BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI...

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BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner und Central Cluster Leader, PwC Zürich Dieter Wirth arbeitet seit 1998 bei PricewaterhouseCoopers in Zürich. Sein Beratungsschwerpunkt lag zunächst im Bereich M&A und internationale Trans- aktionen im Restrukturierungsbereich, dann im Bereich Finanzindustrie, wo er 2006 Partner wurde. Dieter Wirth ist (Co-) Head des PricewaterhouseCoopers Alternative Invest- ment Netzwerkes für Europa. Er ist Steuerberater und Rechtsanwalt mit exten- siver Erfahrung bei Kapitalmarkttransaktionen, Tax Due Diligence und interna- tionaler Steuerstrukturierung im Finanzsektor allgemein. Er ist Central Cluster Leader Insurance. Vortrag 1 „Internationale Private Equity- und Hedgefonds-Strukturen in der Schweiz - Bedeutung für deutsche Investoren“ Einführung von Dr. Matthäus Den Otter, Geschäftsführer der Swiss Fund Association (SFA)

Transcript of BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI...

Page 1: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“

Dieter Wirth Partner und Central Cluster Leader, PwC Zürich

Dieter Wirth arbeitet seit 1998 bei PricewaterhouseCoopers in Zürich. Sein Beratungsschwerpunkt lag zunächst im Bereich M&A und internationale Trans-aktionen im Restrukturierungsbereich, dann im Bereich Finanzindustrie, wo er 2006 Partner wurde.

Dieter Wirth ist (Co-) Head des PricewaterhouseCoopers Alternative Invest-ment Netzwerkes für Europa. Er ist Steuerberater und Rechtsanwalt mit exten-siver Erfahrung bei Kapitalmarkttransaktionen, Tax Due Diligence und interna-tionaler Steuerstrukturierung im Finanzsektor allgemein. Er ist Central Cluster Leader Insurance.

Vortrag 1„Internationale Private Equity- und Hedgefonds-Strukturen in der Schweiz - Bedeutung für deutsche Investoren“

Einführung von Dr. Matthäus Den Otter, Geschäftsführer der Swiss Fund Association (SFA)

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BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“

Rückfragen:Diese richten Sie bitte an die BAI-Geschäftsstelle unter 0228-96987-0Ihre verbindliche Anmeldung nehmen Sie bitte mittels beigefügtem Formular vor.

Da die Teilnehmerzahl begrenzt ist, bitten wir um frühzeitige Anmeldung.

Nach der Veranstaltung möchten wir Sie herzlich zu einem Imbiss einladen.

Teilnahme: Für BAI-Mitglieder ist die Veranstaltung kostenlos. Für Nicht-Mitglieder wird eine Teilnahmegebühr i.H.v. EUR 150 zzgl. MwSt. erhoben.

Dr. Alexander LindemannRA/StB, PwC Frankfurt/Zürich

Dr. Alexander Lindemann ist Mitglied der Alternative Investment Group und Structured Finance Services bei PricewaterhouseCoopers in Frankfurt und Zü-rich. Er ist auf die steuer- und aufsichtsrechtliche Beratung von Fondsmanagern, Banken und Versicherungen bei produktspezifischen Themen sowie auf Market Entry und Relocations spezialisiert.

Er ist regelmäßiger Referent für fachspezifische Themen und Autor einschlägiger Fachpublikationen. Als Rechtsanwalt und Steuerberater war er zuvor seit 1999 bei Clifford Chance.

