Global Institutional Investor Quarterly

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Global Institutional Investor Quarterly
September 2008

Global institutional investors are increasingly faced with the challenges of keeping abreast
of country specific laws in a host of areas, such as antitrust law, domestic and
international tax laws, private law, and corporate governance. To maintain a competitive
edge in the global investment arena, it is essential for those involved in global investment
and administration to understand the rules and regulations applicable to such investments
on a country-by-country basis. The Global Institutional Investor Helpdesk provides - in a
convenient, easily accessible online format - an up-to-date, country-by-country review of
the rules and regulations of relevance to global investors. This newsletter highlights a few
of the recent updates and developments for the period July - September 2008, that are
covered in more detail in the Global Institutional Investor Helpdesk. For more information
on the Global Institutional Investor Helpdesk, please visit or
contact us at

Key Country Developments for :

Articles and Newsletters

LawInContext Contact Information
Key Country Developments


Personal Property Securities Bill 2008 (Cth)

Introduction of the Personal Property Securities Bill 2008 (Cth).
On May 16, 2008, a consultation draft of the Personal Property Securities Bill 2008 (Cth)
was released in Australia. The Bill seeks to unify the legislative regime governing personal
property securities and replace 70-plus different pieces of Commonwealth, State and
Territory legislation. The Bill will govern security taken over all types of personal property
excluding land and buildings given by all types of legal entities. It adopts a functional
approach by looking to the substance of a transaction, rather than the form. The Bill
addresses the creation and extinguishment of security interests in personal property and
sets out rules for determining priority among competing interests and enforcement of
security agreements. It will establish a single national register of personal property
securities to ensure certainty for holders of competing security interests. There will also
be rules dealing with how existing security interests will transition to the new regime
(both in relation to security interests currently registered and security interests currently
not required to be registered), priority rules for those interests and the transition of data
from existing registers of security interests to the new national register. It is
contemplated that the new national register will commence in 2010. Comments on the Bill
were due by August 15, 2008 to the Commonwealth Attorney-General's Department.

Changes to AML/CTF Regime

The Australian Transaction Reports and Analysis Centre (AUSTRAC) had previously said
that the Anti-Money Launde- ring and Counter-Terrorism Financing Act (AML/CTF)
regime did not apply to responsible entities of managed investment schemes. However,
this exclusion was unintended and was rectified on January 31, 2008 with the release of
the Anti-Money Laundering and Counter-Terrorism Financing Regulations 2008
(Regulations) confirming that responsible entities of managed investment schemes are
subject to the AML/CTF regime. The Regulations were specifically designed to confirm that
the issue of units in a managed investment scheme is subject to the AML/CTF regime. For
further details in relation to these changes see topic: Foreign Investment and
Restrictions, subtopic: Investment Rules under headings “Anti-Money Laundering
Legislation” and “Offences, prohibitions and enforcement”.

Reporting Requirements for Cash Settled Equity Derivatives

In April 2008, the Takeovers Panel released its Guidance Note 20 regarding reporting
requirements for cash settled equity derivatives. These instruments have not normally
come within the definition of a "relevant interest" in shares if they were purely cash
settled, and so under the Corporations Act would not normally have been reportable;
however, the Guidance Note indicates that the Takeovers Panel will now regard a failure
to include long derivative interests in a shareholder's total holding as "unacceptable
circumstances". The consequences of such a ruling are that the Panel would be entitled to
make certain orders in accordance with its broad powers under the Corporations Act,
including orders for disclosure of information or (in extreme cases) for divestiture of

The Guidance Note focuses on non-disclosure in the context of a control transaction, but it
is not limited to that situation (although it is possible that it will not necessarily be
unacceptable to acquire a long derivative position above 5%, without disclosure, while
there is no control transaction in progress or pending). The Takeovers Panel also makes it
clear that the disclosure rules would apply regardless of whether or not either party to the
derivative contract had hedged its exposure with a holding of physical securities.

More information on this development is available on the homepage of the Australia
country report.

