Newsletter – July 2019
AML
CSSF CIRCULAR 19/722 | DECLARATIONS OF FATF
On 1 July 2019, the CSSF published Circular 19/722 relating to recent declarations of the Financial Action Task Force (“FATF“).
JURISDICTIONS WITH SUBSTANTIAL AND STRATEGIC DEFICIENCIES
FATF maintained its position that the Democratic People’s Republic of Korea (DPRK) is a jurisdiction whose anti-money laundering and combating the financing of terrorism regime has substantial and strategic deficiencies. FATF appealed to its members to apply countermeasures and reminded members to take measures to close North Korean bank subsidiaries, branches or representative offices in their respective territories.
BANKING & FINANCE
CSSF CIRCULAR 19/716 | THIRD COUNTRY FIRMS PROVIDING INVESTMENT SERVICES OR PERFORMING INVESTMENT ACTIVITIES IN LUXEMBOURG
The different regimes that are applicable to third-country firms (the “TCF(s)“) that wish to provide investment services or perform investment activities together with ancillary investment services in Luxembourg under the recently added Article 32-1 of the Luxembourg law of 5 April 1993 on the financial sector, as amended (hereafter the “Law“) are now clarified by CSSF Circular 19/716 (the “Circular“) issued on 10 April 2019. The newly added Article 32-1 of the Law implements the provisions of the Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (“MiFID II“) and Regulation (EU) No. 600/2014 of 15 May 2014 on markets in financial instruments (“MiFIR“).
MIFID II & MiFIR | UPDATE OF ESMA & CSSF Q&A
On 29 May 2019, ESMA updated its Q&A on the Markets in Financial Instruments Directive 2014/65/EU of 15 May 2014 (“MiFID II“) and on the Markets in Financial Instruments Regulation No. 600/2014 of 15 May 2014 (“MiFIR“), and more specifically, its Q&A on investor protection and intermediaries (the “ESMA Investor Protection Q&A“);
Furthermore, on 21 May 2019, the CSSF has updated its Q&A on MiFID II and MiFIR to cover four new questions relating to transaction reporting data samples.
CAPITAL MARKETS
NEW LUXEMBOURG PROSPECTUS LAW
On 2 July 2019, the Luxembourg Parliament (Chambre des Députés) adopted the final text of the draft law No. 7328 on prospectuses (the “New Prospectus Law“) for the purposes of implementing Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the “Prospectus Regulation“).
THE NEW SHAREHOLDER LAW: IMPLEMENTATION OF THE DRAFT LAW 7402 | GENERAL OVERVIEW
On 10 July 2019, the Luxembourg Parliament (Chambre des Députés) adopted the final text of the draft law No. 7402 (the New Shareholders Rights Law for the purposes of implementing Directive (EU) 2017/828 amending Directive 2007/36/EC as regards the encouragement of long term shareholder participation (the Shareholders Rights Directive II). The New Shareholders’ Rights Law will amend the law of 24 May 2011 on the exercise of certain shareholders’ rights at general meetings of listed companies (the 2001 Law).
EMPLOYMENT
DIRECTIVE ON THE PROTECTION OF PERSONS REPORTING ON BREACHES OF EU LAW
The Luxembourg law of 26 June 2019 on the protection of undisclosed know-how and business information (“Trade Secrets“) against their unlawful acquisition, use and disclosure (the “Law“) has been published in the Mémorial on 28 June 2019. The Law seeks to transpose Directive (EU) 2016/943 of 8 June 2016 on the protection of trade secrets against their unlawful acquisition, use and disclosure and to establish a sufficient level of protection of trade secrets. In particular, the Law provides for measures and procedures to take action against the unlawful, use or disclosure of such secrets.
For more information on the subject, please read our Newsflash.
LAW OF 26 JUNE 2019 ON TRADE SECRETS
The directive on the protection of persons reporting on breaches of EU (the “Directive“) was approved by the EU Parliament on 16 April 2019. The Directive has not yet been published to the Official Journal of the EU. In a context where whistle-blowers play a key role in exposing and preventing breaches of the law that are harmful to the public interest but are often discouraged from reporting their concerns or suspicions for fear of retaliation, the Directive lays down minimum standards aimed at protecting and encouraging reporting of breaches of EU law.
For more information on the subject, please read our Newsflash
INVESTMENT FUNDS
AML/CFT INVESTMENT FUND QUESTIONNAIRE
On 23 May 2019, the CSSF disseminated a press release about the publication of an AML / CFT investment fund questionnaire in relation to money laundering and terrorist financing risks (“ML/FT risk“).
The purpose of this new questionnaire is to collect standardised key information on the money laundering and terrorist financing risk which entities subject to the supervision of the CSSF are exposed to.
PROPOSAL TO AMEND THE PRIIPS REGULATION
BACKGROUND
The EU Parliament and Council issued a proposal to amend the Cross Border Distribution Regulation in order to amend the existing Regulation (EU) 2014/1286 of the European Parliament and of the Council relating to the key information documents for packaged retail and insurance-based investment products (“PRIIPs Regulation”). The amendment pushes back the UCITS exemption to produce the PRIIPs key information document (“KID“) to 31 December 2021.
DIRECTIVE TO FACILITATE CROSS-BORDER DISTRIBUTION OF INVESTMENT FUNDS
On 16 April 2019, the European Parliament adopted legislative resolutions on the proposal for a directive of the European Parliament and of the Council amending directives 2009/65/EC and 2011/61/EU with regard to cross-border distribution of collective investment undertakings (the “Proposal”). The Proposal was signed on 20 June 2019 and should be published soon.
The Proposal aims to remove the current regulatory barriers to the cross-border distribution of investment funds in order to make their cross-border distribution simpler, faster and cheaper.