Ort:PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft Olof-Palme-Straße 35 60439 Frankfurt am Main

Agenda: • Ab 15:30 Uhr Registrierung • Ab 16:00 Uhr Vorträge und  Diskussion• im Anschluss Imbiss

Datum: 23. Februar 2010

Mit freundlicher Unterstützung von:

Vortrag 2„Deutschland/Schweiz - Rahmenbedingungen für den Fondsvertrieb im Vergleich“

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BAI Insights 3“Frankfurt meets Zürich”

23 February 2010

Dieter Wirth, PricewaterhouseCoopers

Dr. Matthäus Den Otter, Swiss Fund Association (SFA)

Dr. Alexander Lindemann, PricewaterhouseCoopers

*connectedthinking

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Agenda/Contents

16:00 Introduction by Herrn Dornseifer (BAI) and Herrn Hammer (PwC)

16:15 General Swiss Income Tax overview (Dieter Wirth)

16:35 Regulatory Environment (Dr. Matthäus Den Otter)

17:05 International Private Equity and Hedge Fund structures (Dieter Wirth)

17:25 Environment for Fund Distribution – Comparison Switzerland-Germany (Dr. Alexander Lindemann)

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General Swiss Income tax overview

Dieter Wirth

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Slide 4

Agenda – Part 1General Swiss Income Tax overview

• General introduction to Switzerland

• Key Figures of different locations in Switzerland

• Requirements of tax residence

• Swiss income taxation for individuals

• Lump sum taxation

• Swiss income taxation for corporations

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Slide 5

General introduction to SwitzerlandOverview and political landscape

Germany

Government Leadership The Swiss Government consists of seven members of theFederal Council who are elected by the United FederalAssembly for a four-year mandate. The President of the SwissConfederation is elected for one year and is regarded as Primusinter pares, or first among equals, for this period.

Parliament 2 chambers (National Council / Council of States).

Federation 26 cantons Wide autonomy in various fields (e.g. schools, taxation,healthcare, justice, etc.).

Communes Wide autonomy in various fields, depending on canton (taxation,public transport, etc.).

Direct Democracy Elections Direct election of Federal, Cantonal and Communal parliaments;direct election of Cantonal and Communal governments andparliaments.

Referendum Almost all laws are subject to referendum.

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Slide 6

Key figures of different locations in Switzerland

Sources: UBS Research, Mercer Consulting, Schofield & Partner Geneva, Jones Lang LaSalle, IMD Lausanne

Comparison Geneva Zurich Zug / Pfäffikon

Airport (km from the center) 4 12 61 / 63

Downtown offices annual $/sq.m. 612 508 508

Rent furnished 4-room apartment in $ 3'705 3'360 3'360

VAT 7.60% 7.60% 7.6%

10y interest rate 3.18% 3.18% 3.18%

Corporate tax (effectiv) 24.2% 21.2% 16.1%/ 14.7%

Private income tax (max.) 47% 40% 23.1% / 19%

Individual Capital gain tax 0% 0% 0%

Inheritance tax (spouse and children) 0% 0% 0%

Wealth tax (max.) 1% 0.65% 0.33%/ 0.17%

Mercer quality of life 2009 (rank) 3 2 2

Cost of living index 109.8 107.6 107.6

Purchasing power 112.1 115.6 115.6

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Slide 7

Requirements of tax residence

• Individuals

- Gainful employment for more than 30 days per calender year inSwitzerland, or

- Habitual abode in Switzerland for more than 90 days without gainfulemployment

• Companies

- Domicile in Switzerland, or

- Effective place of management in Switzerland

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Slide 8

Swiss income taxation for individuals (I)

• Federal Tax

- The maximal federal income tax rate is 11.5% (no net wealth tax)

• Cantonal and municipal tax

- Income:

- Rates for individuals vary between approx. 18% to 41%depending on the canton and the municipality of residence

- Wealth and capital tax:

- Wealth tax varies between 0.17% and 0.7% depending on thecanton and the municipality of residence

- Real estate tax: Real estate gains and transfer taxes vary fromcanton to canton

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Slide 9

Swiss income taxation for individuals (II)

• Portfolio dividends, interest

- Fully taxable at ordinary rates

• Capital gains

- realized on the sale of privately held assets are exempt from income tax

• Relief on dividends from substantial participations

- Partial taxation on federal level due to new law if the participationamounts to at least 10% of the capital

