ATAD 2 / BEPS and its impact on Luxembourg-based private equity funds

Welcome to the third edition of the IQ-EQ CFO e-Lab. I’m Christian Heinen, the Managing Director of IQ-EQ Luxembourg, and your host for today's session. Launched in May, IQ-EQ’s CFO e-Lab is a unique series of topical online master classes provided by leading industry experts. Each session takes the form of an interactive webinar covering both technical and practical industry perspectives. I'm very pleased to introduce the third webinar in our series titled ATAD 2 – BEPS and its impact on Luxembourg's private equity funds. The aim of ATAD 2 is to implement measures on hybrid mismatches, consistent with the rules recommended by the OECD BEPS report. Without any doubt, it will have a direct impact on Luxembourg's private equity industry. To discuss on this topic. I'm very honoured to have with me today, first Raymond Krawczykowski, Tax Partner, Mergers & Acquisitions at Deloitte and Frank van Kuijk, Partner and Head of the Investment Management Tax team at Loyens & Loeff, here in Luxembourg. Raymond will provide you with the conceptual framework, a snapshot, and the key items for you to know. Whereas Frank, will give you some practical case studies on what he sees and how he sees his clients doing. You can ask a question at any point of time during the presentation, by using the question tab situated on the right hand side of your screen. And we'll be taking your questions at the end of the presentation in a maximum of 20 minutes. Without any further delay, I now leave the virtual floor to Raymond. Have a great day, and thank you for joining us.