Reporting Requirements for Securities Lending Transactions

The global credit crisis caused a small number of stock broke- rage firms to suffer
financial difficulties early in 2008, as a result the Australian Securities and Investment
Commission (ASIC) has stated publicly that it considers the "borrower", under a
securities lending arrangement, to have acquired a relevant interest in the securities,
even if they were held only for an instant before being on-sold (for example, to settle a
short sale transaction). ASIC also indicates that, in its view, the "lender" under the
transaction may also retain a residual relevant interest in the securities.Reporting
obligations should, therefore, be carefully considered when entering into these kinds of

For further information on the above developments regarding reporting requirements for
cash settled equity derivatives and securities lending transactions see topic: Rights and
Obligations of Institutional Investors as Shareholders, subtopic: General Rights and

Tax Treaties Update

Australia has signed revised tax treaties with France, Norway, South Africa, Finland and
Japan, which include reduced withholding rates. The new treaties with France, South
Africa and Japan have not entered into force, but will do so when both countries advise
that they have completed their relevant domestic requirements.

Also, the Australian government has invited public comment and submissions on
Australia's future tax treaty negotiation program and policy. It is likely that the New
Zealand treaty and Chinese treaty will be renegotiated in the foreseeable future. For
further information see topic: Corporate Taxation, subtopic: Regular Investment under
the heading “Reduced withholding tax rate by invoking tax treaty”.

Taxation of Foreign Investment in Australian Managed Investment Trusts

In the 2008 Budget, it is proposed that the level of withholding tax imposed on non-
resident investors in Australian managed investment trusts will be reduced for certain
distributions to improve the competitiveness of the Australian managed funds industry.

Under current rules, a withholding tax is applicable to certain distributions (excluding
dividends, interest and royalties and non-Australian sourced income) made by a managed
investment trust to a foreign resident. Managed investment trusts collect a non-final
withholding tax at the Australian company tax rate of 30% on fund payments made to
non-resident investors that consist of Australian sourced income (excluding dividends,
interest and royalty income). Broadly, the non-final withholding tax meant that non-
resident investors could lodge an Australian income tax return and claim a refundable
credit for the Australian tax withheld if: (i) they were subject to a lower marginal tax rate;
or (ii) deductible expenses, such as interest, were incurred to derive the trust income.

Under the 2008 Budget, it is proposed that the non-final withholding tax rate of 30% will
be reduced to a final rate of 7.5% on certain distributions from Australian managed
investment trusts (who satisfy certain criteria) to non-residents of jurisdictions in which
Australia has effective exchange of information arrangements on tax matters. Where the
non-resident is located in a jurisdiction with no effective exchange of information
arrangements on tax matters, then a final withholding rate of 30% will be imposed.

For further information, see topic: Corporate Taxation, subtopic: Regular Investment
under the heading “Levying of withholding tax (dividend, interest, royalty and capital


New Tax Administrative Guidelines on Anti-abuse Rules of Relevance to Tax
Consolidated Groups

The “Charasse” amendment is an anti-abuse rule that, in broad terms, effectively limits
tax advantages (i.e., interest expense deductions) in the consolidated group context
where such interest expense arises from leveraged intra-group acquisitions. In application
of such amendment, the non deductible interest is added back to the consolidated tax
group income on a 9 year period (previously 15 year period). As of January 1, 2007, the
Charasse amendment was extended to acquisitions, realized with the same group, of
companies subsequently merged into the assignee or in a company member of the tax
consolidated group to which the assignee company belongs. The Charasse amendment
applies even though the purchased company does not become a member of the tax
consolidated group before the merger. The new rules applicable as of January 1, 2007
have been recently specified in tax administrative guidelines published on April 2, 2008
(instruction 4 H-2-08, April 2, 2008 no59). See topic: Corporate Taxation, subtopic: Non-
Resident Taxation and Reporting in Country of Investment, under heading “Specific
taxation regimes”.

Non-resident Taxation of Interest

An 18% final levy (prélèvement libératoire) applies to interest paid by resident companies
to non-resident companies, subject to certain enumerated exceptions. Recent French
Guidelines issued on January 24, 2008 provide that the 18% final levy does not apply to
amounts resulting from transactions mentioned in Article L211-1 A (instruments financiers
à terme) of the French Financial Code (Code Monétaire et Financier).

As of November 1, 2007, exempt transactions consist in options, futures, swaps, forward
rate agreements and any other derivative contracts relating to securities, currencies,
interest rates or yields, or other derivatives instruments, financial indices or financial
measures, which may be settled physically or in cash.

For further information, see topic: Corporate Taxation, subtopic: Non-Resident Taxation
and Reporting in Country of Investment, under heading “Withholding Taxes”.