- Privately held participations: 60%

- Participations held as business assets: 50%

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Slide 10

Swiss income taxation for individuals (III)

- Similar relief on most cantonal and communal level, e.g.:

- Canton of Zug, introduction as of 1 January 2007, applies the federalmethod (reduction of taxable base of 50% (starting 1 January 2009,before 30%)) for participations of at least 5% / fair market value ofthe participation of at least CHF 5 million

- Canton of Schwyz: Taxation at 25% of the applicable tax rate if thedistributed dividends stem from a participation of at least 5% in aSwiss company

- Canton of Zurich: Taxation at 50% of the applicable tax rate if thedistributed dividends stem from a participation of at least 10% of thecapital

- Canton of Ticino: Introduction as of January 2010, applies thefederal method (reduction of taxable base)

• Fund income

- Fully taxed to the extent Fund’s income is not capital gain

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Slide 11

Lump sum taxation (I)

• Conditions

- Claimant is not a Swiss citizen

- Claimant was not subject to income taxation in Switzerland for at leastthe last 10 years

- No employment in Switzerland (employment abroad is possible if notphysically performed in Switzerland)

- Management of own wealth is basically not harmful

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Slide 12

Lump sum taxation (II)

• Taxation

- Income taxation on the basis of the worldwide cost of living of theindividual and dependent family. Estimation of worldwide expensesdifficult, negotiations with tax authorities and fixed in binding ruling.

- Minimal tax base: 5 times rental value of Swiss home

- In any case at least the gross Swiss source income

- Double tax treaty benefiting income fully taxable

- No wealth tax

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Slide 13

Lump sum taxation (III)

• Benefits

- Foreign source income and wealth not taxed in Switzerland

- unless double tax treaty protected

- Very low overall tax burden

- Limited disclosure of worldwide income and wealth

- Qualification as Swiss tax resident

- Application of Swiss treaty network

- provided income has been taken into consideration forSwiss tax purposes

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Slide 14

Swiss income taxation for corporations (I)

Not possibleNot possibleTax consolidation

0.001% - 0.74% Depending on tax status, Cantonand Commune

No capital tax at Federal levelCapital tax rate

5.66% - 19.33%

Depending on Canton and Commune

7.83%Effective income taxrate for corporations(on profit before tax)

Individuals, corporations, cooperatives andfoundations

(not Funds)

Individuals, corporations,cooperatives, foundations

(not Funds)

Subject to taxation

26 Cantonal Tax Codes (partly harmonised)Direct Federal Tax CodeMain basis in law

Canton / communesSwiss Confederation

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Slide 15

Swiss income taxation for corporations (II)

0.344‰Domicile Companies

0.344‰Holding Companies

1.721‰Ordinary and Mixed CompaniesCapital Tax 2008

Holding, Domicile and Mixed CompaniesPrivileged Taxation

21.17%Ordinary TaxationTax on Profits 2008

Tax RateZurich

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Slide 16

Swiss income taxation for corporations (III)

0.153‰Domicile Companies

0.031‰Holding Companies

0.763‰Ordinary and MixedCompanies

Capital Tax 2008

Holding, Domicile and Mixed CompaniesPrivileged Taxation

16.09%Ordinary TaxationTax on Profits 2008

Tax RateZug

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Regulatory environment for asset manager & vehicles

(Dr. Matthäus Den Otter)

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Slide 18

Agenda – Part 2Regulatory environment for asset manager & vehicles

• Swiss Fund Associaton

• The regulations environment in general

• Comparison of regulation between Switzerland and EU

- Regulation of HF Manager in Switzerland

- Hedge Funds: Authorizations in Switzerland

- Hedge Funds: Distribution and Private Placement in Switzerland

• German Swiss relations

- German members

- German Funds in Switzerland

- Overview of Funds managers in Switzerland

- Switzerland in the context of Hedge Funds

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Slide 19

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Slide 20

Swiss Fund Association

Generalversammlung

Christoph LedergerberDirektor, Vontobel Asset Management AG, Zürich

Dr. Raoul-Philipp BachmannManaging Director, Credit Suisse, Zürich

Dr. Gérard FischerVizepräsident / CEO, Swisscanto Holding AG, Bern

Martin ThommenPräsident / Managing Director, UBS Global Asset Management, Basel

Vorstand

André UllmannCountry Head, COO, AXA Investment Managers Schweiz

AG, Zürich

Sven RumpCo-CEO, Deutsche Asset Management Schweiz AG, Zürich

Alexandre MeyerDirektor, Lombard Odier Darier Hentsch & Cie, Genf

Andreas VentourasEconomist

Hans Tschänistv. Geschäftsführer

Geschäftsstelle

Eva StingelinAssistentin der Geschäftsleitung

Stephan HeckendornSenior Counsel

Dr. Matthäus Den OtterGeschäftsführer

Steuern

Recht & Compliance

Products & Operations

Fachausschüsse

Vertrieb & Marketing

Internationales

Immobilienfonds

ETF

Alternative Investments

Arbeitsgruppen(auftragsbezogen)

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Slide 21

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Slide 22

The regulations environment in general (I)

• EU/CH AIFM-RL, EU Savings Directive, UCITS 4

• Germany: DBA, Bilaterales FSA-Agreement?

• CH- federal surplus 2009:

- oridnary surplus 2.7 Mrd. CHF

- Extraordinary surplus (UBS) 7.2 Mrd. CHF

- Debt reduction 2009 11 Mrd. CHF to a new total of 111 Mrd. CHF

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Slide 23

The regulations environment in general (II)

• CH:

- Strategy of the finance center

- Post-Banking secret?

- white money strategy

- more focus on Asset Management

- FDL-agreement with EU

• White money strategy banking / Banking FS agreement?

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Slide 24

Comparison of regulation between Switzerland and EU

KAG EU-Richtlinie

• tratditional & alternativ

- KGK

- QIF

Private placement

FINMA-circual public advertisement

• Legal forms:

Qualified investors

("Non-UCITS")

Securities FundsUCITS

• all legal forms

AIF

• traditional & alternativ

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Slide 25

Regulation of HF Manager ("Asset Managers of CIS") inSwitzerland

SwissFund

Off-shoreFund

(e.g. CaymanBVI)

On-shoreFund

(EEA, USA,Jersey,

Guernsey)

YESoptional

only

YESalways

HFManager

NOexcluded by§13 IV CISA

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Slide 26

Hedge Funds: Authorizations in Switzerland

Assetmanager

Swissfund

on-shorefund

(EEA, USA,Jersey, Guernsey)

off-shorefund

(e.g. Cayman BVI)

FINMA

FINMA

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Slide 27

Hedge Funds: Distribution and private placement in Switzerland

Swissfund

off-shorefund

(e.g. CaymanBVI)

on-shorefund

(EEA, USA,Jersey,

Guernsey)

publicadvertisingpermitted

•only private placement or•on initiative of the client

see:FINMA circular

"Public advertising"

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Slide 28

German – Swiss relations

• German members

- Total: 160 and thereof german origin

- 5 active members (KAG's & representative)

- Deka(Swiss) Privatbank AG

- Deutsche Asset Management Schweiz AG

- DWS Schweiz GmbH

- LB(Swiss) Investment AG

- Union Investment (Schweiz) AG

- 2 information members

- vwd Vereinigte Wirtschaftsdienste AG

- WM Datenservice

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Slide 29

German Funds in Switzerland (I)

Quelle: FINMA

5041+1%+265015+26%+10353980-2%-934073Total

39-41%-2766-31%-3096+5%+591Guernsey

3838+0%+53833+16%+5333300+13%+3852915Luxemburg

158+12%+17141+25%+28113+2%+2111Liechtenstein

581-4%-25606-6%-41647+20%+109538Irland

128+4%+5123+3%+4119+21%+2198Grossbritannien

208+25%+42166+19%+27139+42%+4198Frankreich

89+11%+980-2%-282-32%-38120Deutschland

2009in %2008in %2007in %2006AusländischeFonds

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Slide 30

German Funds in Switzerland (II)