DRAFT LAW 7349 CONCERNING ELTIF, EUVECA AND EUSEF AND AMENDING THE RAIF LAW
Draft Law No. 7349 (the “Draft Law“), which has been working its way through the Luxembourg parliamentary process since August 2018, implements into domestic law certain provisions of the following regulations…
ESMA PUBLISHES UPDATED AIFMD AND UCITS Q&A
On 4 June 2019, the European Securities and Markets Authority (“ESMA“) published updated questions and answers documents (“Q&A”) on the application of the Alternative Investment Fund Managers Directive (“AIFMD“) and the Undertakings for Collective Investment in Transferable Securities Directive (“UCITS Directive“).
The updated Q&A includes five new questions relating to the depository function under AIFMD and the UCITS Directive.
REGULATION TO FACILITATE CROSS-BORDER DISTRIBUTION OF INVESTMENT FUNDS
On 16 April 2019, the European Parliament adopted legislative resolutions on a proposal for a Regulation of the European Parliament and of the Council on facilitating cross-border distribution of collective investment undertakings and amending regulations (EU) No. 345/2013, (EU) No. 346/2013 and (EU) No. 1286/2014 (the “Regulation“). The proposal was signed on 20 June 2019 and should be published soon.
SHAREHOLDERS RIGHTS DIRECTIVE II | IMPACT ON AIFMs AND MANCOs
BACKGROUND
The deadline for transposition of Directive (EU) 2017/828 amending Directive 2007/36/EC as regards the encouragement of long term shareholder participation (the “Shareholders Rights Directive II“) expired on 10 June 2019. The Shareholder Rights Directive II aims to enhance shareholder participation and equal rights in decision making. It applies to a wider group of market participants including AIFMs and Management Companies. It imposes new obligations on such entities as regards disclosure of how they integrate shareholder engagement in their investment strategy.
ESMA QUESTIONNAIRE ON UNDUE SHORT-TERMISM
On 24 June 2019, the European Securities and Markets Authority (“ESMA“) published a questionnaire, which aims at collecting evidence about what aspects of the financial sector could cause short-term pressure on companies.
ESMA defines “short-termism” as “the focus on short time horizons by both corporate managers and financial markets, prioritising near-term shareholder interests over long-term growth of the firm”.
TAX
FINAL LOSSES | NEW DECISIONS OF THE ECJ
In two recent cases, the ECJ clarified in which situations holding companies might be entitled to deduct final losses, thus confirming the principles previously established in the Marks & Spencer decision (C-446/03).
In the first decision, Memira Holding (C-607/17) dated 19 June 2019, a Swedish holding company had one German subsidiary, which was operating several ophthalmologic clinics and whose activity was not sustainable, so that the holding company decided to merge and absorb the German subsidiary.
FOUNDATION’S BOARD MEMBER REMUNERATION IS NOT SUBJECT TO VAT
On 13 June 2019, the ECJ published its judgment in the IO vs Inspecteur van de rijksbelastiengsdienst case (C-420/18) and clarified that the member of a foundation’s supervisory board does not qualify as a VAT taxable person as he does not independently exercise an economic activity. The foundation’s main activity was to provide permanent housing to people in need. IO was a member of the foundation’s supervisory board and received an annual lump sum remuneration of EUR 14,912. As such, he submitted a VAT return, which was subsequently contested.
INTERCOMPANY PAYMENTS FOR FUEL CARDS CONSTITUTES VAT EXEMPT FINANCING SERVICES
On 15 May 2019, the ECJ published its judgment in the Vega International case (C-235/18) confirming its previous judgment in Auto Lease Holland (C-185/01) relating to the VAT treatment of intercompany payments for the use of fuel cards.
LUXEMBOURG GOVERNMENT COUNCIL APPROVES TRANSPOSITION OF VAT ‘QUICK FIXES’
On 24 May 2019, government ministers approved the filing of the draft law providing for transposition of Directive (EU) 2018/1910 of 4 December 2018 regarding the harmonisation and simplification of certain rules in the value-added tax system for the taxation of trade between Member States (the “Directive“). The draft legislation introduces changes to the common EU VAT regime.
DECISION OF THE ECJ ON THE ADJUSTMENT OF THE VAT DEDUCTION IN CASE OF SALE AND LEASEBACK (CESSION-BAIL) AGREEMENTS
The case concerned Mydibel S.A., a Belgian VAT taxable person, that owned several buildings which it used exclusively for its economic activity and for which it deducted the input VAT paid for its construction in full. In 2009, Mydibel entered into sale and lease-back (cession-bail) agreements with two financial institutions. Under these agreements, the financial institutions became owners of the buildings while simultaneously granting Mydibel the use of the buildings for a non-revocable period of 15 years.
JUDGMENT OF THE HIGHER ADMINISTRATIVE COURT ON THE APPLICABILITY OF ARTICLE 50bis LITL
On 4 June 2019, the Luxembourg Higher Administrative Court (Cour Administrative) handed down a judgment on the application of the intellectual property partial exemption regime.
In the case at hand, an individual resident taxpayer holds various patents, including the one at issue in the present litigation (the “Patent“).
ECJ CLARIFIES RIGHT TO DEDUCT INPUT VAT ON MIXED EXPENSES
On 8 May 2019, the ECJ published a judgment (C-566/17 Związek Gmin Zagłębia Miedziowego w Polkowicach v Szef Krajowej Administracji Skarbowej) clarifying the extent of the right to deduct input Value Added Tax (“VAT“) incurred on supplies used indissociably for the purpose of economic and non-economic activities. In the case at hand, Polish case law allowed taxable persons, in this instance a local government entity, to fully deduct input VAT in respect of supplies used indissociably both for the purpose of the local government entity’s economic and non-economic activities.