Non-resident Taxation of Capital Gains on the Transfer of a Substantial
Shareholding in a French Company

Administrative Guidelines, issued on April 4, 2008 (Administrative Guidelines 4 B-1-08,
April 4, 2008), provide for the possible repayment of the difference between: (i) the 18%
tax paid by a non-resident company (foreign company) on the capital gain resulting from
the sale of substantial interest in French companies (provided that the French company is
not real estate oriented); and (ii) the 1.67% tax that would be paid by a French resident
on the same capital gain. Eligibility for payment requires fulfilment of the following
conditions: (i) the 18% tax must have been previously and regularly paid; (ii) the foreign
company is subject to taxation on profits in its country and such taxation is equivalent to
the French Corporate Income Tax; and (iii) the shares transferred must have been
directly and continuously held by the seller during at least two (2) years counting back
from the date of transfer. The repayment will be made by means of a refund claim filed
with the Tax Office of the non-resident taxpayers.

For full details, see topic: Corporate Taxation, subtopic: Non-Resident Taxation and
Reporting in Country of Investment under the heading “Capital Gains”.


Financial Investment Risks Act

In October 2007, the German federal government (Bundesregierung) presented a draft
version of an Act, which restricts the “risks” due to financial investments in listed German
companies. In June 2008, the German federal parliament (Bundestag) adopted the Act,
and in July 2008 the assembly of the federal states (Bundesrat) approved it. The Act
entered into force after its promulgation in August 2008 (subject to certain transitory

The Act particularly amends the Securities Trading Act (WpHG) and the Securities
Acquisition and Takeover Act (WpÜG) and basically comprises the following major

(1)   Investors reaching a threshold of participation of ten percent (10%) (and certain
higher thresholds) are required to disclose the purpose of their investment and provide
information on the origin of their funds to the issuer. This obligation will enter into force
on May 31, 2009. Issuers will be allowed to disregard this rule by including a respective
provision in their articles of association.

(2)    The rules on acting in concert have been modified. The amendment has
consequences for the disclosure obligations under the WpHG and with respect to the
mandatory offer under the WpÜG. Under both provisions, the respective obligations are
triggered where certain thresholds of participation are exceeded. In case of acting in
concert, the percentages of participation are aggregated. Under recent German Federal
Court of Justice/German Federal Supreme Court (BGH) case law, only such coordination
of conduct was deemed relevant, which related to the exercise of voting rights in a
shareholders’ meeting. In addition, the coordination of votes in a single incident was not
considered acting in concert, irrespective of a long term strategic impact of such vote.
Pursuant to the amendment, single incidents shall still not be taken into account, but in
contrast to the BGH’s case law, coordinated behavior outside of a shareholders’ meeting
can be relevant, if aiming at a lasting and material change in the corporate policy.

(3) The Act also is intended to protect debtors in case of the sale of loan receivables. For
that purpose, the Act brought about amendments to the German civil code, the BGB.

(4)   Moreover, the Act amends the German Stock Corporation Act, the AktG, to allow
corporations to identify their shareholders more easily.
For further information see topic: General Market Information and Trends, subtopic: Legal

Future Developments – Domestic Level

A debate has started in Germany as to whether to restrict foreign investments specifically
by state-owned investment vehicles. In that context, an amendment to the German
Foreign Trade Act (AWG) and the respective ordinance, the Foreign Trade and Payments
Ordinance (AWV), is under discussion. German authorities could prohibit foreign (non-
EU) investments in German companies which exceed a twenty five percent (25%)
participation threshold if the investment is considered a threat to public security and
order (a rather exceptional case). During a period of several months a retroactive
prohibition could be announced. Recently, the Cabinet of Ministers has approved a draft
bill of the amendment act, which was prepared by the Federal Ministry of Economics
(Bundeswirtschaftsministerium). The draft bill has been harshly criticized by the
Federation of German Industry (BDI), which emphasized the importance of open markets
for the German economy. See topic: General Market Information and Trends, subtopic:
Legal Trends.

European Money Laundering Directive Implemented

The German Implementation Act for the third European Money-Laundering Directive
(2005/60/EC) entered into force in August 2008. See topic: Foreign Investment and
Restrictions, subtopic: Investment Rules.