Thank you, Christian. The Anti-Tax Avoidance Directive 2 aims at neutralizing hybrid mismatches with third countries in a very comprehensive manner. It is based on the work done by the OECD against base erosion and profit shifting, the so-called Action 2 of the BEPS report. The example and interpretation included in this report should be used to understand and implement this directive, of course, as long as it is in line with the directive. Even though not the primary target of BEPS initiative, the investment fund industry is impacted by those new rules due to the cross border activities. But let me first start with what does hybrid mismatch mean. It covers situations where there is difference in the characterization of an instrument or an entity between two or more jurisdictions. And that leads to either the deduction with no inclusion, meaning an expense is distributed in one jurisdiction and the other, the jurisdiction of the investor, doesn't recognize that income deduction with no inclusion. Or, leading to a double deduction, meaning that both in the country of the investors and in the country where the platform is located, where the fund is located, you would have two deductions. The key concept used to prevent those mismatches includes hybrid instruments and hybrid entities. A hybrid instrument would typically be a subordinate shareholder’s debt Preferred Equity Certificate whether convertible or not. Very often used in Luxembourg by investment funds and which are usually treated and regarded as debt and can create tax deductible expense at the level of the Luxembourg entity on an accrued basis. Whilst, in the end of the investor, in that other jurisdiction, taxation could be deferred until actual payment or, there are tax benefits which can be obtained by the investor, such as exemption on that income, reduction in the income tax rate or just tax credit. Then the second aspect is the hybrid entities or, in particular, transparent entities. These would typically be your Luxembourg entity, a private limited liability company, or S.a.r.l., that is treated for Luxembourg tax purposes as an opaque entity or corporation, and is subject to strict corporate income tax. Whilst this entity could be disregarded or treated as a look-through partnership at the level of the investor, whether they've made an election for that treatment or whether it is just based on their legislation. And that could lead to two things. The first one is if there is a payment made by the Luxembourg entity to a third party, that payment could be deducted both in Luxembourg and at the level of the investor, because it doesn't look at the entity and believes that it is its own liability payment that has been made that create the double deduction. Or, if there is a payment made by the Luxembourg entity for the benefit of its investor, what it would create is a deduction at the level of the Luxembourg entity, because it's a corporation, but a non-inclusion at the level of the investor, because he doesn't see that Luxembourg entity, it is disregarded, it is look-through. So creating a deduction with no inclusion. This is really what BEPS is about, it is avoiding those types of double deduction, or double deduction and non-inclusion. There are many hybrid mismatches in the world, BEPS can’t catch them all, and it's not the intention. In the same manner, the directive and the Luxembourg legislation are very specific, they are only going to catch up for hybrid mismatches, which are between associated enterprises or that result from structure arrangement. So let me go through what is an associated enterprise and associated entity. The definition is actually very comprehensive as well. It reclaims all persons that have at least 50% shareholding or the voting rights or profit entitlement in the taxpayer, and it goes in both directions, so an entity holding that or being held in that manner, this is really definition of group entities as per the directive. Furthermore, It also includes group companies which have been, uh, grouped together for accounting purposes that need to actually produce consolidated accounts. Finally, the ownership of rights of a person, which is acting together with another person, need to be aggregated. I will come back to that notion of acting together. The 50% threshold, which applies for associated enterprises is reduced down to 25% for hybrid instruments. There is of course, a question about the timing. When should we compute those 25 or 50%? Is it at year end? Is it at the time of first close? Is that the time of second close or is it on a commitment basis? There is no specific indication, neither in BEPS, neither in the Luxembourg legislation on that ground, but there is a sort of doctrine practice, which has been developed now that we have the rule already in place for a couple of months amongst practitioners in Luxembourg. The second aspect are the structured arrangements. Typically, they will be financial instruments or entities, which are treated in one manner in one country and another manner in another country and the price of the benefit of that difference in the treatment is priced into the instrument itself. Let me give you an example. If you have a financial instrument creating a deduction, at 10% in one jurisdiction and being taxed in the other at 30%, if you were successful to create an instrument, which would not be taxed in that other jurisdiction, the investor jurisdiction; there is a saving of 30%, the corporate income tax. Then that saving actually could be shared between the two. investor and the issuer of the instrument, so that the interest on that debt is not 10% anymore. but that could be reduced down to 7% giving the same benefit for both parties. At least for the issuer, helping him to reduce his indebtedness and interest base. There are a couple of positive nodes in respect of this directive. One of them is actually that tax-exempt entities which benefit from a specific tax status or, for which the instrument can benefit from an exemption because of their specific rules, those won't be caught by the directive and will be outside the scope of the directive. So pension funds, which benefit from some exemption will not be a bad entity for the purpose of the directive. The rationale of why there is an exemption will be accepted for the purpose of the directive and the Luxembourg legislation. Tax outcome, which are solely attributable to the difference in the value of the payment are also outside of scope of the directive. So, if you were going to make an adjustment, let's say for transfer pricing reason on an interest-free debt and get a deduction in the source country - as can be done in Luxembourg And if there is no pickup in the other investor country, that is not something which will be caught by the director. That's two news, two good news, included in the comment to the directive. What are the consequences If we are within the scope of the directive? The directive lays down primary and secondary rules to deny deduction of expenses and losses, or to require the taxpayer to include the income in its taxable base. So from a double deduction, you will end up with a single deduction or from a deduction and non-inclusion. You will end up with a non-deduction and a non-inclusion. So the tax benefit is going to disappear. That's the purpose of the directive. The directive also provides for rules for imported mismatches. And it's really what it is. It's what it says. It's mismatches, which are occurring outside the EU between two entities, not EU- based, creating a double deduction or deduction with no inclusion, exactly what would happen between European companies. This mismatch, if it is created by a deduction in the source country, in a European entity, this mismatch is going to be imported and create a non-deduction at the level of the payer. So a Luxembourg entity making a payment, which is used to fund that mismatch can't benefit from the deduction and the same would apply for the other European countries. Let me now come back to the notion of acting together. A very important notion. The ownership or rights of a person, the persons that are acting together should be aggregate to determine whether the entities are associated or not and we've seen how important that associated enterprise aspect is for the purpose of the directive. Luxembourg has decided to take a very pragmatic approach and applies rebuttable presumption that an investor holding less than 10% in an investment fund should not be viewed as acting together with any other person. It's a law, in principle, to exclude from an associated enterprise an investor owning less than 10% and not exercising otherwise common control over the investment made by the fund. For this purpose investment funds are broadly speaking collective investment vehicles, which raise capital for a number of investors with a view to invest this capital in accordance with a defined investment policy and, of course, for the benefit of the investors. Meaning that if you have a fund with 11 investors, all of them holding less than 10%, you would be totally outside the scope of this directive based on that rebuttal presumption. That was the intention of the Luxembourg authorities to simplify the whole process. All those rules are already applicable. They were applicable as from 1st January, 2020. There is another concept I would like to cover. And that concept actually is not yet into and didn't enter yet into force, it is going to be implemented only as from 1st Jan 2022. However, we've got already the legislation and how it's going to be looking like and that concept or that other additional aspect of the EU directive on ATAD is reverse hybrid. This is typically a Luxembourg partnership an SCSp, which is regarded as a look-through partnership for Luxembourg tax purposes. And that will be treated as an opaque corporation under the laws of the investors creating possibly a double deduction or creating possibly deduction without inclusion. This partnership would become taxable to the extent of the income of this entity, it is not taxed at the end of the investors. Again, we will be using the associated enterprise concept and the 50% threshold is going to be applied here. The directive did provide for some exemption in respect of this reverse hybrid treatment. And the Luxembourg legislation did up and go along with the rules and the recommendation of the directive. So, the directive provides for carve-out for collective investment funds, meaning in Luxembourg, UCITs undertaking collective investment funds, Part II specialized investment funds, reserved alternative investment funds with either special investment funds or SICAR investment policies, as well as all other alternative investment funds, which are widely held or diversified portfolio of securities, and are subject to investor protection rules in the country where they are established. So that's another good news, shall we say. Let me quote here, and to nearly finalize this presentation, Albert Einstein who said “The hardest thing in the world to understand is the Income Tax.”, you probably will agree with me that this quote has never been more true than today. As conclusion. It is paramount for fund manager, if not already done, to review the existing structure and to take into account this piece of legislation into the strategy for new fund structuring, new fund raising. Those new rules may have a very important impact in respect of the return for the investors. So definitely something to watch out and without any further ado, I would let Frank, lead you through some examples, practical examples of the outcome of this directive Thank you.

