Code of Tax Conduct

Code of Tax Conduct Introduction

The Code of Tax Conduct is included as a new best practice module in the INREV Guidelines on 1 January 2021. The Code comprises a set of tax-related best practices designed to be applied across the lifecycle of a real estate investment vehicle’s strategy. It aims to achieve a shared vision on tax matters for the non-listed real estate investment industry and thereby to help INREV members address tax matters internally within their organisations and externally with regard to others’ expectations and interests.

Introduction to the Code of Tax Conduct

Last update Jan 2021

What does it cover?

The Code of Tax Conduct comprises a set of tax-related best practices designed to be applied across the lifecycle of a real estate investment vehicle. It aims to achieve a shared vision on tax matters for the non-listed real estate investment industry and thereby to help INREV members address tax matters internally within their organisations and externally with regard to others’ expectations and interests.

Effective date

For vehicles to be compliant with these guidelines a transition period was put in place. The module is effective for reporting periods ending on or after 31 December 2022.

How do you comply?

The Code of Tax Conduct module is a best practice module:

TAX-I01

The INREV Code of Tax Conduct provides recommendations and best practices regarding tax related matters. This Code of Tax Conduct reflects an effort by INREV, together with industry specialists, to reconcile key tax standards in a set of recommendations and best practices intended to achieve a shared vision on tax matters for the non-listed real estate investment industry.

The Code was developed for the benefit of our members and other interested parties (hereafter referred to as “INREV Members”), including but not limited to non-listed real estate investment funds and vehicles, investment managers, investors and promoters, and is designed to be applied across the lifecycle of a non-listed real estate investment fund strategy.

TAX-I02

With its recommendations and best practices, the Code of Tax Conduct aims to help INREV Members address certain tax matters internally within their organisations and externally with regard to others’ expectations and interests. These recommendations are voluntary and in case of inconsistency international, EU and domestic tax laws will necessarily prevail and override these recommendations.

TAX-I03

As we enter a new era in international taxation, major changes in the international tax landscape are being (or have already been) implemented around the world. The main drivers for change in the past years are a new global tax environment based on a more coherent harmonisation structure, enhanced co-operation and increased transparency in tax matters. Tax is furthermore being influenced by sustainable development, including the UN Sustainable Development Goals and the EU Sustainable Finance Action Plan .

TAX-I04

These changes also affect the non-listed real estate fund industry and have prompted new behaviours and attitudes towards tax matters in general. Contributing to a common framework for a more responsible approach to tax may better align INREV Members with broader objectives of society and support the achievement of the UN Sustainable Development Goals.

TAX-I05

To take into account the many changes impacting tax, we recommend INREV Members reevaluate their tax approach in their own organisations and their real estate investment strategies, thereby realigning with changing expectations of stakeholders. The approach to tax can be laid down in a tax policy which takes into account the Guiding Principles of this Code of Tax Conduct. When drafting a tax policy, guidance can among others also be found in the following international guidelines and tax standards:

The tax governance and risk management responsibility is recommended to support and contribute to the implementation of international and EU standards on AML-CFT.

TAX-I06

Consistent with industry standards, INREV has published Guidelines on Sustainability Reporting that aim to provide a coherent framework for ESG reporting in line with annual financial reporting and present a clear picture from the vehicle’s strategy through to environmental key performance indicators. As tax is part of corporate governance, this Code of Tax Conduct is aligned with our Corporate Governance Guidelines as well as Guidelines on Sustainability Reporting.

Presentation of the Guiding Principles

TAX- P01

The INREV Code of Tax Conduct Guidelines designs a framework in line with industry best practices to establish and promote common and workable standards for non-listed real estate vehicles built on the following five principles.

TAX-P02

Compliance with laws, regulations and tax obligations – The whole fund structure (from local property companies to the fund (“investment vehicle”) and its managers should always comply with the relevant laws, regulations and tax obligations applicable in the jurisdiction in which it is established or active.

TAX-P03

Cooperation with Public Authorities – Where applicable, INREV Members should maintain a lawful and transparent relationship with public authorities based on an appropriate communication and dialogue.

TAX-P04

Internal Governance – Investment vehicles should determine clear responsibilities with regard to tax management and compliance with the law.

TAX-P05

Approach to tax and business rationale – The approach to tax associated with investments should be business oriented and justified by a strong business rationale/acumen.

TAX-P06

Transparency and Disclosure towards investors and other stakeholders – INREV Members should comply with EU and/or international rules and standards regarding transparency and disclosure of information. Risks associated with the use of Non-Cooperative Jurisdictions (“NCJs”) should be considered before investing / contracting.