291.28254.33400.32390.85362.14303.44Luxembourg

10.945.591.892.441.711.23Liechtenstein

0.160.190.701.030.890.63Jersey

1.250.340.730.710.640.55Ireland

2.444.739.4510.7710.227.14Guernsey

11.3111.2611.319.099.918.18Germany

1.822.070.540.200.120.05France

0.000.000.000.000.510.43Dublin

12/200912/200812/200712/200612/200512/2004in Mrd. CHF

Quelle: Lipper 2010

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Slide 31

Switzerland in the context of hedge funds (I)

• 3 main centres: Zurich/Pfäffikon/Zug, Geneva/Nyon/Lausanne andLugano

• Sophisticated client base with unique centralization of wealth

- Securities holdings in Swiss banks amounts to CHF 4264 billionswith CHF1260 billions in collective investment schemes (December09)

- Institutional investors, Family Offices, Wealth clients

- Two thirds of Swiss pension funds allocate 4% on average in HedgeFunds

• Fund of Hedge Fund Managers

- Together with the US and UK Switzerland is a global FoHF leader

- Swiss FoHF have a market share of 30% of the global FoHFindustry with USD300bn AuM (in Sep 2008; InvestHedge 2008)

- 5 of the 10 biggest FoHFs are domiciled in Switzerland; 284 Swissregistered FoHF as of 31.03.2009

Source: Swiss Funds Association; EuroHedge; SNB statistics; ZHAW

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Slide 32

Switzerland in the context of hedge funds (II)

• Single Manager Hedge Funds

- Industry is still relatively small; Switzerland is more focused on theinvestment management and advisory as well as marketing andsales

- Single HFs AUM approx USD 17.3bn, No 2 in Europe behind theUK (globally USD 1.7 trillion in SMHF as of July 2009)

- High growth: Switzerland added 10-20 HF managers over the lastyears with currently 136 hedge funds

- Market consists of a smaller number of well-established HedgeFunds (approx 5-10) and many smaller Hedge Funds (approx 80 –100)

- Hedge Fund vehicles are exclusively set up offshore

• Turnover of the industry approx CHF 3 to 5 billion

Source: Swiss Funds Association; EuroHedge; SNB statistics; ZHAW

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Slide 33

CH - D:

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International Private Equity and Hedge Fund structures –significance for German investors

Dieter Wirth

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Slide 35

Agenda – Part 3International Private Equity and Hedge Fund structures –significance for German investors

• Basic structures

• Taxation of Principals or Managers of Private Equity structures

• Taxation of Principals or Managers of Hedge Fund structures

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Slide 36

Basic structure 1 – Swiss branch

GermanyAsset Manager

GmbH / AG

Switzerland

effective tax of ca. 5%on transferred activities

CH taxes gainson profits

totalling cost + 10-15%x effective tax rate ca. 10-16%

Exemption by Double tax treatyfor profitstotalling cost + 30 %

(ca. 30% corporate and trade tax)

Transferof functions/ activities

BranchAcitivties z.B.:-Distribution

-Product Structuring-Research / Asset Management

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Slide 37

Basic structure 2 – Swiss subsidiary

Position for graphic or image

GermanyAsset Manager

GmbH / AG

Switzerland tax rate ca. 10%

tax rate ca. 30%(corporate and trade tax)

AdvisoryAgreement

SubsidiaryAsset Manager

AG

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Slide 38

Taxation of Principals or Managers of Private Equity structures (I)

FundAdvisory Co

(Swiss)Management Co

(foreign)

Principals

Investors

Advisory &Admin Fees

ManagementFee

Salary &Bonuses

Dividends

Capital gain

Dividends

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Slide 39

Taxation of Principals or Managers of Private Equity structures (II)

The analysis of the tax implications has to involve:

• Taxation at the level of the Fund

- The Fund is most frequently set up as a tax transparent structure. Itis hence not itself subject to taxation..

