Presentation Transcript

1. Buy-side seminar 2014: An update on tax, incentives and structuring issues for 2014 Imogen Garner, Andrew Roycroft, Kennedy Masterton-Smith, Louise Dent, Mike Newell and Claire O’Donnell Norton Rose Fulbright LLP 24 June 2014
2. IntroductionImogen Garner
3. Introduction Partnership tax changes 2014 Remuneration rules: AIFMD & UCITS V The pay-out process Limited Liability Partnership agreements
4. Partnership tax changes 2014Andrew Roycroft
5. Impact of partnership tax changes: Salaried members HMRC’s 21 February “informal view” UK LLPs only, but non-UK entities raise different issues Conditions A, B or C: Allows a “pick and mix” solution Focus on capital contributions: 2/3 month grace period Impact of the “TAAR” Other solutions: Closely-held LLPs, and senior members: “Significant influence” Variable profits: Individual performance/“eat what you kill” Extraneous events, and hindsight Performance over the long run The Supreme Court decides – Bates van Winkelhof was a ‘worker’ (not an employee)
6. Mixed partnerships: Deferral and tax rate arbitrage All types of partnership, but with both individual and non-individual (i.e. corporate) members Deferred profit arrangements Power to enjoy the CM’s “excessive” profits: CM who formed the LLP (recent conversions to LLP) Outside investors, through CM (impact on profit share paid to executives?) Personal service companies, and feeder structures “Relief” for: Compensating payments (to the individual member) AIFM firms, in respect of relevant restricted profit Corporate members as vehicles for succession planning
7. Remuneration rules: AIFMD & UCITS VKennedy Masterton-Smith
8. New rules Global focus on remuneration – new legislation AIFMD UCITS V MiFID II CRD What rules apply? Pay-out process rules Who is caught? Full scope EU AIFMs/Small AIFMs/Non EU AIFMs UCITS management companies or self-managed UCITS funds Delegates
9. Delegation Delegate portfolio management or risk management activities – new requirement regarding remuneration: AIFM must ensure that entities which have been delegated to are subject to “regulatory requirements on remuneration that are “equally as effective” as those applicable to the AIFM” OR Contractual arrangements are put in place with the entities to ensure that there is no circumvention of the remuneration rules UCITS V – Recital 2: “Policies and practices should apply, in a proportionate manner, to any third party which takes investment decisions that affect the risk profile of the UCITS because of the functions which have been delegated” FCA confirmation re AIFMD that delegates subject to CRD rules generally considered to be subject to rules that are equally as effective Clarification on position of other regulators still needed
10. Proportionality Can the pay-out process rules be applied proportionately? Size Internal organisation Nature, scope and complexity Identified Staff
11. Step process Consider whether you are caught directly or indirectly If caught, can you disapply pay-out process rules on the grounds of proportionality? Keep an audit trail on disapplication and keep under review Identify Identified Staff Can the rules be applied proportionately to Identified Staff? Undertake performance assessment Apply the pay-out process rules (as appropriate) to awards Undertake performance adjustment Pay-out deferred awards
12. The pay-out processLouise Dent
13. Pay-out process components
14. Example LLP partner income Remuneration Return on investment Subject to AIFM remuneration code Not subject to AIFM remuneration code Variable remuneration Fixed remuneration Not subject to pay-out process rules Subject to pay-out process rules Delivered after 3 years subject to malus performance adjustment provisions 40% deferred 60% upfront All variable remuneration is at risk of clawback under performance adjustment provisions for one year post acquisition/vesting 20% cash 20% units in funds 30% cash 30% units in funds 6 month retention period post-vesting 6 month retention period post-acquisition
15. What does the pay-out process apply to?
16. Retained instruments: 50%
17. Deferral structure: 40% - 60%
18. Performance adjustment
19. Limited Liability Partnership agreementsMike Newell & Claire O’Donnell
20. Limited Liability Partnership agreements The LLP agreement – where it can go wrong: Default regime Profit and losses Group structure Management Non-performing members/exit Duties Liabilities F&C Partners LLP judgement – where it did go wrong..?
21. Key contacts in London Imogen Garner is a partner in the financial services group, where she advises a broad range of clients on the UK and EU financial services regimes. Imogen’s areas of practice include advising on perimeter issues, the regulatory aspects of acquisitions and disposals and clients’ on-going compliance with anti-money laundering and other financial services law and regulation. She also frequently drafts and negotiates investment management and other client agreements. Imogen has particular experience advising asset managers, and has also worked with a number of asset management industry trade bodies. She spent nine months on secondment to the FSA’s (as it then was) General Counsel’s Division, where she advised the FSA’s CIS Policy Team and HM Treasury on the AIFMD. Andrew is a senior associate in the London office’s tax department. He specialises in the UK tax aspects of structuring and implementing corporate transactions for both public and private companies, with a particular emphasis on international issues (residence, branch profits, CFC rules, etc.). The taxation of executive remuneration is another area of expertise. His experience includes structuring equity incentives for managers, establishing and restructuring partnerships (including profit-sharing arrangements in Limited Liability Partnerships) and structuring termination packages. He is a Chartered Tax Adviser and a member of the International Tax sub-committee of the Chartered Institute of Taxation's Technical Committee. Chambers and Partners 2013: “Leading associate Andrew Roycroft advises clients on domestic and international corporate transactions and restructurings.”
22. Key contacts in London Kennedy is a financial services lawyer based in Londonand advises on a wide variety of financial services matters including advising banks, brokers and buy-side entities. She is a member of the Norton Rose LLP Asset and Wealth Management International Business Group and a co-author of the Compliance Officer Bulletin in relation to remuneration for financial services firms. She regularly advises clients in relation to the remuneration regime in the UK, including in relation to the rules under CRD IV as they apply to a broad range of entities including banks, brokers and asset managers across the proportionality levels. Kennedy also advises on the remuneration rules under AIFMD and the proposed rules under UCITS V. She has spoken at a number of conferences on the remuneration regime. Louise Dent is a senior associate specialising in employee benefits in our London office. She advises listed and private companies in the UK and overseas on all aspects of employee incentives, including the implementation and operation of share plans, employment taxes and the incentives aspects of corporate transactions.
23. Key contacts in London Mike Newell is a corporate lawyer in our London office. He has extensive experience of advising on the establishment and reorganisation of onshore and offshore collective investment vehicles. Mike is particularly experienced in advising in relation to hedge funds, private equity, real estate funds, retail mutual funds, UK listed investment companies and structured products. He also advises asset managers in relation to general corporate, investment management and regulatory matters. Mike is described as “practical and effective” in Chambers and Partners 2009. In Chambers UK 2010 he is noted for having “a well-established reputation in the structuring and reorganisation of onshore and offshore collective investment vehicles” and for being especially “renowned for his real estate funds expertise” in Chambers UK 2011. Claire O’Donnell is a corporate lawyer in our London office. She has over 10 years’ experience in UK and international mergers and acquisitions, joint ventures, capital fundraisings and general corporate and commercial transactions. She has written a number of submissions to HM Treasury and articles for legal publications. She works for a range of clients, including a number of multinationals as well as government entities. Claire has particular experience in advising in relation to Limited Liability Partnership matters, including establishment, sale of interest and relations between members.
24. AIFMD expert: Our guide to the AIFMD
25. Global coverage
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