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Real Estate –emerging topics for outbound investors2016 KPMG Asia Pacific Tax Summit

JW Marriott Hotel, China Central Place, Beijing9-12 May 2016

KPMG Asia Pacific Tax Centre

PanelChristopher AbbissHead of Global Real Estate TaxKPMG in Hong Kong

Peter BeckettHead of Real Estate TaxKPMG in the UK

Marco MüthReal Estate Tax KPMG in Germany

Scott FarrellReal Estate TaxKPMG in Australia

David LewisHead of Real Estate TaxKPMG in Japan

Roger PowerReal Estate Practice Leader - Pacific Northwest RegionKPMG in the US

United Kingdom

Peter Beckett

4©2016 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Document Classification: KPMG Confidential

UK Real Estate Investment Structure: Offshore Investor

Acquisition

• Stamp duty land tax @ 5% (commercial real estate)

• No stamp duty on non-UK commercial shares

Investors

Hold Co

Prop Co Bank Loan

Equity Offshore e.g. Jersey/

Guernsey/Lux

Dividends/Return on

Capital

Dividends/Interest

Rental Income

UK

Exit

• No capital gain tax on sale of commercialproperty

• No tax on shareholder loan interest income

• No withholding tax on dividends

• No withholding tax on shareholder loan interest unless UK source

• No withholding tax on bank interest provided UK or treaty

Operation

• UK Income tax @ 20% on net rental profits

• Tax relief for interest subject to transfer pricing and BEPS Action 4 (from 2017?)

• Capital allowances for qualifying fixtures

• Manage tax residence

Equity + Shareholder Loan

Source: KPMG International, 2016

Germany

Marco Müth



Overview

Lux / NL HoldCo

Ger PropCo

Lux / NL PropCo

Investor

VAT

Trade Tax

CIT

Interest Deduction

Depreciation

WHT on Interest

WHT on Dividends

RETT

Capital Gains




JV structure, Germany & Lux Fund structure

Investor

LUX Fund Structure

Lux FundLuxCo AIFM

LP

JV Structure

JV 1 JV 2

Lux / NL HoldCo

Lux / NL HoldCo

Lux / NL PropCo

Lux / NL PropCo

LP

GER Fund Structure

Investor

Lux / NL HoldCo

Lux / NL PropCo

FundAIFM

50 % 50 %


Australia

Scott Farrell



Non-MIT passive structure

Non-Australian Investor

Prop Trust

Trust distribution

Acquisition— Stamp duty @ 5.15% - 7.5%

(depending on location) on market value of land

Operation— Non-final WHT of 30% on net

rental income non-Australian Investor (assumed corporate)

— No WHT on tax deferred distributions

— IWHT of 10% or lower depending on DTA

— Non-Australian Investor required to file Australian tax return, can claim deductions relating to derivation of Australian income (e.g. if debt funded)

Exit— Capital gains derived by Prop

Trust subject to non-final WHT @ 30% on distribution

— Capital gains derived by Investor exit taxable if >10% held prior to exit

Other comments— This structure can easily be

converted to a MIT structure (see next slide) subject to investor base and other criteria

— If implementing a captive MIT passive structure, can use intermediate Holding Trust to be MIT with Prop Trust as wholly owned subsidiary trust to provide exit flexibility




Stapled MIT structure

Op Co

Non-Australian Investors

Prop Trust(MIT)

Business

Lease

Rent

Trust distribution Dividend /

RoC

Acquisition

— Stamp duty @ 5.15% - 7.5% (depending on location) on market value of land

Operation (Prop Trust)

— MIT WHT of 15% on net rental income to recipients resident in Exchange of Information countries

— No WHT on tax deferred distributions

— IWHT of 10% or lower depending on DTA

— MIT qualification requires “substantial investment management” in Australia and appropriate investor base

Exit

— Capital gains derived by Prop Trust subject to MIT WHT @ 15% on distribution

— Capital gains derived by Investor exit taxable if >10% held prior to exit

Acquisition

— No material issues

Operation (Op Co)

— Operates business (e.g. hotel) and lease land from Prop Trust

— 30% corporation tax on business income

— No WHT on franked dividends

— DWHT of 30% or lower depending on DTA on unfranked dividends

— No immediate tax on RoC

— Op Co can be Trust for flexibility of cash repatriation

Exit

— No capital gains derived by Investor exit on the basis Op Co is not Taxable Australian Real PropertySource: KPMG International, 2016

Japan

David Lewis

12© 2016 KPMG AG Wirtschaftsprüfungsgesellschaft, ein Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International Cooperative („KPMG International“), einer juristischen Person schweizerischen Rechts, angeschlossen sind. Alle Rechte vorbehalten.

