REPRESENTATIONS FOR BUDGET REPORT 2013

Size: px

Start display at page:

Download "REPRESENTATIONS FOR BUDGET REPORT 2013"

Rafe Barber
5 years ago
Views:

1 8 March 2013 Rt. Hon. George Osborne MP Chancellor of the Exchequer Her Majesty's Treasury 1 Horseguards Road London SW1A 2HQ REPRESENTATIONS FOR BUDGET REPORT 2013 In recent months the Investment Management Association 1 has had a series of positive discussions with your officials on a number of technical tax and regulatory issues that impact the competitiveness of the UK as a centre for the location of funds. The objective is to maximise the level of economic activity in the UK industry, to the benefit of the UK and UK investors. The UK is a recognised international centre of excellence for asset management. However it continues to lose market share as a fund domicile to competitor jurisdictions, particularly Luxembourg and Ireland. As at the end of December, Luxembourg-domiciled UCITS had funds under management of 2trn and Irishdomiciled funds had almost 1trn, with the UK languishing at 760bn. The asset management industry is a valuable economic driver in the City and other UK financial centres, but failure to convert the UK's strong reputation into more UK-domiciled funds means that jobs and tax revenues are lost from valuable support services around the UK. Why fund domicile matters- growth jobs and export In 2007, we issued a report in conjunction with KPMG 2 with an estimate of the amount of tax revenue that is derived to the Exchequer from funds and associated services that are located in the UK. IMA has updated this analysis for data in 2011/12 and found that for everv 1bn of funds under management located offshore, the UK Exchequer would receive almost 900,000 in direct tax receipts each vear were these funds located in the UK. This is the direct consequence of the fact that fund administration will generally be located where the fund is located, so if funds are located offshore the Government loses any employment and yields associated with both taxation of corporate profits and employment taxes arising from these administrative and related functions. 1 IMA represents the asset management industry operating in the UK. Our Members Include independent investment managers, the investment arms of retail banks, life insurers and investment banks, and the managers of occupational pension schemes. They are responsible for the management of over 4 trillion of assets, which are invested on behalf of clients globally. These Include authorised investment funds, Institutional funds (e.g. pensions and life funds), private client accounts and a wide range of pooled investment vehicles. 2 The Value to the UK Economy of UK-Domiciled Authorised Investment Funds, 30 November 2gg7 'K ingsway London wc 28 6 TD Tel: (0) www. inv es tmentuk.org Investment Management Association is a company limited by guarantee registered in England and Wales. Registered number Registered office as above.

2 Investment Management Association In 2011, there were approximately 765bn 3 of funds under management in offshore funds for which the portfolio management function is located in the UK - up from 693bn in The developing globalisation of the market for fund distribution means that the UK is in a unique position to capitalise on its reputation in asset management to export UK funds to new markets, including Asia. However, active promotion of the UK asset management industry, along with changes to simplify the tax regime for UK funds, is required in order to benefit from this opportunity. Also, any tax changes would need to be covered by a commitment to stability. Success would bring jobs and tax revenues to the UK and ensure the application of UK standards of fund governance. Five actions are required, we suggest: There needs to be joined-up promotional activity by official bodies. The FSA's approach to fund authorisation needs to be reviewed and appropriately resourced. The introduction of Tax-Transparent Funds needs to be accompanied by discussions with key tax treaty partners and any teething issues with the regime promptly addressed. SORT Schedule 19 must be abolished or phased out. UK funds should be allowed to gross income distributions. The attached provides a summary of these points. Although they focus entirely on fund domicile issues, it is important to stress that this is just one half of the equation. Whilst the UK is currently not competitive as a domicile for funds, its real competitive advantage is as a location for asset managers. Given the opportunities for growth in the global market for asset management from both developed and developing markets, the UK could achieve success that would bring significant numbers of jobs in asset management, the sell-side, consultants and multiple support services, together with accompanying tax revenues. The UK has many advantages today that could erode very quickly. The emphasis has to be on the convenience and efficiency of the UK as the world's number one centre for money management excellence. The need for stability also extends into the long-term savings and pensions environment. We support the broad direction of travel on both automatic enrolment and simplification of state pension. This inevitably entails a degree of change. In such circumstances, there is an even greater need to ensure that any further adjustments in areas such as pension tax relief are undertaken in a way that is consistent with the purpose of such reliefs and is not perceived as unpredictable or disconnected from Government priorities for individual savings provision. My Members value their UK identity and would prefer to base more of their operations in the UK, if doing so did not put them at a competitive disadvantage. I can assure you that a significant commitment by the Government to promote the UK as proposed in this letter would be met with real enthusiasm by the asset 3 IMA's annual Asset Management Survey, 2011