Compliance with laws, regulations and tax obligations

TAX-01

INREV Members should comply with all tax laws, regulations and any other obligations which directly apply to INREV Members’ activities.

Compliance with tax laws and regulations involves compliance with the letter of the laws as well as the spirit of the laws and guidance as provided by public authorities. INREV Members are encouraged to seek to address any uncertainty in tax laws on a principled basis. Uncertainties might be addressed by applying for a ruling or opinion, for example.

INREV Members should comply in undertaking their activities with, inter alia:

Making timely and correct tax payments;
Applying all relevant tax reporting obligations (filing of tax returns, settlement of tax payments and all legal tax related reporting requirements);
Providing information on tax obligations when tax reporting obligations fall elsewhere; and
Applying other reporting requirements (e.g., automatic exchange of information).

TAX-02

Where possible INREV Members are likewise encouraged to actively weigh the effects of an indirect application of any other tax law or regulation which may apply to INREV Members’ activities. Members are also encouraged to align with the EU and other relevant legal and policy frameworks as well as the EU and other relevant processes on tax and anti-money laundering and countering the financing of terrorism (“AML-CFT”) developments. Specific attention is encouraged for:

General or Specific domestic or European Anti-Abuse laws;
The application of the arm’s length principle for transactions with related parties (detailed and updated as per the Organization for Economic Cooperation and Development “OECD” Transfer Pricing Guidelines);
Anti-money laundering and countering the financing of terrorism (“AML-CFT”);
Tax transparency regulations, including the EU Mandatory Disclosure Regime (“DAC6”) and FATCA/CRS regulations.

TAX-03

INREV Members are encouraged to apply relevant laws and regulations to their investment activities. Inappropriate use and/or interpretation of international public law (be it of a bilateral or multilateral character), EU Directives and Regulations, as well as domestic legislation applying to each of the concerned jurisdictions in a cross border investment is, hence, discouraged.

Co-operation with Public Authorities

TAX-04

INREV Members are encouraged to co-operate with public authorities. Co-operation includes:

a timely, constructive and transparent relay of information or documentation when officially requested by public authorities acting within their legal capacity;
a timely, constructive and transparent response to appropriate queries officially raised by public authorities acting within their legal capacity;
firming up compliance agreements;
seeking active real-time audit;
seeking clearance for significant transactions when engaging on what is perceived as being a tax risk area; and
seeking advance tax and/or pricing agreements.

Co-operation is encouraged in any of the jurisdictions where investments are performed (and not only in INREV Members’ own country of residence).

TAX-05

INREV Members are encouraged to lawfully co-operate with public authorities on any reasonable tax related requests; any cooperation request which is unclear or unreasonable should be diligently addressed as means to clarify the extent and scope of any such request.
Requests properly introduced by the competent administration should be complied with in a timely manner

TAX-06

INREV Members are encouraged to seek co-operation from public authorities when appropriate as means to clarify or address any question regarding the application of the law (insofar as reasonable and in a fully transparent manner).
In doing so, INREV Members should principally seek to ensure an interpretative clarification from the public authorities under the terms and procedures of tax law.

Internal Governance

TAX-07

INREV Members are encouraged to formalise an internal tax governance and tax risk management framework.

As such, INREV Members are expected to indicate that tax and tax policy are well embedded within their organisations and that these reflect the INREV Members’ stances or endorsements of tax conduct in general.

Tax governance and risk management responsibilities, which are recommended to operate with an appropriate level of human resources as per each Member Organization – could have the following objectives:

Assurance of an independent assessment of tax matters within the organisation’s main decision making functions;
Assessment and compliance with tax obligations arising from investments;
Prevention and mitigation/elimination of tax related risks arising from the investments (either financial, reputational or other risks);
Assurance that the tax risk profile of the organisation is consistent across investments and in line with Investor expectations;
Definition of processes to monitor the enforcement of same principles internally and externally (towards third party service providers);
Management and orientation of INREV Members interaction with public authorities as regards specific tax related matters;
Management of hiring policies for third party service providers to assist the undertaking of said responsibilities; and
Handling conflicts of interest within the vehicle.

Further guidance on this matter can be found in OECD Guidelines.

TAX-08

INREV Members are encouraged to regularly monitor and test the operational capacity of the tax governance and risk management responsibilities to assess the extent to which it is representative of their endorsed tax conduct and the assumed positions on tax risk.

Individuals in charge of the tax governance and risk management responsibilities should possess a senior level of experience when dealing with pan European investment tax related items (notably European, international and other relevant tax law).

INREV Members are recommended to ensure that individuals allocated to such responsibilities regularly receive on the job training as means to appropriately manage and update tax positions, as well as to meet regulatory requirements, where needed. Third party service providers could assist in the undertaking of such framework. A written protocol on how to handle conflicts of interest within the investment vehicle may be implemented.