Indicative Japanese TMK structure

Investor

TMK

Investments – real estate, trust beneficial interests

Asset Manager

Bond financing

Asset Management

Bondholder*OffshoreJapan

SPC 1 SPC2

Debt (Limited to 3 times equity)

Less than 50% of preferred

equity

More than 50% of preferred equity

Japan SPC**

*Bonds must be issued to Tax QII (domestic or foreign). **A Japan branch of SPC2 can also be used in place of a Japan SPC.

• TMK is a tax-benefitted Japanese corporation

• A “tax qualifying” TMK will have a tax deduction for dividends, so taxable income at TMK level is very limited

• Offshore shareholder subject to dividend withholding tax only. Rate depends on tax treaty availability

• 5% for Singapore and Luxembourg

• 10% for HK, UK, Germany etc

• Onshore shareholder generally subject to normal corporate taxes (approximately 35%), however possible to mitigate a portion of this taxation through debt funding.

• Changes in TMK law have resulted in more than half of TMK economics taxable onshore (other arrangements possible for ‘grandfathered’ TMKs)

Effective tax rate generally between 14 – 20%


13© 2016 KPMG AG Wirtschaftsprüfungsgesellschaft, ein Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International Cooperative („KPMG International“), einer juristischen Person schweizerischen Rechts, angeschlossen sind. Alle Rechte vorbehalten.

Indicative Japanese TK structure

Investor

GK (TK operator)

Investments – real estate, trust beneficial interests

Asset Manager*

TK Agreement

Debt financing (optional)

Asset Management

Ippan ShadanHojin**

Non-managing

member

Managing member

Lender

OffshoreJapan

SPC(TK investor)

• A TK is a corporate partnership allowing beneficial taxation for foreign investors

• TK is a contractual arrangement. Accordingly:

• A TK is not debt or equity

• A TK confers no ownership of underlying assets of the TK operator

• TK investor must not participate in management or operation of the business operated by the TK operator

• Where TK arrangement is valid, TK Investor profits subject to 20.42% withholding tax only.

Effective tax rate: 20.42%


United States

Roger Power



Effect of U.S. PATH act on structuring – REITs• More attractive than ever as a vehicle to attract capital. • A foreign qualified foreign pension fund (“QFPF”) investor may avoid

FIRPTA tax on gain from sale of any U.S. real property interest including distributions by a REIT.

• Gain from the sale of ownership in ≤ 10% of the stock of a public REIT is exempt from FIRPTA tax.

• Gain from the sale of ownership in < 50% of the stock of any REIT is exempt from FIRPTA tax if the REIT is “domestically controlled” (“DC”).

• DC REIT ownership issues:• Will a privately held REIT be able to attract a publicly traded DC

REIT as a shareholder to facilitate its qualification as a DC REIT?• Presumption of ownership by U.S. persons does not apply if “actual

knowledge” or if ≥ 5% holder (U.S. SEC disclosure threshold).• Legislative history cited to favorable informal IRS guidance on the

treatment of foreign-owned domestic corporations as establishing “domestic control” but did not change the statutory language relevant to such cases.

• Favorable withholding tax rate on operating dividends if the shareholder is a Chinese tax resident.



REIT structuringU.S.

InvestorsForeign Investor

REIT

U.S. Real Estate

U.S. Corp30%

49%

21%

100%




Contacts …..Scott Farrell KPMG in Australia +61 2 9335 7366 [email protected]

Marco Müth KPMG in Germany +49 69 9587 3347 [email protected]

Chris Abbiss KPMG in Hong Kong +852 2826 7226 [email protected]

David Lewis KPMG in Japan +81 3 6229 8210 [email protected]

Peter Beckett KPMG in the UK +44 (0)20 7694 5341 [email protected]

Roger Power KPMG in the US +1 415 963 5410 [email protected]

mailto:[email protected]






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© 2016 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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