BEPS trumps Brexit in UK relocation decisions

The Base Erosion and Profit Shifting regulation is playing a bigger role in UK managers’ decision to relocate than Brexit, according to one funds lawyer.

The BEPS rules, which aim to standardize policies to minimize tax avoidance strategies, are prompting managers to concentrate substance in the jurisdiction of the alternative investment fund manager and away from the location of the advisor, said Josh Tod, counsel at Gibson, Dunn & Crutcher.

“This is in order to mitigate increased permanent establishment risk under BEPs, so firms can demonstrate to tax authorities that they have real substance and take important decisions in the jurisdiction of the AIFM,” he added.

BEPS is working with other regulatory and compliance pressures to inform managers relocation planning, he said.

“We’re receiving regular relocation queries from clients and potential clients, driven by Brexit, BEPS and the Alternative Investment Fund Managers Directive, which are operating in conjunction to push some firms toward centralizing operations within the EU,” Tod said.

He added that Luxembourg and Ireland remain the most popular domiciles managers consider in relocation planning, with the Netherlands a “distant third choice”.

“In terms of available fund structures and professional services infrastructure, the Netherlands is broadly comparable to Luxembourg and Dublin,” said Tod.

“Luxembourg has benefited from the fact many private equity sponsors already have a presence in Luxembourg, whether as a fund or holding company domicile, and it has therefore been a logical place for these sponsors to consider as a location for fund administration and investment management functions.”