- The Fund’s income is hence directly allocated to the investors(including principals).

• Taxation at the level of the Advisory Company

- Arm’s length principles to be met

- Ordinary effective income tax rate between approx. 12.6% and24.2%

- Equity tax between approx. 0.005% and 0.8%

- Rulings for favourable tax rate depending on specific circumstances

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Slide 40

Taxation of Principals or Managers of Private Equity structures (III)

• Taxation of the Principals

- Income derived from the Fund shall not be qualified as income fromprofessional securities trading and therefore should not be regardedas self employment or employment income at the level of thePrincipal.

- Capital gains derived from the disposals of investments should qualifyas tax exempt capital gain at the level of the Principals. Theattributable capital gain has to be proportional to the equityinvestment in the fund. Capital income (dividends, interests, generalfees) however is taxable investment income.

- Such a tax treatment must be negotiated within an advance tax rulingwith the responsible tax authorities.

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Slide 41

Taxation of Principals or Managers of Hedge Fund structures (I)

• Profit split between offshore management company and Swiss Advisor.

• On-shore / off-shore structures are acceptable as long as theremunerations for the functions performed in Switzerland are at arm’slength (including split between salary payment and profit distributions).

• The expenses booked in all on-shore and off-shore entities correspondwith the function performed.

• Attractive overall taxation for managers / principals resident in Switzerland.

Salary received from Swiss Co &Dividend Income from Swiss CoSwiss Advisor Co

Switzerland

OffshoreManagement Company

(Cayman Ltd)

IndividualInvestors

IndividualInvestors

Funds Ltd.(Cayman)

Investors

Dividends & Advisory AgreementFees

CarriedInterest(dividend)from Funds

ServiceAgreement / Fees

Page 44: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 42

Taxation of Principals or Managers of Hedge Fund structures (II)

• Incorporation in kind of offshorecompany by the Principal.

• Claim against the Fund for futureexpected fee payments (e.g.performance fees) will be contributedinto the new offshore companyagainst nominal capital and sharepremium.

• The claim will be contributed at fairmarket value which is equal to thecapitalised future expected annual feepayments.

• Principal is domiciled in Switzerland.

Fund

InvestmentInvestment

Investors

OffshoreCompany

OffshoreCompany

Principal

Fees

Page 45: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Environment for fund distribution – comparison Switzerland-Germany

Dr. Alexander Lindemann

Page 46: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 44

Agenda – Part 4Environment for fund distribution– comparison Switzerland-Germany

• Regulatory and tax rules for distribution of foreign funds

• Specific requirements for insurance investors

Page 47: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 45

Regulatory and tax rules for foreign investment funds (I)

• For Public Distribution a fund registration is required

- Restrictive FINMA practice, comparable to BaFin practice

- Feasibility generally only for foreign UCITS (or Swiss Funds)

• For Private Placement no registration/banking license is needed. PrivatePlacement definition is wider than in Germany:

- Qualified investors

- Narrow defined group of people

Page 48: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 46

Regulatory and tax rules for distribution of foreign funds (II)

Exists a foreign collectiveinvestment scheme for Swiss tax

purposes?

1. Is the foreign collectiveinvestment scheme permitted for

distribution in Switzerland?

2. Is the foreign collectiveinvestment scheme supervised?

3. Is the criteria of the purpose ofa collective investment scheme

fulfilled?

4. Does the investors have a legalentitlement to redeem their units?

SICAF alike?

SICAF alike?

SICAF alike?

SICAF alike?