3 Investment Management Association management industry. If given the opportunity to do so, we will play our part. Daniel Godfrey. Chief Executive

4 Investment Management Association Annex 1. Joined-up promotional activity by official bodies HMT, HMRC, FSA, CityUK, BIS and UKT&I should work together to promote the UK investment management industry and UK funds overseas. Luxembourg provides an example of what the UK might do. To date, the language used by government is cautious and technical and lacks a clear message that the UK is a first-class fund domicile. These statements should be backed by a package of significant tax changes (see points 3, 4 and 5 below) rather than a drip-feeding of technical changes that will not grab the headlines. One body needs clear accountability and authority to co-ordinate and lead this process. IMA is willing to assist officials to help them succeed. 2. FSA resource and approach The FSA needs to be able to provide sufficient and appropriately trained resource to the authorisation function in order to improve service levels and accelerate fund authorisations. The UK has developed a reputation for slow and unpredictable fund authorisations - this must be turned around. 3. Introduction of tax-transparent funds The Government's commitment to the introduction of UK tax-transparent funds demonstrates that it is serious about safeguarding and promoting the UK as a domicile for funds. It will provide a platform for a future range of funds, and in particular enable the UK to implement key measures in UCITS IV. However, this alone will not be the important signal that the UK asset management industry needs to change the tide for the UK as a fund domicile. Tax-transparent funds are an important fund vehicle of the future. But the benefits of such funds - to enable fund rationalisation, onshore master feeder funds, and onshore pension pooling - are long-term goals, which the funds industry is only beginning to explore. In addition to the need for the regulator and Government to hang out clear "open for business" signs, to provide a warm welcome and actively to promote the UK as a domicile, there needs to be a "shock and awe" move on tax if there is to be any prospect of medium term recovery of the UK's position vis-a-vis Luxembourg and Dublin. 4. Removal or phasing out of SORT Schedule 19 The average quantum of SDRT Schedule 19 (c4bps of FUM) is equivalent to the Luxembourg taxe dabonnement However, it remains a significant disadvantage for UK funds for two reasons: first, the headline rate is SObps and this in itself is a deterrent; second, the tax is hugely complex to calculate and administer.

5 Investment Management Association Schedule 19 is an important obstacle to the promotion of UK funds. It is often the reason given for UK fund managers to set up funds offshore, for UK investors to use offshore funds and for overseas investors to avoid UK funds. The IMA has long-argued that the abolition of Schedule 19 would be a vital step in demonstrating the Government's commitment to promoting the UK as a fund domicile. 5. Allowing funds to make gross interest distributions The requirement to withhold basic rate tax on interest distributions is a disadvantage, especially when exporting UK funds to offshore investors. It is administratively costly and difficult separately to identify and withhold on distributions to UK resident investors and to apply complex corporate streaming rules. Gross payments of interest distributions are allowed under current rules, but these are designed for funds distributed to the UK retail market and are unworkable for distribution outside the UK. As a result, other jurisdictions that do not have these complex requirements have become jurisdictions of choice for fund domicile. A change to allow UK funds to make gross interest distributions would not in Itself be a cost to the Exchequer in tax revenues - it would be only a simplification of the tax regime for funds. The purpose of the income tax withholding rules is to enable UK basic rate taxpayers not to have to file a tax return on receipt of income. Fund managers would be able to structure funds in such a way as to pay net distributions on sterling share classes, maintaining the benefit of simplicity for basic rate taxpayers whilst, for example introducing Euro-denominated share classes, principally for sale outside the UK, where distributions might be paid gross.

Catching the wave: Regulatory change creates new opportunities for tax-transparent cross-border pooling

Catching the wave: Regulatory change creates new opportunities for tax-transparent cross-border pooling By Aaron Overy, Northern Trust Regulatory changes currently sweeping across Europe are creating a