OASIS

                        ORGANIZATION OF ADVOCATES SPECIALISING IN INTERNATIONAL SERVICES

BELGIUM & LUXEMBOURG 2010/2011

BELGIUM & LUXEMBOURG DEVELOPMENTS 2010/2011

 Marc Gouden, Philippe & Partners

1.        Introduction

1.1.    About Philippe & Partners Belgium: Once again Best Belgian law firm of the year!

In 2008 and 2010, we were proud to report that Philippe & Partners had been granted the Belgian Legal Award in the category “Banking & Finance” and in 2009 our firm received the Award of the “Best Belgian law firm” of the year.

During the 2011 ceremony, Philippe & Partners was again nominated in several categories and has been granted (for the second time!) the award of “Best Belgian law firm” of the year, as well as the award of “Best Litigation & Arbitration law firm”.

More information on: http://www.droitbelge.be/legal-awards/winners2011.html

 1.2.   The political situation in Belgium

Such as reported over the three last years, Belgium has been in a politically difficult situation ever since the elections in 2007:

-       Immediately after the elections, the Flemish christian-democrat Mr Leterme had been struggling over months to find a coalition (Belgium having its longest period without government after an election with almost 200 days).

-       Finally, after a “temporary government” formed by former Prime Minister Mr Verhofstadt (Flemish liberal), a government with Mr Leterme as Prime Minister was approved by the Parliament in March 2008.  

-       After several months of political inactivity, internal disagreements and a resignation of the Prime Minister refused by the King, Mr Leterme (and his government) finally resigned in December 2008 (as a consequence of the so-called “Fortis crisis”). 

-       A new government had been appointed in December 2008 with the Flemish christian-democrat, former Minister and up till then President of the Parliament, Herman Van Rompuy. 

-       After not even one year of activity, Mr Van Rompuy has however been elected as the first permanent President of the European Counsel and again Mr Leterme was appointed Prime Minister. 

-       One of the (politically major) topics the Government and the parties of the Parliament majority had agreed to deal with, was the language issue of several communes located in the Flemish region, at the immediate border with the Brussels (bilingual) region and where lots of French-speaking Belgians live and have specific rights. After several attempts (and failures) by Mr Leterme, former Prime Minister Jean-Luc Dehaene was appointed by the King in order to work on a consensus / proposal, but he did not succeed and the Prime Minister presented (again) the resignation of this Government to the King, who accepted it after several days.  

-       New elections were held in June 2010. In Flanders the nationalist right wing party NVA (with its very popular president Bart De Wever) clearly won the elections. In the Walloon region however the socialist party remained the most important party. This means that between the two major regions of the country there are now not only linguistic issues, but also fundamental political differences (Flanders is liberal-conservative, whereas Wallonia is centre-left). 

-       Since the elections, Flemish NVA and Walloon socialists try to find an agreement on increased regionalisation and on a coalition, but without any result so far. 

In other words, Belgium is still looking for a government and fundamental changes from a legislative point of view are rare. The new laws are either the result of processes started long before the beginning of the crisis in 2007-2008, or urgent measures as a consequence of the financial / economical crisis. 

2.        Belgium

2.1.    Consequences of the financial crisis 

Belgium is no exception to the global financial crisis. Its financial system and its overall economy have been seriously affected by the downturn. Post-crisis reforms are progressively taking shape. 

Two key initiatives have been adopted with a view to strengthening the Belgian financial sector: (i) the creation of a new twin peaks supervisory model; and (ii) the adoption of new emergency measures to prevent and/or better manage the failure of financial institutions. 

Belgium's revised supervisory architecture: “Twin Peaks” 

Since the entry into force of the Belgian Law of 2 August 2002, the supervision of the Belgian financial sector has been concentrated in the hands of a single regulator - the Belgian Banking, Finance and Insurance Commission (CBFA) - in charge of the micro-prudential supervision of all Belgian financial institutions (banks, insurance companies, investment firms, pension funds, fund managers, etc.) and the supervision of financial markets (takeovers, IPOs, control of information published by listed companies, market abuse, etc.). 

Following the June 2009 recommendations of the Belgian High Level Committee for a new Financial Architecture (a special committee set up by the Belgian Government to address the future of financial regulation in Belgium) the Belgian Parliament voted in May 2010 for a law that revisits the current supervision model and moves towards a new so-called “twin peaks” supervision structure where micro-prudential supervision of financial institutions is transferred to the National Bank of Belgium (NBB), which will also be in charge of macro-prudential and financial stability supervision. 

Under this new twin peaks model, the CBFA remains in charge of the supervision of financial markets (and related conduct of business rules) and receives additional functions with respect to the protection of consumers of financial products and the supervision of certain financial intermediaries (insurance brokers, credit brokers, financial planners, etc.). 

