ey-global-hospitality-insights-2015

Global tax considerationsAs lodging players look to 2015,certain tax issues must be carefullyevaluated as an integral part ofa company’s overall investmentstrategy. This year, several keytax considerations, including thecontinued growth and sophisticationof cross-border hospitalityinvestments, the acceleration ofthe use of Opco/Propco structuresand spin-offs, escalating taxenforcement initiatives and anincreasing number of indirect taxes,will remain top of mind for industryparticipants looking to invest in thehospitality sector globally.During 2015, significant cross-bordercapital flows will continue to draw focusfrom a tax standpoint. The deployment ofcapital by sovereign wealth funds and otherglobal institutional investors will requirecareful consideration of tax regimes andwithholding requirements in traditionalmarkets, as well as emerging ones. As newmarkets gain momentum, with new alliancesand joint ventures formed, tax advisors canno longer focus on one tax regime whenstructuring hospitality investments andoperations.Instead, advisors must carefully considerthe tax consequences of where the capitaloriginates, where the investment vehicle islocated and where the capital is deployed.Given the heightened tax scrutiny thatinvestor groups are now subject to, theymust also properly manage cross-bordertax implications that could adversely affectprofitability. In response, tax advisors arenow called on to develop robust tax modelsthat project capital flows and the relatedtax consequences throughout the life of theinvestment.These models, which incorporate multijurisdictionaltax analysis, are ongoingmanagement tools that allow “what if”scenarios at any point in the investmentcycle. As countries are regularly revisingand updating applicable tax laws to remaincompetitive in the global marketplace,tax advisors must continually review theinvestment structures being utilized, asstructures that may have been optimal inthe recent past may no longer be the mosttax-efficient structure.The strategic use of REIT structures tohold lodging assets across the globe willcontinue to gain investor attention in 2015.As observed over the past year, the wave ofcountries adopting REIT structures keepsgrowing, with more than 30 countrieshaving now enacted some version of REITlikestructures. Global REITs will gain evenmore traction, fueling cross-border capitalflows, whether through publicly held REITstraded on exchanges or through privateREITs, sometimes referred to as baby REITs,which may own only a single property.Another prominent trend that will remainimportant in the lodging sector in 2015 isthe separation of operations and propertyownership, commonly known as Opco/Propco structures. Opco/Propco structuresinvolve the separation of the real estateinto one company and operating assetsinto another company. The structureallows for organizations to identify andfocus on one core business, whether it beowning lodging facilities, operating them ormaximizing the values of brands and otherGlobal hospitality insights30