Thank you, Raymond. That was, was very helpful. Let me first introduce myself. I'm Frank van Kuijk. I'm a with Loyens in Luxembourg, uh, already for some, some 15 years. I'm a partner in the investment management and tax practice, and I'm very much exposed to all, private equity fund and investment management industry., and I typically focus on advice in relation to BEPS and ATAD. So let's go to this, this next slide. On the left hand side, we see a typical private equity structure in Luxembourg. So we see a Lux fund organized as a partnership. That fund invests through two Luxembourg project companies. And each of the project companies hold a target entity. The idea is that these Luxembourg project entities should give rise to reduced withholding tax rates, upon distribution from the targets to the project holding companies and the project holding companies are able to repatriate their income tax- free back up to the Luxembourg fund on an income-sharing loan. That was how it all worked pre-BEPS. Post-BEPS, it all works differently. BEPS Action 6 basically requires that Luxembourg entities aiming to claim treaty benefits do avail of appropriate substance and are considered to be the beneficial owner of the income they earned. So on the left hand slide there is little substance in Luxembourg. There is also, a poor beneficial ownership position because basically all the income received by the project companies is paid on to the Luxembourg fund under the income sharing loan. On the right hand side, that is totally different, because first of all, we have only one project company that pools two investments. The project company avails of proper substance provided either by the fund manager or by a Luxembourg management company. The fund manager or the management company avails of staff, of office space, and performs the relevant functions to the Luxembourg property project company under a specific agreement. Next to that, the beneficial ownership position of the Luxembourg entity is enhanced because the entity is now funded with 15% equity and for 85% with an interest bearing loan. That all means that typically this Luxembourg entity would be able to sustain a challenge under BEPS Action 6 because its substance position and beneficial ownership position are heavily improved. I think it's fair to say that most of the private equity structures in Luxembourg have undergone this maintenance already, some two, three years ago. So most of the setups in Luxembourg are definitely structured as depicted on the right hand side and not anymore in the way depicted on the left hand side. So let's move to the next slide to see how the industry has responded on BEPS Action 4. On the left hand side, we see a typical structure to acquire non-performing loans, NPL’s, non-performing loans are typically acquired via an NPL acquisition co structured under the funds. The non-performing loans, let's assume that they are redeemed at par. So they bought at 80 cents on the dollar and redeemed at par. So that would mean a capital gain in the NPL entity of 20. That capital gain was typically stripped under the 99% income sharing loan. And there was only a tax basis of 1 at the level of the NPL acquisition company. With BEPS Action 6 that basically ended because BEPS Action 6 basically says if there is interest income, stripping out income, taxable income, which does not qualify as interest, the corresponding interest deductions are capped at 30% of the corresponding income. So that would mean if the NPL entity buys a loan at 70, the loan is sold at hundreds, that there is a gain at the level of the NPL acquisition company of 30 in the past 29 could be stripped out under the income sharing long, but nowadays it's basically only possible to strip out 10. So, that would mean that the NPL acquisition co would have a taxable basis of 20 in Luxembourg. So, that basically means that BEPS Action 4 leads to substantial tax leakage at the level of the NPL acquisition co. The industry responded to debts, basically three types of structures are typically used nowadays. These structures are depicted on the right hand side. The structure that is heavily used is the structure where it's not an acquisition co that acquires the distressed debt, but an alternative investment fund - master alternative investment fund. We call it a master because it is structured under the feeder fund, which is organized as the, as the partnership depicted as the triangle. The master alternative investment fund is not impacted by the earnings stripping rules because Luxembourg law provides for carve-out of alternative investment funds from the earnings stripping rules. So basically, the master alternative investment fund is in the same position as the acquisition co was pre-BEPS. So it's an efficient structure. Obviously it comes also with a downside because a master alternative investment fund IS an alternative investment fund and therefore comes with maintenance costs. You have to, for example, you have to appoint a regulated manager in Luxembourg or in Europe. You have to do reporting to investors. You have to appoint a depositary. So there's definitely a cost aspect to consider there. The alternative is to structure the non-performing loan directly in the fund entity. So, that is the structure which is basically depicted in the middle. The idea there is that the Luxembourg fund is not impacted by earnings stripping rules because it is simply not a taxpayer in Luxembourg. That structure is very efficient and very easy