The twin peaks model entered into force on April 1^st 2011 and the newly structured CBFA is now called “Financial Services and Markets Authority (FSMA)”. 

New emergency measures 

The Belgian legislator has also adopted new measures to manage the failure of Belgian financial institutions. Those measures are twofold:  

-        The expropriation of shareholders of systemically important financial institutions 

The government is empowered to force the sale of assets or shares in Belgian banks, insurance companies, and clearing and settlement institutions where their legal, financial, accounting or structural situation threatens the stability of the Belgian or international financial system. 

This expropriation regime has been created with a view to facilitating, for example, the ring-fencing of risky assets and their swift transfer to so-called bad banks or the transfer of the entire share capital of a financial institution to a new shareholder which is capable of financially supporting the failing institution. 

Technically speaking, any such expropriation will have to be adopted by Royal Decree and will be subject to confirmation by the Brussels Court of first instance in accordance with a fast-track procedure specifically designed to that effect. If the court determines that the expropriation is lawful and the indemnity is fair, then the expropriation may proceed, regardless of any existing statutory or contractual approval, pre-emption or similar rights. 

No appeal or other recourse is possible against that decision, with certain exceptions such as the right for the expropriated persons to request within two months a revision of the indemnity amount. 

-        The temporary freezing of contractual obligations of financial institutions 

If the FSMA determines that any Belgian bank, insurance undertaking or investment firm – whether or not systemically important – is not functioning in line with Belgian prudential rules and/or that its financial, accounting or structural situation requires remedial action, the FSMA can suspend the activities of the failing institution, including the freezing of its contractual obligations with third parties. Such a decision can be taken with immediate effect by the FSMA is case of extreme urgency. 

The freezing of contractual obligations could possibly take the form of a prohibition on customers from withdrawing cash or securities from bank accounts, or claiming proceeds from insurance contracts.  

Finally, the Law of 2 June 2010 also carves out financial institutions from the application of the Belgian judicial restructuring regime as laid down in the Law of 31 January 2009, i.e. the Belgian equivalent of the US Chapter 11 procedure.

2.2.    VAT regime for “new” buildings 

Under Belgian VAT regulation, transfer of title on real estate is considered as an exempted operation (and thus not subject to VAT). An option exists however for “new” buildings, where the transfer of title can, if so requested by the seller, be subject to VAT. 

A building is considered as “new” until December 31^st of the second year following the year of first occupation. 

This option existed however only for the constructions and not for the ground, which means that in case of a “new” building, the price related to the constructions could be subject to VAT (if so opted by the seller) (21%, with the possibility to deduct the VAT on the invoices of the construction), but the price related to the ground was subject to real estate transfer tax (12,5%, no deduction possibility of paid taxes). 

Since January 1^st 2011 not only the constructions, but also the ground are subject to VAT (if it is a “new” building) provided however that the transfer of title on both operates at the same time and that the seller of the constructions and of the ground are the same person. In this situation VAT is now mandatory (no option possibility any more).

2.3.    Social and Employment Criminal Code 

A Law dd. June 6^th 2010 introduces in Belgian law a specific Criminal Code in social and employment matters. 

The aim is to regroup and harmonise all the sanctions existing in the different individual legislations. 

The main objectives are to:

-       increase efficiency of the criminal sanctions in social and HR law;

-       bring this specific criminal law closer to the general principles of criminal law;

-       increase legal security;

-       better protect general principles such as presumption of innocence, rights of defence, proper motivation of decisions, ... 

It is thus not only compiling the existing regulations into one new legal instrument. Some fundamental changes have been adopted:

-       diversification of sanctions and graduation of theses sanctions depending on the severity of the infringement;

-       decriminalisation of minor infringements;

-       reduced intervention of the courts;

-       increase of preventive actions. 

2.4.    End of the Belgian banking secrecy 

For income tax a banking secrecy also existed in Belgium, which means the tax authorities were not allowed to collect from the banks based in Belgium, information on the assets or revenues of their clients.  

This banking secrecy was however quite limited because applicable only for income tax (not for other taxes such as VAT, donation and inheritance, ...) and many exceptions existed (indications of fraud, in case the taxpayer disputes the tax amount, taxation based on wealth indications, information requests from other countries within the framework of double taxation or tax cooperation treaties, ...). 

By a law dd. March 17^th 2011 this internal and limited banking secrecy has been so-to-say abolished. In the future, if there are indications of tax fraud (and only in such situations) the income tax administration has to first question the taxpayer and if the latter does not provide the requested information/documents within one month, the information can be requested directly from the bank. 

In addition, a centralised bank account register will probably be created in a near future with the Belgian National Bank in order to allow the tax authorities to question only the those banks where the taxpayer really has a bank account. 

