As the 2011 implementation date for the Ucits IV directive approaches, European funds industry officials are seeking clarity on how profits generated by funds set up under the directive are to be taxed.
For the past several months the European Fund and Asset Management Association has been working with KPMG to analyse where there are difficulties that need addressing, ahead of implementation of the successor to the Ucits III directive.
A report containing their findings is expected to be completed by the middle of this month, (February), according to EFAMA director general Peter De Proft. Brussels-based EFAMA represents the interests of the European investment management industry.
“There are a number of these tax hurdles, which would in fact interfere with the implementation of Ucits IV if not addressed ahead of time,” De Proft added.
Among the aspects of Ucits IV where tax clarification is needed are the provisions for master-feeder structures, cross-border mergers, and management company passporting, he said.
The issues involved are extremely complex, but it is understood that an element of the approach being taken is to focus on the domicile of the fund rather than that of the management company when assessing where the tax is to be applied.
Once completed, the EFAMA/KPMG report, containing their recommendations, will go to the European Commission and European tax authorities, in addition to being made public.
Tax outside Ucits IV remit
As De Proft noted in an introduction to a KPMG/RBC Dexia Investor Services report last year, tax issues are “not in the scope of the (Ucits IV) directive”.
“The industry will need to further engage on this topic in the months ahead to reap the true benefits of the new regulatory framework,” he added.
In that 44-page report, which is available online, the absence of a tax framework is described as “the main drawback of Ucits IV”.
It also notes that “the existence of a favourable tax regime is a key influence on funds domicile. There are some key concerns relating to VAT, tax residency, withholding tax and the implications of cross-border mergers. Clarification of the tax impact is still required.”
Ucits, or Undertakings for Collective Investment in Transferable Securities, are a set of European Union directives that seek to enable collective investment schemes to operate freely throughout the EU, under authorisation from a single member state.
The Ucits IV directive is a revamping of the structure that was intended to improve the Ucits package. The final text was approved by the European Council in June. