Right from the start, INREV recognised that taxation was a key issue for non-listed real estate vehicles. Since those early days, the organisation has looked to keep its members informed of the evolution of tax regimes across Europe and globally, given that these can have big implications for how vehicles are structured and for investors’ due diligence.
Indeed, over the last 20 years, the tax landscape has changed quite dramatically. As Richard van der Linden, Tax Partner at PwC and Chair of the INREV Tax Committee explains, ‘Back in the early 2000s, funds viewed taxes primarily as a cost, similar to those for building materials or electricity, which they tried to keep as low as possible. This was helped by the European treaties of the late 1960s, which had removed trade barriers and limited the tax drag when investing across borders.’
But one thing that hasn’t changed is how INREV perceives its role in relation to tax, which is to keep members up to speed with changing laws and to promote best practice among vehicle managers.
‘That all changed about ten years ago, when public opinion started to push governments towards clamping down on increasing abuses of this relatively benign system. Although not directly implicating real estate, scandals like LuxLeaks and the Panama papers raised public awareness of the potential for tax avoidance by international investors. This led to drastic amendments to European Directives and Tax Treaties, giving countries far-reaching powers to prevent the abuse of tax exemptions.’
‘But one thing that hasn’t changed is how INREV perceives its role in relation to tax, which is to keep members up to speed with changing laws and to promote best practice among vehicle managers, ’ van der Linden continues. ‘It has also passed on the industry’s concerns about new laws and regulations to the authorities drafting them, who often haven’t had real estate principally in mind in that process.’
Soon after its creation, INREV focused on best practices and standardising market principles in the context of taxation, leading to the development of ‘tried and tested’ vehicle and holding structures that were compliant with existing regimes. The highly valued country-by-country tax and regulatory guide was also first placed on the INREV website around this time.
Later, as investors came to embrace a more socially responsible attitude to tax, INREV formulated its Code of Tax Conduct. As Van der Linden explains, ‘This followed the example of the Danish pension funds’ own code of conduct and combined various elements relevant to real estate funds to provide a standard for INREV members and the market in general.’
‘More recently we have had to contend with still more complexity,’ he contines, ‘not only from regulations such as the OECD Base Erosion and Profit Shifting (BEPS) initiative and the EU’s Anti-Tax Avoidance Directive (ATAD), but also from the ESG-related tax-disclosure requirements of the SFDR. But through all these changes, INREV has provided briefings, courses, snapshots and discussion platforms to light the way for members. And the need for these will only grow as tax authorities keep focusing their attention on international investors as a potential source of revenue.’