the_idea_reit, tiêu chí đánh giá

8/7/2019 The_idea_REIT, tiêu chí đánh giá

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The general ramework o the vari-

ous REIT regimes is to a large extent

similar, meaning that a certain Euro-

pean standard is developing. At the same

time there are still many technical dier-

ences among the various regimes. Many o

the requirements or beneting rom a given

REIT regime are motivated by governments’

ear o abuse and their concerns about the

loss o tax base in the international context,

and not primarily ocused on the question

o how to create a fexible, transparent and

competitive regime.

In the atermath o the nancial crisis, gov-

ernments o the various European countries

start to understand that the ear o abuse

o REIT systems and leakage o tax base

What would an

‘ideal REIT’ look like?

The fowering o REIT regimes in Europe is not the result o concerted

action by European institutions or governments. It is rather the

ruit o successul lobbying by industry groups and the competitive

pressure that existing, and announced, REIT regimes exercise on thepolitical will o authorities in various European countries.

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REPORTING



rom the country is oten the main reasonwhy a given REIT system will not ‘take o’

suciently, or will slow down. Legislators

should spend more time on the elements

that should make a REIT regime successul,

both nationally and internationally. A well

thought out system, preserving the right bal-

ance between having a competitive EU law-

compliant REIT regime and the protection

o the local tax base, should be a easible

objective or European Governments. Too

many complicated tax and regulatory rules

run the risk o killing the goose that laid the

golden egg..

A well-balanced REIT regime may result in

higher standards of management and report-

ing, a more stable and robust property sec-

tor, a regular and reliable source of tax rev-

enue for the government and a liquid form

of investment in real estate for all. Also, at

a time when the European Commission is

taking steps to improve regulation, increase

transparency of the investment markets and

reduce the risk of future economic crisis,

positive steps to grow the public property

markets would go a long way to attain thesegoals.

The ideal REIT regime

There is no standard denition o what a

REIT is. The denition used by the OECD is:

“A publicly listed property investment com-

panies that own, operate, develop and man-

age real estate assets or the purposes o

obtaining returns rom rental income and

capital appreciation. REITs obtain special

‘tax-transparent’ status in return or meet-

ing certain obligations (high distribution

requirements, gearing restrictions, restric-tions on development etc)”.

In dening the ideal European REIT regime,I rst take a look at the main characteristics

that orm part o the general ramework o a

REIT: 1) legal orm 2) listing and sharehold-

ing conditions, 3) the activity or asset test,

4) leverage restrictions, 5) distribution lim-

its, 6) the conversion charge and the inter-

national outlook.

Legal form

The REIT should preerably have the orm o

a stock company with limited liability that

is recognisable internationally (and not the

orm o a trust, or the like).

Listing and shareholders conditions

There is always ear that REIT regimes will

be abused or private structures. The sim-

plest remedy or this is to impose a list-

ing requirement. All other shareholders’

requirements (like in Germany, UK and the

Netherlands) are oten substantially com-

plicating the regime. The main reason or

most o these shareholders’ requirements

is to avoid that a limited group o (oreign)

private shareholders will be able to receive

REIT prots at a very low tax rate (or ree oany tax in the country o residence o the

REIT).

Scope of activities

A REIT regime should, o course, be restricted

to property investment activities, albeit

invest in a large spectrum o property assets.

The new German and UK regimes are still

suering rom too many regulatory rules

and restrictions (complicated asset tests,

etc). For example, in both the UK and Ger-

many, there are serious restrictions to the

holding o properties via partly owned sub-sidiaries and partnerships. In the Nether-

lands, the scope o permitted activities is

still dened much too narrowly (only very

passive property investment is allowed),

blocking Dutch REITs to conduct certain

asset management activities.

In addition to property investments, a REIT

should be able to conduct certain related

businesses (cleaning company, project

development activities also or third parties,

etc). These activities should, o course, not

benet rom the ‘tax fow through’ REIT

Too many complicated tax and regulatory rules run

the risk of killing the goose that laid the golden egg.

)

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GLObAL REIT SuRvEy SuPPLEMENT

What wold an ‘ideal REIT’ look like?



treatment. The US concept o a ‘taxable REIT

subsidiary’ has proven to be successul and

is ollowed by various European countries

(in Germany, France and the UK it is possi-

ble to conduct taxable commercial activities

within certain limits).

Leverage

Many countries impose specic REIT lever-

age restrictions, to avoid the distributable

prot being eroded (which would reduce

the withholding tax claim on the distribu-

tion o prot). Today, you can probably say

that the nance restrictions have protected

REITs against excessive leverage which put

many non-REIT property unds in trouble as

a result o the nancial crisis. It is probably

air to say that the market expects that REITs

observe certain airly conservative leveragerestrictions.

