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To ask questions during this event please search Slido. com into your web-browser and enter the code #X 127 AREF Future. Gen Network Back to Basics – Intro to Fund Structures and Tax Wednesday 26 th June 2019 Slido. com - ref: #X 127 Proudly sponsored by:

Welcome Patrick Groves Member of the AREF Future. Gen Committee Senior Associate, CMS Slido. com - ref: #X 127 Proudly sponsored by:

Speakers Alex Moss Cass Business School Leonie Webster Deloitte Slido. com - ref: #X 127 James Mulholland Carey Olsen Proudly sponsored by:

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Alex Moss Director, Real Estate Research Centre Cass Business School Alex. moss. 1@city. ac. uk Slido. com - ref: #X 127 Proudly sponsored by:

Cass Real Estate Research Centre Building the bridge between theory and practice Launched in Q 4 2018, the Centre’s purpose is to provide a dynamic link between the academic community and practitioners involved in real estate. Key objectives: • Produce reports on a commissioned and ad hoc basis on under-researched areas of industry interest • Host events on topical issues for the industry • Facilitate the production of academic papers for publication in journal and conferences • Offer dedicated Executive Education courses for industry practitioners • Funding is via sponsorship from industry partners Sign up to the mailing list on the website to receive details of forthcoming events https: //www. cass. city. ac. uk/faculties-and-research/centres/real-estate Slido. com - ref: #X 127 Proudly sponsored by:

Leonie Webster Partner at Deloitte Changes in tax landscape and the impact on fund structuring Slido. com - ref: #X 127 Proudly sponsored by:

Historical Fund Structures Tax outcome driven by the structure – investor profile less relevant Debt Sale of shares Lux Fund or ELP Lux participation exemption on gains/dividends. Instruments used to repatriate cash. Low/nil rates of WHT on interest/dividends under treaties and directives Master Luxco French Propco Lux Propco Dutch Holdco Jersey Propco French Assets German Assets Spanish Propco UK Assets Arm’s length equivalent interest deductions generally available at the Propco level Slido. com - ref: #X 127 Gains exempt due to preferential treaties Spanish Assets Proudly sponsored by:

The changing tax and fund environment What has happened? • General Ø Focus on tax in the media Ø OECD initiated the BEPS (Base Erosion and Profit Shifting) project Ø Global and EU changes to treaties and domestic legislation • Changes to taxation of income Ø European interest deductibility restrictions (local and EU changes) Ø Growth of REIT/REIT like structures (e. g. UK REIT/Spanish Socimi/French OPCI/Italian REIF) Slido. com - ref: #X 127 Proudly sponsored by:

The changing tax and fund environment • Taxation of gains/RETT Ø Real estate rich clauses Ø UK introduction of NRCGT – taxation of gains but exemption for certain investors Ø RETT changes • Repatriation of income Ø Restrictions on treaty access, increasing focus on beneficial ownership and substance, changes recommended by the OECD • Changes in fund environment Ø Increased regulation e. g. AIFMD – affecting choice of fund vehicles Ø Luxembourg ruling processes and substance Slido. com - ref: #X 127 Proudly sponsored by:

Fund Structures today In the future tax outcomes may increasingly be driven by investor profile Debt Currently - increased uncertainty on tax outcomes due to changing legislation e. g. ATAD in Europe Sale of shares Lux SCSP Currently more scrutiny on access to treaties and directives – in the future this will continue - impact could be greater level of tax on cash repatriation Lux chosen for fund expertise, flexible vehicles etc Master Luxco? UK structure (see overleaf) Lux Propco? Restricted interest deductibility increasing the tax liability at the local level Lux Propco? UK Assets French SCI German Assets Uncertainty on how this may develop as a result of EU proposed changes Spanish Assets Tax on exit in local jurisdictions as a result of local and treaty changes French Assets Slido. com - ref: #X 127 Proudly sponsored by:

UK Structuring New NRCGT rules and NRL transition to CT Traditional UK structures Going forward • Transition for NRLs from income to corporate tax. Significant change in tax regime bringing inter alia introduction of interest limitation rules. Tax likely to increase. Jersey/Lux Holdco • Introduction of non-resident capital gains tax. • New and old regimes bring more choice, e. g: Offshore Propco REIT JPUT Exemption regime Transparency regime Move the tax point up to the investor level Standard corporate structure UK Assets • Greater choice of vehicles and regimes – as well as above we have ACS, PAIF, EUUT • Onshore/offshore structures? • Investors may have different preferences Slido. com - ref: #X 127 Proudly sponsored by:

Trends for the future Tax outcomes may be increasingly influenced by the tax profile of investors rather than the structure itself Greater focus on purpose of arrangements Growing trend for distinctions between investors Funds/JV partners will require more information about an investor’s tax status; investors will seek to ensure the benefits of their status flow to them BEPS related increases in tax Slido. com - ref: #X 127 Tax risk/reputation being considered and queried at the highest level Growing use of retrospective legislation and significant changes in tax treatment during life of investment - uncertainty Proudly sponsored by:

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James Mulholland Partner at Carey Olsen Slido. com - ref: #X 127 Proudly sponsored by:

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Funds: The Basics What is a "fund"? A fund pools together money from a number of individuals (or investors) and invests it – for example, in UK commercial real estate. Key features – risk spreading at asset level AND multiple investors Aim – help investors grow their money and provide an income or 'return on their investment' Slido. com - ref: #X 127 Proudly sponsored by:

Funds: The Basics Legal constitution of a fund There are three main types of fund vehicles: Companies – investors in the fund are shareholders in the company • PLCs and Ltds • Incorporated Cell Companies and Protected Cell Companies Limited partnerships – investors in the fund are limited partners in the partnership • Regular, Separate and Incorporated Limited Partnerships • LLCs and LLPs Slido. com - ref: #X 127 Unit trusts – investors in the fund are beneficiaries of the trust • Open or Closed-Ended i. e. can the investor get its money out before the life of the fund? Proudly sponsored by:

Funds: The Basics Why are most funds regulated? • Investor protection • Degree of regulation varies depending on: • how sophisticated investors are • how widely available the fund is • Consequences of regulation: • regulatory oversight from Jersey regulator • cost • Marketing into the EU – the Alternative Investment Fund Managers Directive (AIFMD) Slido. com - ref: #X 127 Proudly sponsored by:

Funds: The Basics Why are most funds regulated? • Degree of regulation varies according to sophistication and number of target investors • The Jersey Financial Services Commission or "JFSC" has different 'products’. For example: – Listed Funds – Expert Investor and Eligible Investor Funds – Jersey Private Funds – Retail/Quasi-retail (similar to UCITs) • Not all funds are regulated Slido. com - ref: #X 127 Proudly sponsored by:

Structure Diagram – a typical unit trust structure Unitholders (investors) invest £ Trustee Manager Trust Instrument Distributions Trust Instrument Fees Bank (provides financing) Unit Trust Slido. com - ref: #X 127 Service provider agreements Fees Holding Company Rent Other service providers Fees Limited Partnership Rent Proudly sponsored by: General Partner

Funds: The Basics Key service providers to the unit trust Service Provider What do they do? Documentation Trustee Carries out its duties as trustee of the unit trust to ensure that the trust is run properly for the Trust instrument benefit of the unitholders. Usually a fairly limited role. Manager Decides which properties to buy and makes the investments. Trust instrument Sometimes the trustee will act as a 'managing trustee' and perform the role of manager and trustee. Investment Adviser Administrator Will advise the manager (or the managing trustee) on the selection of properties to invest in and Investment Advisory whether/when to sell a property. Agreement Will administer the unit trust. Administration agreement Custodian Will be responsible for safeguarding the assets of the unit trust, for example the title deeds to the properties Slido. com - ref: #X 127 Proudly sponsored by: Custodian agreement

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This presentation is intended for educational purposes only, is not for circulation and does not constitute legal advice. Legal advice should be sought for specific queries or circumstances. © Carey Olsen 2019