New Material Disclosure Obligations

The amendment act includes an obligation of investors to provide the issuers with
information about the purposes pursued with the investment and also on the origin of the
funds. Pursuant to a respective transitory provision this rule will enter into force on May
31, 2009. Such a disclosure to the issuer will be required where the threshold of ten
percent (10%) (and also certain higher thresholds) of the voting rights are reached or
exceeded. The issuer will be required to publish such information.

With reference to the purpose of the investment, the disclosure shall contain information
about whether:

   •   The investment follows strategic purposes or is meant to achieve trading profits;
   •   The investor intends to acquire further voting rights in the course of the following
       twelve (12) months;
   •   The investor intends to exert influence on the composition of the administrative,
       managing and/or supervisory board of the issuer; and
   •   The investor will seek a material change in the capital structure or in the dividend

However, issuers may disregard this rule by including a relevant provision in their articles
of association. See topic: Foreign Investment and Restrictions, subtopic: Investment
Rules, under the heading, “Concentration rules”.


Tightening of Subject-to-Tax Test; Article 10a Dutch Corporate Income Tax Act

The subject-to-tax test of Article 10a of the CITA has been tightened with effect as of
January 1, 2008. Until that date, a limitation of interest deduction was applicable in
certain cases (e.g., distributing profit to an affiliated company secured by a loan of
another affiliated company), unless the transaction was based on business reasons or the
taxpayer was subject to a 10% profit tax in the other country. For example, if the
taxpayer could prove either: (i) businesslike reasons, or (ii) 10% tax paid by the creditor,
then the interest deduction was “safe”. As from January 1, 2008, even if 10% profit tax
would be levied in the other country, the Dutch tax inspector can assert that the
transaction was not made for business reasons. Although the burden of proof is placed on
the tax inspector, the “safe harbour” of the subject-to-tax test has lost most of its value.
For further information, see topic: General market Information and Trends, subtopic: Tax

Redemption of Shares by Listed Companies

The Dutch Dividend Withholding Tax Act 1995 provides for a tax exemption for listed
companies to repurchase shares under certain conditions. The tax package for 2008
relaxes the conditions for this exemption. For further information, see topic: General
Market Information and Trends, subtopic: Tax Trends.

European Commission (EC): Discriminatory Taxation of Outbound & Inbound

The EC has taken steps in the infringement procedure of Article 226 of the EC Treaty
against Spain and Portugal, in relation to the outbound taxation of dividends to pension
funds, and against Bulgaria and Romania, in relation to the taxation of outbound and
inbound (Bulgaria only) dividends to foreign companies. Their domestic tax rules may
result in a restriction of the free movement of capital as protected by Article 56 EC and
Article 40 EEA or the freedom of establishment, protected by Article 43 EC and Article 34
EEA (in case of a controlling participation). In addition, the EC has closed the
infringement procedure against Luxembourg in relation to discriminatory taxation of
outbound dividends given changes to Luxembourg’s laws eliminating such treatment. See
topic: General Market Information and Trends, subtopic: Tax Trends.


2008 Tax Legislation

On January 23, 2008, proposed tax legislation for 2008 was approved by Japan's Cabinet
and submitted to the Japanese Diet. The new legislation was originally expected to be
enacted on April 1, 2008, however the ruling and opposition parties failed to reach
consensus by that date on some key issues. A temporary bill was passed that extended to
May 31, 2008 various rules that would otherwise have expired on April 1, 2008. A Client
Alert on the new legislation is available on the homepage of the Japan country report.

Tax Treatment of Foreign Investment Funds

See the homepage of the Japan country report for a Client Alert on the Financial Services
Agency’s clarification of the tax treatment of foreign investment funds.

Articles and Newsletters
The following articles have been made available on the Helpdesk:


Baker & McKenzie Client Alert - Modernization of the French Economy: Increasing the Power of the
French Financial Market – August 2008.


Baker & McKenzie Client Alert - The Financial Services Agency Clarifies Tax Treatment of Foreign
Investment Funds - July 2008.


Arendt & Medernach Client Alert - July 2008:

Tax Update including updates for direct and indirect taxes, in particular, details of withholding tax
changes, updates on double tax treaties with India and Barbados and a European Court of Justice
news update. For further information, see homepage of the Luxembourg country report.


Baker & McKenzie Client Alert – Proposed Regulations Implementing FINSA - April 2008
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