unless the non-performing loans need treaty protection, because in that case, it is not efficient to structure them directly in the fund, You would need to structure them through a taxpayer in Luxembourg. So if that is the case and you need to structure them through a taxpayer in Luxembourg, you could choose the alternative investment fund solution. But if that is deemed to be burdensome, or too expensive, there's also an alternative and that's again an NPL acquisition co, as depicted on the far right hand side. That entity acquires non-performing loans, realizes the gain, and the gain is stripped out under an expense, which does not qualify as interest from a Luxembourg perspective. And if that expense does not qualify as interest, it’s also not caught by the earnings stripping rules. Typically, the expense debt should not qualify as interest is structured on the (…..) kind of arrangement and a conversion feature in the loan, and that charge triggered under debt conversion premium can generally be held that that is not interest and therefore deductible. It should be noted that the Luxembourg tax authorities have not confirmed this in black and whites, but it is a structure which is heavily used in the market. So also for earnings stripping rules, there are definitely solutions in Luxembourg to structure them efficiently without any material leakage in the investment structure. Okay, let us now focus on BEPS Action 2 - the anti-hybrid rules and how the industry responded to that. -n the left hand side, we see a structure pre-BEPS. So we see a Lux Multi-ProjectCo, that holds a Target, and grants a shareholder loan to that Target. The income under the shareholders loan is taxable at the level of the ProjectCo but also shelters under a corresponding back to back loan granted by the fund and at the level of the fund, there is no tax pickup. So the Lux Multi-ProjectCo is not in a tax payable position there because the income is sheltered by a corresponding expense. That corresponding expense is not secured any more (…) to the anti-hybrid rules. Because if that expense is basically arising in respect of a payment, which is a payment to a hybrid arrangement as we call it. The tax deduction at the level of the Multi-ProjectCo is no longer secured. So the question then pops up, what is a hybrid arrangement? There are a number of hybrid arrangements mentioned in ATAD, but the typical hybrid arrangement is the fact that the Luxembourg entity based to a Luxembourg fund, which from a Luxembourg perspective is a transparent entity. So Luxembourg, sees a payment to the investors directly. Some of the investors, Investor 1 and Investor 2 however, see the fund as a tax opaque entity and don't report the corresponding income because they argue it is the fund that receives the income. So that means that Luxembourg basically gives tax deduction on a payment which is not recognized by investors because investors allocate it to Luxembourg funds. So that means that there is a deduction, but no tax inclusion. And that is exactly what the anti-hybrid rules try to combat. So how do private equity structures typically deal with it? That we see on the right hand side, the right hand side overview presents the three typical solutions we see in the market. The first response to the anti-hybrid rules is a structural response. And that structural response basically entails that between the Luxembourg fund, the triangle and the ProjectCo, a RAIF/SIF is interposed, and that is a corporate RAIF/SIF, and a RAIF/SIF is basically an investment fund in Luxembourg, which is tax neutral and structured as a corporate entity. In this case, the Lux project company doesn't pay to the Lux fund because at that level we have the qualification difference, that pays to the Luxembourg RAIF/SIF. And there, we don't have a qualification difference because Luxembourg views that entity as an opaque entity and the investors would typically do that as well. So that means that the Luxembourg Project Company does not pay to a hybrid arrangement anymore, and that the tax deductions at the level of the project holding company are now secured. So that is structurally a very simple solution, but we all recognize that this solution also comes at a price, because a RAIF/SIF is not a simple SPV, it is a genuine font in Luxembourg. For a SIF, you have to get CSSF approval. For a RAIF, and for a SIF, you need to appoint a regulated manager in Europe. So it comes with depositary requirements, with reporting, and that all comes at a the cost. So some of the smaller funds do not want to go down this route. They would use preferably a more contractual allocation solution, and that is basically Response 2. Response 2 basically says, if there is tax leakage in the structure caused by hybridity rules, that that leakage is also picked up by the entities or by the investors that caused the tax leakage or by the bad investor. So that basically means that if there is tax leakage here as a result of hybridity rules let’s say a hundred, that that hundred of tax leakage will be clawed back from the capital accounts of Investor 1 and Investor 2, but not of Investor 3. So you can imagine that good investors are very much interested in this allocation clauses because if these allocation clauses aren't there, they may have to pick up tax leakage caused by bad Investor 1 and bad Investor 2, and that's obviously not what they want. An alternative response or a response that is used in combination with Response 2, is that the GP has some