Inovalis REIT will invest largely free of entity-level tax in French and German office properties

The Inovalis Real Estate Investment Trust will invest through a Luxembourg subsidiary in subsidiaries holding prepaid headleases of French and German office properties, with a right to receive rents from the subtenants and an option to acquire the properties from the headlessors. The arrangements have been structured to avoid French corporate income tax and German municipal trade tax, minimize German corporate income tax and defer German land transfer tax.

In order to avoid FX risk to the REIT, the debt owing to it by its Luxembourg subsidiary is denominated in Canadian dollars.  MRPS (which are shares and debt for Canadian and Luxembourg tax purposes, respectively, and can be exchanged under s. 86 on maturity) might not have been not used because of the foreign tax credit generator rules (see draft s. 91(4.7)) and a concern that there might be underlying German or French taxes.

The REIT will be able to distribute all the FAPI allocated to it.

Neal Armstrong.  Summary of Inovalis Real Estate Investment Trust preliminary prospectus under Cross-Border REITs.