Cross-border logistics investments and the associated tax implications for fund managers: essential insights to bear in mind
The digitalized economy has brought about a new set of tax issues for the logistics industry, particularly for those heavily dependent on digital or e-commerce. The Organisation for Economic Co-operation and Development (OECD) has proposed a Two-Pillar Solution to address these concerns.
The logistics industry, with its complex array of properties, is subject to various taxes such as property taxes, transfer taxes, capital gains tax, Value-Added Tax/Goods and Services Tax (VAT/GST), and others. However, double taxation remains a significant challenge, where income or gain is subjected to taxation by more than one country.
To combat this, fund managers must understand the difference between direct investment and portfolio investment, as they are taxed differently. They should also be aware of the Base Erosion and Profit Shifting (BEPS) project, an international initiative aimed at reducing tax avoidance efforts.
The OECD's Two-Pillar Solution offers a potential solution to these issues. Pillar One redistributes taxing rights to market jurisdictions, while Pillar Two proposes a minimum corporate tax rate of 15 percent on large multinational companies.
However, it's important to note that as of January 1, 2026, no specific countries have ratified the OECD Two-Pillar Solution agreement. In the meantime, the most important step for fund managers is to select the appropriate legal structure of the fund, often choosing pass-through entities like limited partnerships or limited liability companies to avoid entity-level taxation.
Properly organized funds can also leverage Double Taxation Treaties (DTTs) to reduce withholding taxes and assure investors that they may claim the relevant tax credit. It's crucial for fund managers to perform adequate tax due diligence, optimize fund and investment structures, and keep abreast with international tax reform.
The international logistics industry, including warehouses, distribution centers, ports, and transport systems, offers appealing returns but is complex due to various tax regimes, regulations, and reporting policies. To ensure a more efficient and profitable result, fund managers should identify the risks of double taxation early, ensure that the fund is appropriately structured, and keep fund managers informed about developments in the international tax field.
In conclusion, navigating the tax challenges in cross-border logistics investments requires a thorough understanding of the tax landscape, careful fund structuring, and a proactive approach to international tax developments. By doing so, fund managers can mitigate the risks of double taxation and maximize their returns in this complex but lucrative industry.