discretion to ask certain bad investors to invest via blockers in the fund structure or via AIV, so separate investment vehicles that have the same exposure to the investment policy of the fund, but these investors do not actually go through the fund, and, in that way you could also avoid hybridity problems. So, to make a long story short, the structural solution is typically only used by larger funds - I would say as from 1 billion typically. And the allocation and AIV clauses we typically see them back in all the LPAs of Luxembourg fund structures because good investors basically typically push hard for them. Let's move to, let's now move to the next slide. This slide explains how the industry is responding to reverse hybrid rules. So on the left hand side, we see a pre-BEPS investment structure. So again, we have the Luxembourg partnership there with a Target underneath it, and we have three investors, all holding a stake of 33% in the fund. So in this case, that would mean that we have a majority of bad investors in the fund structure. Previously that wouldn't mean anything but going forward, that may mean that the fund will become a taxable entity in Luxembourg, and it will be taxed in so far as its performance is allocable to Investor1 and Investor 2. So suddenly, the investment fund in Luxembourg, which is typically tax neutral, will become a taxpayer in Luxembourg. And obviously that is a very serious concern. So the question is now how to deal with such concerns in the fund documentation. We typically see that managers either set up their partnership type of funds under the RAIF or the SIF regime, or, provide for a clause in the LPA, which basically gives them the right to convert the Lux fund into a RAIF or into a SIF. The idea is that the reverse hybrid rules, if, and when they kick in, are set aside by the tax provisions that are in the RAIF and SIF regime, because the RAIF and SIF regime basically say that a partnership is a tax neutral entity. So what we would say here is that the RAIF and the SIF regime set aside the more general rules, the more general reverse hybrid rules are set aside by the RAIF and SIF regime which are more specific. So if, and when the Lux fund will qualify as a reverse hybrid, there is still nothing to tax there because it is protected by the RAIF/SIF regime. So that is the first solution, and admittedly, debt solution is not bulletproof, because it is not tried and tested in Luxembourg, but it is something which is at least used in the market to have an extra safety belt when the reverse hybrid rules may kick in. The alternative is also the bit that on the right hand side, in the right hand corner. And that is basically again the GP who has the rights to segregate certain investors in AIV structures, which have the same exposure as the Luxembourg fund to the target entities. So the GP can ask a certain investor here to invest via, for example, an offshore fund, because an offshore fund is typically not impacted by reverse hybrid rules because it's not based in Europe. The GP can also ask an investor to come in via blocker, because the idea is that the blocker entity would view the fund as a tax transparent entity, therefore there is no qualification conflict, and therefore the fund will not be a reverse hybrid. And as an extra safety belt, a Lux fund would also adopt, or the possibility to adopt the RAIF/SIF regime that would potentially also protect against adverse impact of the reverse hybrid rules. I think what should be clearly on the radar here is that the reverse hybrid rules will also not easily kick in. And the reason for that is because a fund has to have a majority of bad investors and in practice, we just experience that it is not often the case. So some managers are pretty relaxed on the reverse hybrid rule simply because they have a very diversified investor base and they don't anticipate a majority of bad investors. There's also another exclusion from the reverse hybrid rules and debt exclusion basically shares that if a fund is widely held, that it's also not impacted by the reverse hybrid rules. The issue here is that the Luxembourg authorities didn't give any guidance on the concept of “widely held”. So, practitioners in Luxembourg struggle a bit with this because they simply cannot advise a client when a fund is widely held or is not widely held. The general idea is however that if a fund does not have investors that hold more than 10% in a specific fund, that there is, that the fund should qualify as being widely held, but that's more a rule of practice than anything else. So also here, I think the conclusion is that the industry is very well aware of the reverse hybrid rules. The rules do not easily kick in because the standards that are set are quite high, and if they are kicking in there are definitely potential solutions that avoid at first impact of the reverse hybrid rules. So, I think to summarize all this, what we typically see is that if managers come to Luxembourg with their fund structures, they go all in. So, they come with substance and definitely with beneficial ownership, investment structures are heavily impacted by earnings stripping rules and anti-hybrid rules. And as you have seen in the slides, there are definitely solutions to avoid adverse impact on the IRR of the funds of these new sets of rules, which solution is dominant or fits best, heavily depends on the investment profile and the volumes that are invested through Luxembourg. So I believe we now go to the Q and A session.