3.        Luxembourg

3.1.    Consumer protection 

We reported last year that the Parliament was discussing a new “Consumer Code”. This Code was adopted by a law dd. April 8^th 2011 and entered into force on April 15^th 2011. 

The main objectives of the code are to:

-       regroup in a coherent manner many different legislations;

-       facilitate – especially for non-lawyers – the knowledge of consumer protection law;

-       without modifying however the content of the existing regulations. 

Are now subject to this new code, the following areas of consumer protection:

-       legal protection of the consumer and abusive clauses;

-       competition and unfair trade practices;

-       e-commerce and “distant”-contracts;

-       product warranty;

-       consumer credit and “distant” financial services;

-       all-in travel offers;

-       time-sharing. 

Notwithstanding the will not to modify the existing legislation, a few changes have nevertheless been introduced:

-       clear definition of a “consumer” (especially exclusion of companies or professionals acting outside their normal commercial activities);

-       general information obligation for professionals dealing with consumers;

-       uniform term (of 14 days) for cancelling a contract (but still 7 days for “distant” contracts);

-       all “distant” contracts are subject to the same legal regime whatever the means of communication.

3.2.    Market abuse 

By a law of July 26^th 2010 Luxembourg completed the implementation of the EU directive 2003/6/EC on insider dealing and market manipulation (market abuse) especially in order to increase investigation powers of the Supervision Authority with companies or persons who are not subject to the Authority’s supervision and enhance sanctions.

3.3.    Implementation of UCITS IV and enhancement of the investment fund legislation 

The new law on undertakings for collective investment (adopted by the Luxembourg Parliament on December 17^th 2010 and published in the official Gazette on December 24^th 2010) came into force on January 1^st 2011. After a transitional period it will entirely replace the law of 20 December 2002. 

The main purpose of the 2010 Law is to implement the EU Directive 2009/65/EC of July 13^th 2009 (known as UCITS IV) into Luxembourg law.  

As in 1985 for UCITS I, Luxembourg is the first country in the EU to implement the new measure into national law (the overall implementation deadline for UCITS IV is July 1^st 2011).  

In addition to implementing UCITS IV, Luxembourg has also taken the opportunity to introduce a number of other changes to its current investment fund legislation concerning both UCITS and other UCI (non-UCITS).  

Concurrently with the entry into force of the 2010 Law, the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg supervisory commission for the financial sector, has issued:

-       Regulation N° 10-4 (implementing the Commission Directive 2010/43/EU implementing the Directive 2009/65/EC) on organisational requirements, conflicts of interest, conduct of business, risk management and the contents of agreements between a depositary and a management company;

-       Regulation N° 10-5 (implementing the Commission Directive 2010/44/EU implementing the Directive 2009/65/EC) as regards certain provisions concerning fund mergers, master-feeder structures and notification procedure.  

Implementation of UCITS IV 

UCITS IV has been implemented into Luxembourg law in an as flexible way as possible. Its main improvements in comparison with the currently applicable UCITS regime are the following:

-       a simplified and accelerated notification procedure for cross-border distribution under the so-called EU passport for UCITS funds;

-       general provisions relating to UCITS mergers, covering both domestic and foreign mergers of UCITS;

-       possibility of master-feeder UCITS structures;

-       a short standardised document summarising key investor information, replacing the simplified prospectus of UCITS;

-       introduction of a so-called EU passport for UCITS management companies ;

-       reinforcement of regulatory requirements and strengthened cooperation between national supervisory authorities (e.g. regulator-to-regulator communication). 

Grandfathering – transitional provisions 

Until all Luxembourg UCITS become subject to the 2010 Law on 1 July 2011, certain transitional provisions will apply. Similar transitional provisions will apply to management companies.  

However, all UCITS which opt to remain under the 2002 Law and continue to use a simplified prospectus after July 1^st 2011 must replace the simplified prospectus with a key investor information document by June 30^th 2012, which is also the overall grandfathering deadline for replacing the simplified prospectus under UCITS IV.  

All other UCI and all other management companies will be subject to the 2010 Law from January 1^st 2011. 

Other main changes to the Luxembourg investment fund legislation 

-        Cross sub-fund investments  

A sub-fund may in future invest in one or more other sub-funds under the same umbrella (UCITS and other UCI). However, the duplication of management fees is not permitted in this context (unlike investments in another UCITS, where there is no such prohibition, though the maximum proportion of management fees charged must be disclosed). 

-        Management regulations are subject to Luxembourg law 

For clarification purposes, in particular concerning the residency of common funds managed cross-border (UCITS and other UCI), the 2010 Law requires the management regulations of such common funds to be subject to Luxembourg law.  

-        Mergers of UCITS 

The receiving or absorbing UCITS is granted additional flexibility for a period of six months in relation to certain investment restrictions.  