Criteria according to circular letter no. 24 (2009)

Qualification of foreign investment funds

Criteria similar to German ones, but alternatively instead of cumulatively

Page 49: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 47

Regulatory and tax rules for distribution of foreign funds (III)Taxation of foreign investment funds

• For open ended funds principle of Tax Transparency (similar as inGermany, but no Flat Tax including Capital Gains)

• Fund Units held as Private Assets (capital gains not taxable):- Net ordinary income (e.g. interest, dividends) of contractual funds,

SICAV and L.P., is subject to income taxes at the level of the privateindividual as distributed or deemed income

- Capital Gains realised by the collective investment schemes and fromthe redemption/sale of fund units are tax exempt for private investorsprovided that the capital gain is reported separately by the collectiveinvestment schemes (see below).

• Fund Units held as Business Assets (no tax deferral for capital gains)- Collective investment schemes as business assets are subject to

income and profit taxes for any income realised by collectiveinvestment schemes. E.g. irrespective of whether such profits areactual ordinary income or capital gains.

- Capital gains (difference between sales price and book value) fromsale/redemption is subject to income and profit tax

.

Page 50: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 48

Regulatory and tax rules for distribution of foreign funds (IV)Swiss tax reporting for investment funds – G-tax light?

• Unlike German fund tax reporting: - for Private Investors only

• Publication of Swiss income tax values to private investors is a competitiveadvantage because taxable investment income is split from tax exemptcapital gains

• In case of the Swiss income tax values not being made available, risk of- estimation of taxable income (e.g. five year SWAP interest rate of

respective currency)- taxation of basically tax exempt capital gains

• Publication of the Swiss income tax values on the official rates list is aservice provided by the Swiss Federal Tax Administration (“SFTA”) whichis free of charge

.

Page 51: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 49

Regulatory and tax rules for distribution of foreign funds (V)Swiss transfer stamp tax – concept of the future for Germany?

• The transfer stamp tax is the sale in securities, provided that one of theparties / intermediaries is a Swiss securities dealer.

• The tax rate is 0.3% on the price paid for foreign fund units – one half foreach party of the contract that is not exempt. The Swiss securities dealerhas to pay it.

• Foreign units/participations in contractual funds, SIVAV and L.P.’s qualifyas taxable securities for securities transfer tax purposes:

- The subscription of units/participations at the issuance in a foreigncontractual fund, a SICAV and a L.P. is subject to one half of securitiestransfer tax;

- Trading of units/participations in Swiss and foreign contractual funds,SICAV and L.P.’s is subject to securities transfer tax;

- The redemption of units/participations in Swiss and foreign investmentschemes, is generally exempt from securities transfer tax.

Page 52: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 50

Specific Requirements for Insurance Investors

Circular Investment guidelinesfor tied assets

Swiss Solvency Test

• Tied assets: cover technicalprovisions

• Allowed investments, limits andvaluations

• Capital requirements based oncompany risks

• Market, credit and insurancerisks relevant

How do hedge fundsinvestment products comply withthe circular?

What is the impact of hedgefunds investment products oncapital?

Page 53: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 51

10%10%

25%

25%

30%

securitized assets real estate

mortgage securities

alternative investments

Regulatory requirements – similar quotas but different policy

Maximal concentration: 5%

Max currency exposure: 20%

Max securities lending: 30 %

Bonds: 100% (5%)

Securitized assets : 10 % (1%)

Mortgage : 25% (5%)

Alt. Investments : 10% (1/5%)

Real estate : 25% (5%)

Equity Securities : 30%

Page 54: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 52

Circular investment guidelines for tied assets

• Hedge fund and fund of hedge fund:

- Investment in single funds, fund of funds, indices and baskets allowed

- Max 10%, per single fund 1%, per fund of fund 5%

- Authorisation by FINMA necessary

- No necessity of securitised instrument (Wertpapier), liquid market oreffective supervision

- Product specificities, in particular:

- Exit within 24 months max

- No additional commitments or set off, maximal loss = investment

- The insurance company has to have know how, organisation, andprocess to cope with this type of investment, due diligencenecessary