Many thanks, Frank and Raymond for sharing these insights, which I think was quite useful and in a very condensed manner. So, a couple of questions that came up during this session. The first one is “One topic that came also back in your presentation is that a lot of these solutions or models they are lacking, maybe testing by the authorities, or maybe there's no clear guidance on whether they are valid or not valid. Can you maybe elaborate a bit more on, you know, why is there no guidance for now? And do you expect that to change?” Maybe Frank, you can pick that up.

Yes, absolutely. There is indeed not much guidance for the moment. The only guidance we have are basically the parliamentary documents, which are, in most of their points, pretty vague.

There was a rumour that already goes in Luxembourg for some two years now, that there is guidance to be expected from the tax authority, so some kind of circular. That guidance didn't come and I think the general belief is that we should no longer wait for it, because the idea is that the Luxembourg authorities are very reluctant to issue guidance on some of the key concepts of ATAD, simply because they are worried that they frustrate the Commission, so we typically see - the European commission - So we typically see now that managers are basically relying on market practice, on common view shared among practitioners in Luxembourg, and on that basis, they just check whether they are in the herd or out of the herd. And if they out of the herd, they are generally worried. And if they are in the herd they are typically comfortable with their structure. So that is unfortunately a bit how we have to advise them nowadays, whether their structure is in the herd or out of the herd simply because there is not much technical guidance from the tax authorities.

