To assess the impact of P2 on EU fund structures, the first step is to identify whether any consolidation takes place and, if so, whether the €750M threshold is met.

If there is an in-scope consolidated group, the next step is to determine whether the P2 exemption for ‘excluded entities’ (𝐄𝐄) applies. An EE is not subject to top-up tax (𝐓𝐓). Instead, the TT will be imposed at the next entity down the ownership chain that is not itself an EE in case the income inclusion rule applies. Furthermore, the income and taxes of the EE are excluded from the P2 computations. However, the revenues of an EE still count towards the €750M threshold.

Four main types of entities qualify as EE: governmental entities (e.g., sovereign wealth funds), pension funds, investment funds (𝐅𝐮𝐧𝐝𝐬) and real estate investment vehicles (generally REIT type of vehicles). For the two latter categories, the relevant entity only qualifies as EE if it is ultimate parent entity of the group. We focus on Funds in this Snippet.

Under P2, an entity needs to meet seven conditions to qualify as a Fund. Amongst these, the Fund must be designed to pool assets from a number of investors, some of which are not connected. This is a point of attention for separately managed accounts (SMAs) and family offices’ investment vehicles as they may not be able to meet this requirement. Also, the entity or its management must be subject to a regulatory regime in the jurisdiction where it is established or managed. This could for instance be an issue for non-AIF co-investment vehicles and aggregator LPs as these entities and their management are generally not subject to regulatory supervision.

The definition of EE includes asset holding companies (𝐀𝐇𝐂) held by one of the four categories of EE listed above that meet one of the following ownership and activities tests:

  1. at least 95% of the AHC’s value is held by an EE and it operates exclusively to hold assets or invest funds (or carry out activities ancillary to those) of an EE; or

  2. at least 85% of the AHC’s value is held by an EE and its income substantially consists of dividends and capital gains from qualifying shareholdings within the meaning of P2 (generally shareholdings of 10% or more).

The second test notably benefits holding companies set up by private equity funds. A point of attention here is that such second test will not be met if a non-EE co-investor holds an interest of at least 15% in the AHC.

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