agefi Luxembourg - mars 2025

Mars 2025 27 AGEFI Luxembourg Fonds d’investissement E urope’s capital markets are at a pivotal moment. While Europeans save a significant portion of their income, they often fail to unlock the potential of these savings through invest- ment. In contrast to other regions, where householdwealth is acti- vely invested, Europe’s financial assets largely remain dormant in cash and savings accounts. This presents both a challenge and an opportunity. Currently, EUR10 trillion of household wealthinEurope(41%)isheldincashand savings,comparedtoEUR13trillion(16%) intheUS.Thissubstantialdifferencehigh- lightstheneedtomobilisethesefundsinto productive investments. By activating Europe’s €33.5 trillion in householdfinancialassetswecanacceler- ate growth in Europe, and fuel a new era of financial empowerment. Key to this transformation is unlocking the vast po- tentialofretailsavings,particularlybypro- moting second-pillar occupational pensions through auto-enrolment, ade- quately designed investment solutions and targeted tax incentives. These solu- tionswillnotonlybenefitindividuals,but alsodrive economic growth andfinancial stability across the continent. Inordertofosteratrueinvestmentculture in Europe, ALFI recommends a set of concrete actions designed to unlock Eu- rope’s savings potential, stimulate invest- ment, and drive long-term economic growth, that can be implemented at both national and EU levels. While many of these levers fall within the powers of na- tional governments, EU institutions can play a key role in guiding and encourag- ing fundamental reforms. a)Mobilising younger generations - Financial education in schools : Intro- ducemandatory lessons focusingon fun- damentals of investing, including compound returns, long-term investing, andunderstandingmarket risks. - Investment accounts for children : Pro- mote investment accounts over savings accounts, fostering long-term investment habits froma young age. -Buildinganinvestmentculture :Launch annual events and competitions for stu- dents,rewardingthebest“mockportfolio managers” with contributions to their in- vestment accounts. - EU-wide investor education campaign : Tackle adult financial literacy to support pension reforms andempower citizens to make informed investment decisions. b) Strengthening European pension systems As Europe faces significant demographic challenges, modernising pension sys- tems—particularly second-pillar pension schemes—is crucial: - Pension tracking tool: Introduce anEU- wide tool to trackfirst-pillarpensions and later expand to second and third pillars, based on transparent, demographically sensitive rules that give citizens a clear viewof their retirement expectations. - Best practices framework : Focus on transparency, efficiency, broad eligibility ofpensionschemes,andsimplifiedpartic- ipation for employers and employees. - Encouraging competition and benefi- ciary choice : Second pillar pension schemes should be accessible to multiple providers (banks, insurers, asset man- agers)toensurecompetitivecosts.Benefi- ciaries shouldhave the freedomtochoose theirallocationsandinvestmentproducts, as this hasproven toenhancefinancial lit- eracy andmarket participation. - Investment strategies and default op- tions : Capital-guaranteed products should be limited to those approaching retirement due to their low yields. De- fault investment solutions should focus on long-term growth, with high equity exposure for younger investors and life- cycle investing strategies. Providers should offer guidance tools and model portfolios to assist employees inmaking informed decisions. - Supporting the real economy : Pension schemes should allow allocations to pri- vate asset investments. - Promote auto-enrolment and portabil- ity : Employees should be automatically enrolled, with both employers and em- ployees required to contribute, supported by targeted tax incentives. Additionally, ensuring cross-border pension mobility andconsistenttaxtreatmentwillhelpmo- bilise bankdeposits into the economy. - Enhance IORP (Institutions for Occu- pational Retirement Provisions) and PEPP (Pan-European Personal Pen- sion Product) - Frameworks : Eliminate regulatory bar- riers to foster cross-border pension solu- tions.Allowforaunified,scalablepension product to simplify saving for retirement. c) Investment SavingsAccounts (ISAs) AnISAcouldbeanadditionalentrypoint to savings products or pillar 3 pension schemes and be combined with targeted tax incentives. ISAs should: -Covera broadspectrumofassets likeeq- uities, bonds, UCITS, and ETFs. Invest- ments into private assets via Alternative Investment Funds or ELTIFs should also be possible. - Be easily accessible through banks, in- surers,investmentfundmanagersandin- vestment firms. - Be available to minors , encouraging earlyfinancial literacy. - Operatewith uniform, simple tax treat- ment —tax-deductible contributions with tax-free growth. - Avoid