-        Regulatory measures  

The authorisation for one sub-fund under an umbrella (UCITS and other UCI) may now be withdrawn, without entailing the withdrawal of the authorisation of one or all the other sub-fund(s) under that umbrella and/or the entire umbrella. 

When delegating functions to third parties, other UCI and non-UCITS management companies are subject to the same requirements as UCITS and UCITS management companies. In particular, asset management functions may only be delegated to authorised investment managers subject to prudential supervision. In the case of a non-EU manager, there must also be a cooperation agreement between Luxembourg and the other national supervisory authority concerned. Management may not be delegated to the depositary. 

-        Taxation 

Foreign UCITS and other UCI managed by a Luxembourg management company are expressly exempt from Luxembourg taxation. 

Non-resident investors (including feeder funds) making profits from the sale of shares in a corporate UCITS or other UCI are no longer subject to taxation in Luxembourg. 

The following are exempt from capital duty (taxe d’abonnement):

• UCITS or other UCI which are listed on a stock exchange/traded on a regulated market or replicate the performance of one or more indices (this means that in particular exchange traded funds are also exempted from capital duty).

• UCITS or other UCI and their sub-funds which are reserved for pension funds (this was already the case, but only for pension funds of the same group).

• UCI and their sub-funds whose main objective (over 50%) is to invest in microfinance institutions.

3.4.    Anti-money laundering 

The law dd. October 27^th 2010 (Official Gazette November 3^rd 2010) brought several innovations in respect of anti-money laundering regulations in Luxembourg and modified – amongst others – the law dd. December 6^th 1991 on the insurance sector. 

Scope – Definition of a residual category of professionals – Foreign service providers 

The October 27th, 2010 law introduces a new, very broad, residual category of professionals subject to the anti-money laundering regulations (new point 7 of article 2(1)): other professionals than those specifically enumerated and which deliver to their clients, on a commercial basis, at least one type of those professional services listed in the appendix to the law. This list is quite long and includes generic operations such as transfer of money or assets, loans, operations on stock markets, wealth management, etc.  

The 2004 law was already applicable to Luxemburgish establishments of foreign professionals. It is now also applicable to such professionals delivering services in Luxembourg without having an establishment in the country (FOS). 

Risk analysis – Written report 

Each professional within the scope of the legislation has to perform a risk analysis with regard to money laundering in its specific business. The results of this analysis now have to be recorded in a written report. 

Simplified alertness obligation 

Whereas formerly several operations and products were exempted from anti-money laundering obligations, professionals are now only allowed to reduce their vigilance obligation with regard to such operations, but not to totally exclude them from their surveillance measures. 

The law now also defines the minimum requirements of this simplified alertness obligation and imposes a follow-up of the client relationship in order to make sure that the conditions for the simplified obligations are met also in the future. 

Enhancement of the cooperation obligations and of the supervision powers 

The already existing “Cellule de Renseignement Financier” is now recognised as a separate body within the Public Prosecutor’s office and article 5 of the 2004 law (cooperation and denunciation obligations) is modified in order to implement this change and to strengthen these obligations. 

Furthermore, with regard to insurance professionals, the new articles 46(5) and 111(4) of the law dd. December 6th 1991 empower the supervising authorities to impose sanctions on insurance professionals if they do not comply with the anti-money laundering regulations. 

The law of October 27th 2010 also enhances the “Commissariat aux Assurances” (Insurance supervision authority) powers in several other areas:

-     ensure the correct application of the law in the relations between insurance companies and clients and between insurance intermediaries and clients;

-     new investigation powers: right to require access to all information and documents; to visit the professional’s premises and to take copies of documents, books, accounts, etc.; to interview managers and employees; to collect information from other governmental, public or judicial bodies;

-     right to publish sanctions imposed on insurers or intermediaries;

-     penalties in case an insurance professional does not comply with the Commissariat’s injunctions;

-     analysis of the brokers’ shareholder structure. 

Non-disclosure of prosecution 

The professionals subject to the anti-money laundering legislation were always subject to a non-disclosure (towards their clients) obligation in case of denunciation or in case of public prosecution related to money laundering or financing of terrorism. 

A second law dd. October 27^th 2010 (Official Gazette dd. November 3^rd 2010) implementing the European convention on judicial cooperation in criminal matters and modifying the Luxembourg law of August 8^th 2000 on judicial cooperation, introduced a new article 7 in the latter legislation imposing an additional non-disclosure obligation on credit institutes (and their managers and employees) with regard to any seizure of documents or communication of information regarding a client within the framework of an international judicial cooperation. 

Criminal fines from 1.250 € to 1.250.000 € are foreseen in case of non-compliance with this confidentiality obligation.

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