Primary change
Unlike the bill of law n°7433, the draft budget law 2021 clearly links the definitions of sustainable investments with the definition of sustainable economic activities in the EU Taxonomy Regulation [1], with the objective to minimize risks of greenwashing and reducing fiscal income. To this end, the draft budget law does not provide for a blanket exemption for all sustainable UCIs but reduced subscription tax rates for UCIs or individual compartments of such UCIs that invest a specific portion of their net asset value in determined sustainable economic activities, as defined in the EU Taxonomy Regulation.
Key points
- Scope
The proposal only impacts certain types of UCIs under the regime of the Law of 17 December 2010, as amended. Institutional share classes, specialized investment funds and reserved alternative investment funds already benefit from a subscription tax rate at 0.01% which is the floor rate foreseen in this new regime.
- The following scale is foreseen:
Percentage of the net asset value invested in qualifying sustainable economic activities |
Subscription tax rate |
At least 5% |
0.04% |
At least 20% |
0.03% |
At least 35% |
0.02% |
At least 50% |
0.01% |
- Verification
The portion of the net assets invested in qualifying economic activities at the year end date of the UCI must be audited by an independent auditor as part of the annual audit of the financial statements, or, alternatively, an independent auditor can issue a separate ad hoc assurance report in accordance with International Standard on Assurance Engagements. The portion, as well as the percentage this portion represents of the total net assets of the UCI/sub-fund, should be included in either the annual report of the UCI, or the separate ad hoc report.
An attestation certified by the independent auditor must furthermore be transmitted by the UCI to the tax administration in charge of collecting the subscription tax (Administration de l’enregistrement, des domaines et de la TVA). The portion of net asset value invested in sustainable economic activities will be used as the basis to determine the taxation rate applicable to these assets.
- Timeline and transitory measure
These provisions should apply from 1 January 2021. A transitory measure provides for a derogation to the obligation to file subscription tax returns electronically in respect of the declaration of the portion of total net assets qualifying to a reduced tax rate. UCIs will be authorized to use a form provided by the tax administration to rectify their quarterly electronic reporting until 1 January 2022.
Practical considerations
In a rapidly evolving environment where the first high-level sustainability-related disclosures will kick in as from 21 March 2021 while granular disclosures will only apply from 1 January 2022, the reduced subscription tax rate and its early application represent further financial incentive for UCIs targeting a qualification as products that promote environmental characteristics (light green products) or with a sustainable investment objective (green products).
While rewarding the first movers, these provisions come with significant challenges for the UCIs willing to benefit from these new rules as soon as possible since they need to source sufficient quality data and obtain reasonable assurance that their investments comply with the minimum criteria established in the taxonomy.