Okay. Thanks. You mentioned maybe another question that came up, maybe for Frank as well. That one is “You said that fund managers come all in. Have you seen any impact that fund managers have changed their perception on Luxembourg or, you know in the complexity that they are taking decisions maybe going elsewhere or structuring differently? Any, any practical examples? “

No, we don't really see that to be honest. If a manager decides to set up a European vehicle to go out for European money, obviously you go to Luxembourg because you cannot really go anywhere else in Europe. But if you go to Luxembourg nowadays, that also comes at a price and that price is called substance. So that means that if managers do come to Luxembourg, they also come with substance nowadays, they realize it comes at a cost. So either they set up a separate management vehicle to manage their SPV structures in Luxembourg, so they hire some employees, typically, I would say one employee for 20 companies. They have office space in Luxembourg, and basically they do all the corporate housekeeping in house. They oversee the investments in house, financials are still done by third party service providers. And that is the way setups work nowadays. And a next step in the approach is basically when you have set up your SPV management vehicle, there are certainly also managers that are considering to set up the full AIFMD compliant entity in Luxembourg to manage their funds from Luxembourg. And that obviously gives some extra substance to the structure. And I would say setting up your own AIFM or Luxembourg is a thing managers typically do as from a 1 billion assets under management, because then basically the benefits outweigh the costs. So that is typically what we see nowadays. So the sector is going all in, in different sorts and forms, but that is what they are doing.

They can obviously also rent, the ones that are maybe below the threshold, can always rent and work with the service provider as well.

Yeah, obviously I think that is a model that we are very familiar with in Luxembourg. As from 1 billion, it's getting interesting to set up and manage yourself. However, even as from 1 billion, we all realize in Luxembourg, it's not easy to find qualified people in Luxembourg. It is expensive. So we also, see managers that use the third party model and that is tried and tested and works very well in Luxembourg.

Thanks, Frank. Maybe also in terms of time, there's a last question, quite interesting actually, to also close that off, I will address it to, give it over to Raymond. “Is there anything on the tax horizon that you see that comes after ATAD 2? “ So I think our customers and clients and and generally, there's so many developments on many regulatory aspects, right? So what comes after, when it's stopped one point of time.

It's not going to stop this year. That's for sure. So we certainly are working on DAC 6, so the implementation of the reporting aspects for what is viewed as (…) tax planning. DAC7 is already ready, so it's somewhere there. But most importantly, I believe that there is a huge piece of work, which is currently done by OECD in respect of taxation of digital economy. And that was upon the request of the EU. And the EU gave to the OECD until the year end to basically come up with some recommendation and possibly some agreement as well with the US and some other big countries. So they are working on it and we know that there are already two PLR’s that have been proposed. The first PLR is how to allocate the profit coming from digital to (…) establishment to share the profit between various entities within the group, and the second PLR, which has more sort of an abusive aspects whereby for entities, which pay low level of tax, they will be automatic inclusion of that taxable base at the level of 1 of the taxpayer, which is of course in a high tax jurisdiction, It's a sort of guilty tax, which will be introduced based on those recommendation. I believe that if the OECD doesn't conclude by year end, then it's going to be the EU to take the pencil and start writing the legislation. So the good point so far based on the OECD recommendation and papers that we've seen, the fund industry should be excluded, at least from the first PLR. See what will happen if it is the EU which takes over the pencil, whether they will include the same exclusion or provide for the same exclusion as the OECD.

The good thing at the EU level, Luxembourg has also (…). So we'll see how this develops, if it would affect the AIF industry we would definitely have a lot of CFO e-Labs on that topic then as well, we would like to have you on board for that one. I think in terms of time, these were three questions, but obviously you know, everybody can ask questions also to Frank, Raymond, either directly reaching out to us and we can pass over your questions. On my side, a big, thanks, Raymond and Frank , for joining us for this CFo e-Lab. I hope that you all found it very useful and we will be glad to see you next time again, for the next CFO e-Lab and, you know, wish you a nice day and thanks for joining and hope it was very useful. Take care. Thank you.