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amounting to 0.5% of the net assets ascalculated on January 1st. However, equityparticipations held by the SPV that qualify underthe participation exemption (see below) areexempt from the calculation of net worth tax.A leveraging of the investments through acombination of equity and debt investments canbe achieved, and the Luxembourg SPV maytake advantage of tax exemptions on incomethrough applicable double taxation treaties orthe EU Parent-Subsidiary Directive if morefavorable than those available underLuxembourg domestic legislation.Generally, there is no withholding tax inLuxembourg on interest or royalty paymentsmade to corporate entities. Withholding taxcould, however, under certain circumstances bedue on interest paid by the SPV to individualsresiding in Luxembourg or in another EUMember State (EU Savings Directive).Shares, bonds and other securities issued bythe SPV are exempt from any stamp duty.As mentioned above, the SPV can be used forintra-group financing activities. In this respect,one should note that any intra-group lendingactivities through a Luxembourg entity could besubject to the transfer pricing guidelines issuedby the Luxembourg tax authorities in CircularL.I.R. number 164/2. If such entity is“principally” engaged in intra-group financingtransactions (holding company activities aredisregarded for this purpose), then the vehiclemust meet “substance” requirements inLuxembourg, have equity “at risk”, and becompensated on “arm’s length” principles(generally following the OECD guidelines). If allcriteria are met, including having real substancein Luxembourg and sufficient equity to assumethe risks connected with its business (both asfurther described in the Circular), the entity mayrequest an “advanced pricing agreement” fromthe tax authorities that is binding for five years.4. Participation ExemptionOne aspect of Luxembourg taxation deservesparticular attention. While the SOPARFI is afully-taxable company under Luxembourg law,under the “participation exemption” no corporatetax or municipal business tax is imposed inLuxembourg on inbound dividends received bythe SOPARFI from an affiliate operational orholding company, on capital gains generatedfrom the sale of its shareholding in an affiliatecompany, or on liquidation proceeds from anaffiliate company. If the affiliate company isabroad, the withholding regime of country wherethe affiliate is domiciled must be considered,including any double tax treaty.The foregoing exemption applies so long as theLuxembourg company (i) holds at least 10% ofthe share capital of the paying entity (or,alternatively, the minimum acquisition cost wasat least €1.2 million (for dividends andliquidation proceeds) or €6 million (for capitalgains)), and (ii) holds such participation for atleast 12 months, provided that such payingentity is an EU-resident company or, if not,subject to tax that corresponds to theLuxembourg corporate tax (i.e., determined tobe at least 10.5%). However, any expensesdirectly related to the shareholding that havereduced the tax base of the Luxembourgcompany (e.g., interest) are disallowed up tothe amount of the exempt dividends.Moreover, if the SOPARFI holds at least 10% ofthe capital of a company (or if the acquisitionprice was at least € 1.2 million), then the valueof such holding is exempt from the calculationof net worth tax.Additionally, there is no withholding ondistributions made to the shareholders of theSOPARFI as follows: (1) No withholding ondividends so long as the shareholder is a fullytaxablecompany resident in the EU (or, if not,resident in a country with which Luxembourghas a tax treaty and is subject to a tax of atleast 10.5%) and holds at least 10% of theshare capital for a minimum of 12 months orhas purchased the participation for at least €1.2million; (2) no withholding on capital gains solong as the shareholder is resident in a countrywith which Luxembourg has a tax treaty, or,holds either less than 10% of the share capital,or more than 10% for at least 6 months; (3) nowithholding on liquidation proceeds regardlessof the status of the shareholder or of theSOPARFI.Finally, as a corporate entity under Luxembourglaw, the SOPARFI is entitled to benefit from thehighly favourable network of 70 (to date) taxtreaties that Luxembourg has entered into. Thispermits significant tax planning for non-residentinvestors.5. Applicability of AIFMIn principle, SOPARFIs fall within the scope ofthe law of 12 July 2013 regarding alternativeinvestment fund managers (“AIFM Law”), whichtransposed the Alternative Investment FundManagers Directive into Luxembourg law (SeeF., infra.) Although the AIFMD law exempts“holding companies” from its scope, a “holdingcompany” is defined to include companies (i)with shareholdings in other companies andeither (ii) whose shares are listed on a regulatedmarket in the EU or which is not established forthe main purpose of generating returns for itsinvestors. That is, unless the shares of theSOPARFI are listed on the Luxembourg StockExchange or another regulated market in the EUor unless the SOPARFI is not-for-profit - - -neither condition is met by a typical SOPARFI - -5