unnecessary restrictions such as fee caps or mandatory EU investment al- locations. - ISAs offer a proven model, ready to be implemented without the complexity of newlabels or agencies. d)Supervisoryconvergence, not central- isation Wesupportregulatoryconvergencewhile maintainingnationalexpertisebyuphold- ing a decentralised supervision model. National authorities should retain agility and adaptability inmanaging asset man- agementregulations.Acentralisedsuper- visory body would add complexity and costs without solving existing barriers to fund distribution. Changes to the current supervisory framework would not result indirectinganyadditionalsavingstocap- ital markets in Europe and would be an unnecessarydistraction. Source: ALFI More information :https://www.alfi.lu/en-gb/publications Association of the Luxembourg Fund Industry (ALFI) Unlocking Europe’s Savings and Investment Potential A BLUEPRINT FOR SAVINGS & INVESTMENTS MARCH 2025 By Eric CENTI, Partner & Pablo CASABE, Senior Manager at Deloitte Luxembourg W hile sometimes considered a “lowprofile” tax, recent deve- lopments have set Subscrip- tionTax (1) in the spotlight. In this regard, a noticeable rise inSubscriptionTax audits initiatedby the Luxem- bourg competent tax autho- rity (2) has been observed in recentmonths. Com- pliancewith the requests of information canbe challenging, as the ins- pectors of theAEDare requesting an extensive range of informationwi- thin a limited timeframe. SubscriptionTaxisleviedonthenetassetvalue(NAV) of Luxembourg funds, including UCIs (3) , SIFs (4) , and RAIFs (5) . UCIs are subject to a general rate of 0.05%, whileSIFsandRAIFsaresubjecttoa0.01%rate.Nev- ertheless, the legislation provides several rate reduc- tions and exemptions. Even though some voices have been advocating for its removal, Subscription Tax remains an important sourceof revenue for theLuxembourgState (6) , and its extinctiondoes not seemlikely for the foreseeable fu- ture.Incontrast,thecurrenttrendseemstobethe“fine tuning” of its scope, establishing specific reductions and exemptions (7) , combinedwith a higher degree of scrutinybymeansofaudits.Thebelowchartdescribes the consistent evolution of the assets under manage- ment(AuM)ofLuxembourgdomiciledfundsdespite the increase of revenue generatedby the collection of SubscriptionTax by theAED. Inaddition to thepotential applicationof interest and penalties,poorcompliancewithSubscriptionTaxob- ligations may also trigger a red flag with respect to AML legislation (8) , whichmay lead to further investi- gationsbythe Commissiondesurveillancedusecteurfin- ancier (CSSF). A CSSF Circular considers the lack of adequateSubscriptionTaxsupportingdocumentation asoneoftheindicatorstoconsiderinAMLtaxriskas- sessments.Duringlate2022,theCSSFpublishedathe- maticreviewonLuxembourgIFMs(InvestmentFund Managers),whichhighlightedweaknessesconnected with SubscriptionTax as one of its keyfindings (9) . The Subscription Tax audits currently performed by theAED’sinspectorsincludeanintegralreviewofthe supporting documentation connectedwith the com- pliance of such tax, notably covering: - Written procedures, and formalized control frame- work; -NAVcalculations; - Technical descriptionof the IT systemused for Sub- scriptionTax compliance; - Internal and/or external controls; - Sample testing of filed returns and interviews with the relevant teams; and -Othermeasuresputinplace,suchasstaff training anddata storage. The first item of this list is specially re- markable:Whenperforminganaudit,the AEDiscurrentlyexpectingtofindinplace anadequateSubscriptionTaxgovernance framework, including a detailed written procedure and robust internal controls to manage andmonitor the relevant tax ob- ligations. Suchprocedure shouldnotably cover the methodology implemented to determine the taxable basis, addressing, when needed, the necessary steps to apply rate reductions and exemptions. Inthissense,oneofthemainfocusofsaidauditsisthe verification of the correct application of the so-called “Lux fundof funds” (FoF) exemption (10) .Whena FoF invests in another Lux fund (TF) subject to Subscrip- tion Tax, such participation should not be taxed again (i.e., there is a“FoFexemption”). Thepur- pose of this rule is to prevent economic double taxation (11) . TheFoFexemptionisonlyapplicableprovided that the underlying fund (i.e., the TF) was actu- ally subject to Subscription Tax on the relevant assets (12) .Undersuchconditions,theFoFisal- lowedtoexcludefromthetaxablebasis theportionoftheNAVattributable toinvestmentsmadeinTFsthat were subject to Subscription Tax. In contrast, if the TF was not subject toSubscriptionTax, the FoF exemption shall not be applicableandtheFoFshallpay the Subscription Tax on the NAV represented by the invest- ments held in suchTF. The challenge of applying the FoF exemption relates to the need tomake a detailedbreakdown of the rel- evantportfoliooftheFoF,distinguishingbetweenin- vestments