- Monthly NAV calculations

Page 55: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 53

Structured UCITS as a hedge fund wrapper

The investment fund replicates the hedgefund performance thanks to an indexcertificate based on the hedge fundperformance

• Can be viewed as “collective investments” under the circular?- UCITS Art. 53 KAG- Investment requirements: - Art. 82 AVO

- additional requirements for alternative investments may be avoided- Limit 5% (instead of 1% per single hedge fund)- Circular: general requirements for investments, e.g. the

requirement of safety of investment

Page 56: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 54

Fund linked notes: SPV

To avoid credit risk by bankissuers (Lehman effect)SPVs may be used asissuers

• Can be viewed as:

- structured products?

- securitized assets?

see correspondingcircular requirements

Page 57: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 55

Swiss Solvency test - concept

• Available Capital:

Market Value of Assets

minus

Market Value of Liabilities

• Required Capital:

Model required capital based on 1-year variations of:

• assets: market risk, credit risk

• liabilities: insurance risks

Available

Capital

Required

Capital

Page 58: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 56

Swiss Solvency test

• Major insurers use internal proprietary models

• Experience shows that asset risks are the most capital intensive

• FINMA (FOPI) has developed a standard model (life and non-life):

- Not sophisticated

- Very well known by the industry

- Can be easily extended for various funds

• Demonstrate the impact of including your funds into the whole assetportfolio:

- On solvency requirements

- On return

Page 59: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 57

• Lot of uncertainty around the exact details of Solvency II.

• New and revised guidance coming out on a regular basis.

• Different levels of readiness for insurers

• Internal models expected for most insurers and regulatory Standard Capital Model

• The QIS, Consultation Papers are currently our best indication of the StandardModel requirements

Solvency II timeline

Draft Framework (Level1) Directive published

(10 July 2007)

Level I Directiveadopted

Solvency IIin force

(31 Dec 2012)

QIS3 results(Nov 2007)

QIS4 results(Nov 2008)

Level III supervisoryguidelines

(by Dec 2011)

2007 2008 2009 2010 2011 2012

Member States transpose into national law

Legislative schedule

CEIOPS finaladvice on Level II

implementingmeasures

(staged delivery)QIS5

(Aug – Nov 2010)

Page 60: BAI Alternative Investment Insight 3 – „Frankfurt meets ... Insight/BAI_Insight_3.pdf · BAI Alternative Investment Insight 3 – „Frankfurt meets Zürich“ Dieter Wirth Partner

Slide 58

The challenge for insurers - opportunity for alternativemanagers? (I)

• Low return period:

- Insurers have provided interest rate guarantees and maturityguarantees

- Return to be achieved on market through traditional investments are low

• Solvency capital requirements:

- Capital resources are expensive

- Insurer must have sufficient solvency capital to operate

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Slide 59

The challenge for insurers - opportunity for alternativemanagers? (II)

• Solution: Alternative Investments

- Higher return than for traditional investments

- Low (or negative) correlations with traditional investments can lead tocapital relief

• 1st mover advantage:

- Products that have proven to be appropriate for Swiss Solvency Testwill have a clear advantage under the similar European rules ofSolvency II.

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© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the networkof member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independentlegal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).

Contacts

Dieter Wirth

Tax and Legal Services, Partner

PricewaterhouseCoopers AG

Birchstrasse 160

CH-8050 Zurich

Direct phone: +41 58 792 44 88

Mobile: +41 79 743 38 86

E-Mail: [email protected]

Dr. Alexander Lindemann

Tax & Legal Services, Senior Manager

PricewaterhouseCoopers

Birchstrasse 160

CH-8050 Zürich

Direct phone: +41 58 792 4432

Mobile:+41 79 636 0798

E-Mail: [email protected]

Dr. Matthäus Den Otter

Geschäftsführer

SWISS FUNDS ASSOCIATION

Dufourstr. 49

CH-4052 Basel

Tel: +41 (0) 61 278 98 00

[email protected]

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Slide 61

Many Thanks!