Distribution obligation

As a REIT is not paying corporate income

tax, it is important that its prots are distrib-

uted to the shareholders (where these prots

will be subject to tax). This is an incremental

part o the tax philosophy o a REIT. How-

ever, it should not be a requirement that a

REIT is obliged to distribute all o its cash.

For example, in the Netherlands, a REIT is

obliged to distribute 100% o its current prot

(excluding capital gains), while at the sametime, it is virtually impossible to depreciate

on immovable property! A distribution obli-

gation that covers around 80% o the distr ib-

utable prot would be a better system.

Conversion regime

Most European countries have introduced a

special conversion regime (also reerred to

as ‘exit tax’): allowing a company to con-

vert to a REIT and pay tax on the latent cap-

ital gains at a reduced rate o prot. France

even introduced an innovative system

whereby corporate groups are able to trans-

“Achieving the right balance between a competitive

EU law-compliant REIT regime and the appropriate

level of protection of the local tax base is within the

grasp of European governments,” say Ronald Wijs.

er real estate to a SIIC and pay tax on the

capital gain at hal the normal tax rate (con-

version regime extended to transers to

REITs). Such a sophisticated conversion

regime is an important tool to promote the

growth o the listed REIT sector. The UKand Germany have ollowed France in this

respect.

International investments

A weakness in certain European regimes is

the lack o allowance or overseas invest-

ments. Many regimes are based on the idea

that a local REIT will only invest in local

properties and uncertainties arise as soon

as investments are made in oreign prop-

erties (which is oten done via corporate

structures). The German, the UK and also

the French regimes seem to suer rom thisproblem to a certain extent.

EU-compliant REIT tax system

As mentioned beore, governments ear

that a more fexible REIT regime will open

the door to the erosion o the domestic tax

basis:

oreign REITs being able to repatriate•property income ree o local tax to their

home country;

REITs distributing dividends to oreign•

shareholders ree o withholding tax.

In other words, there is ear that a too lenient

REIT regime would allow oreign REITs own-

ing local real estate or oreign shareholders o

a local REIT to extract income and gains rom

real estate without paying any local tax.

The EPRA Taxation Committee designed

recommendations or a REIT tax treatment

that would allow national governments to

remove some o the anti-abuse limitations

that are hindering the growth o REITs and

at the same time giving security about the

revenue basis or local governments.

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rnald J.b. Wijs (1961), tax lawer, has a

road experience in Eropean cross-order

corporate tax planning, in particlar inol-

ing the benelx contries, France, German and Switzerland. He ocses on

strctring o Eropean priate eqit nds and inestments or oth Ero-

pean and American clients. He has road experience in the feld o strc-tring and adising Eropean propert inestment nds, in the priate as

well as the listed sector (REITs). Frthermore, he reglarl adises pension

nds in respect o the strctring o actiities and inestments.

He has worked at the Genea ofce and headed the Paris ofce. Ronald is

a reqent speaker at seminars. He is a memer o the International Fiscal

Association (IFA), the International bar Association (IbA) and the Tax Trans-

parenc Committee o the Eropean Plic Real Estate Association (EPRA).

He has written arios articles on topics related to priate eqit and prop-

ert inestment nds.

Ronald J.b. Wijs Tax Lawyer [email protected]

The idea is not to create a uniorm European

regime, but rather a practical concept con-

sisting o certain recommendations that EU

Member States could adopt and implement

in their law. The recommendations are built

on two key eatures:EU Member States could agree on a bi-

•lateral or multilateral basis on certain

minimum criteria that must be satised

in order to be recognised in the other

country as a REIT. That is, a system o

mutual recognition based on certain min-

imum criteria is developed between cer-

tain Member States. These criteria should

basically concern the key characteristics

mentioned above (the typical ‘REIT crite-

ria’, like shareholders’ conditions, lever-

age restrictions, etc).

For cross-border investments, an allocation•system is implemented or the withhold-

ing o tax by REITs. This system provides

or a air allocation o the tax between the

situs state (where the property is located)

and the Member State where the REIT is

a resident. The European countries adopt-

ing the system o ‘mutual recognition’ mayalso consider to amend their bilateral tax

treaties, so as to saeguard that oreign

shareholders o a domestic REIT always

pay a minimum withholding tax (at a rec-

ommended rate o 15%).

In essence, by agreeing with other Member

States on a minimum set o conditions and

a clear system or the collection and alloca-

tion o tax, certain uncertainties about the

tax basis will no longer exist. This will allow

Member-States to ‘put down their ences’,

thus helping their REITs to grow and expandcross border. n

About the Author

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GLObAL REIT SuRvEy SuPPLEMENT

What wold an ‘ideal REIT’ look like?

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