inTFs subject toSubscriptionTax andTFs thatwhere not subject to such tax. This is not an easy task for large funds investing in multiple Luxem- bourg TFs. This is due to the multiple situations where a TF is exempt/excluded from Subscription Tax and, therefore, the FoF is not subject to the FoF exemption, as detailed below: - Vehicleswithout regulated fund form; - Investment companies in risk capital (SICARs); -ReservedAlternativeInvestmentFunds(RAIFs)that have as exclusive object the investment in assets rep- resenting risk capital; - UCIs qualifying as listed Index Funds; - UCITS qualifying as activelymanagedETFs; - UCIs, SIFs and RAIFs qualifying as eligible short- termMoneyMarket Funds; - UCIs, SIFs andRAIFs qualifying themselves for the FoF exemption; - UCIs, SIFs andRAIFs qualifying as EuropeanLong TermInvestment Funds (ELTIFs); - UCIs, SIFs andRAIFs that have asmainobjective to invest inMicrofinance Institutions; -UCIs reserved to investors in the context of pan-Eu- ropeanPersonal PensionProducts (PEPPs); and -UCIs,SIFsandRAIFsreservedforinstitutionsforoc- cupational retirement provision and employee’s re- tirement benefits plans. Themostprudentapproachtomonitorthecorrectap- plicationoftheFoFexemptionrequirestoimplement aclassificationprocedurethatallowstocheckwhether the relevant TF fallsunder the scopeof anyof the sce- narios under which it would not be subject to Sub- scription Tax (which would, in turn, disallow the application of the FoF exemption). Only when it has beenconfirmedthattheTFdoesnotfallunderneither oftheexempt/outofscopecategories,itwouldbepru- denttoconsiderthattheFoFexemptionshouldapply to a particular case. The tax authority seems to be alignedonthisapproach,sincetheseelementsarecur- rentlybeingrequestedandreviewedduringtheSub- scriptionTax audits. As a final note, theAEDpublished last year updated online forms for submitting Subscription Tax re- turns (13) . Notably, the new online forms now require declaring and individualizing the legal name and CSSFnumberofeachTFgivingrisetotheapplication of the FoF exemption, which should clearly increase the extent of supervision of the AED on this matter. While the new online forms are already launched, there is a transition period that will last until August 2026, during which the old forms will remain valid. During such transition period, Luxembourg invest- mentfundsmaychoosetoapplyeithertheoldornew versions of the online forms. Inconclusion,themonitoringofcompliancewithSub- scriptionTaxmatters is undoubtedly in the spotlight. TheAED is conducting integral audits on thismatter and the updated tax forms that will becomemanda- tory in the near futurewill enhance suchmonitoring function.ApplyingSubscriptionTax rules is complex in some situations, like in the case of the FoF exemp- tion. It requires a proper governance framework, in- cluding detailed written procedures, and robust internalcontrols.Luxembourgassetmanagersshould take proper action toput inplace suchmeasures and monitor their effectiveness. 1) Taxed’abonnement. 2) Administration de l’enregistrement, des domaines et de la TVA – “AED”. 3) Undertakings for Collective Investment, as per Article 173 of theLawof17December2010(“UCILaw”). 4) Specialized Investment Funds, as perArticle 66 of the Law of 13February2007(“SIFLaw”). 5) ReservedAlternative Investment Funds (“RAIFs”) which do nothaveasexclusiveobjecttheinvestmentoftheirfundsinassets representingriskcapital,asperArticle45and48oftheLawof23 July2016(“RAIFLaw”). 6) According to the AEDAnnual Report 2023 ( Rapport d’activité 2023del’Administrationdel’enregistrement,desdomainesetdelaTVA , page 148), the SubscriptionTax revenue for FY2023was around EUR1.2billion. 7)E.g.,thereducedratesestablishedforFundsthatinvestinqual- ifying sustainable economic activities [Article 174(3) of the UCI Law] and the recently established exemption for actively man- agedETFs[Article175(g)oftheUCILaw]. 8) The LuxembourgAML Law (Law of 12 November 2004) es- tablishesthatcertaincoveredprofessionalsofthefinancialsector have the obligation to informwhen they know, suspect or have reasonablegroundstosuspectthatmoneylaundering(whichdef- initionincludes“aggravatedtaxevasion”and“taxswindle”). 9) Communication Published on 8 November 2022 in the CSSF officialwebsite (https://www.cssf.lu/en/2022/11/aml-cft-controls- applied-in-terms-of-preventing-tax-offences/). 10)Article 175(a) of the UCI Law,Article 68(2)(a) of the SIF Law andArticle46(2)(a)oftheRAIFLaw. 11)i.e.,topreventthattheSubscriptionTaxisleviedtwiceonthe sameasset. 12)AsclarifiedbytheAEDCircularN°818of26July2023. 13)AEDCircular821of15July2024. Subscription Tax in the spotlight: Increasing number of audits launched by the tax authorities 2025 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 SubscriptionTaxRevenue* AuM Luxembourgdomiciliedfunds* *IndirectTaxAuthorityAnnualReport2023 *ALFIAnnualreport2023-2024 6000 5000 4000 3000 2000 1000 // 1,2 0,8 0,4 0 €billion