TAX-09

The supervision of these responsibilities should be allocated to senior leadership and/or the Board of Managers / Directors who should prompt regular briefings on material tax issues, legislative changes and significant disputes.

Significant tax risks should also be subject to validation by the person in charge of tax governance and risk management.

The tax governance and risk management responsibility is also recommended to support and contribute to the implementation of international and EU standards on AML-CFT.

TAX-10

INREV Members are recommended to determine their approach towards tax and pre-define an internal tax and transfer pricing policy in light of responsible business investment strategy.

Within this approach to tax and transfer pricing, INREV Members are encouraged to:

monitor the tax impact on any investment envisaged in a jurisdiction;
take into account capital efficiency and regulation while structuring an investment;
make a holistic assessment taking into account the range of possible tax outcomes; and
follow OECD recommendations.

For the content of the tax policy, guidance can be taken from the UN investors' recommendations on corporate income tax disclosure and the GRI 207: Tax 2019 reporting standard.

Approach to tax and business rationale

TAX-11

INREV Members should define tax criteria to ensure that their investment strategies are neither solely tax driven nor that they have, as one of their principal purposes, the avoidance of tax. As such, any investment strategy must consider a balancing of interests and be justified by strong business rationale, as well as being non-artificial and coherent. Furthermore, INREV Members should be able to define what type of tax approach may be considered as being solely tax driven or aggressive tax planning investment (e.g., exploitation of technicalities in a tax regime or exploitation of inconsistencies between tax regimes in order to reduce tax liability).

As part of their approach to tax, INREV Members are recommended to formulate their view on tax with respect to real estate investment strategies. The view on the tax approach in real estate investment strategies can be further detailed in concrete tax criteria that need to be tested during the entire lifecycle of a real estate investment. Tax management that is supported by overall business rationale that may prevent economic and juridical double taxation may be considered.

TAX-12

INREV Members are encouraged to consider risks associated with the use of Non-Cooperative Jurisdictions (hereafter “NCJs”) or any other countries that one could reasonably believe do not align with international tax cooperation standards before investing.

When operating in or through an NCJ, INREV Members are recommended to be in a position to demonstrate the business rationale or acumen and sound economic reasons thereof and provide an appropriate description of the tax regime/attributes which apply.

TAX-13

In addition, INREV Members should be in a position to demonstrate that they are not obtaining or bringing into the overall structure any specific tax benefit from investing through a NCJ;

When operating in or through a NCJ or low tax country, INREV Members are encouraged to:

Evaluate the tax related risks associated thereof (financial, reputational risk);
Formulate their views and assess the use of NCJ and/or low tax jurisdictions taking into consideration all relevant facts and circumstances.

TAX-14

Finally, INREV Members should:

Closely monitor developments surrounding jurisdictions that are deemed to be NCJs in the sense outlined in TAX-12, during the course of the investments’ lifespan; and
To enhance due diligence and monitoring on the level of transparency and integrity of such jurisdictions.

Transparency and disclosure

TAX-15

While operating in jurisdictions, INREV Members and their investment managers are encouraged to conform to relevant national, EU and/or international rules and standards regarding transparency and disclosure of tax information (including voluntary disclosure), formulate their views and remain transparent on their chosen tax policy.

TAX-16

Where applicable and as part of full transparency, INREV Members are encouraged to report relevant information pertaining to tax in general, tax risk or tax policy to investors as appropriate, although it does not necessarily imply a full disclosure to the public.
INREV Members are recommended to document the tax policy applied during a fiscal year including investment jurisdictions where they operate.

TAX-17

INREV Members are also encouraged to demonstrate transparency to stakeholders by publishing their tax policy.
For the content of the tax policy report guidance could be taken from the GRI 207: Tax 2019 reporting standard.

Glossary & references

Name	Description
AML	Anti-Money Laundering
AMF-CFT	Anti-Money Laundering and Countering the Financing of Terrorism
Authorities	Public Authorities
BEPS	Base Erosion and Profit Shifting
Code	Code of Tax Conduct
Compliance	Conformity with all relevant laws and regulations and spirit of such law/regulation
EU	European Union
GRI	GRI Sustainability Reporting Standards
Internal Governance	Management of tax risks and due diligence on compliance with all applicable laws and regulations
Manager	Person or group of person in charge of the management of the investment vehicle
NCJ	Non Cooperative Jurisdiction
OECD	Organization for Economic Co-operation and Development
Public Authorities	Any kind of public authority in charge of laws and regulations within a jurisdiction (e.g. tax administration)
UN	United Nations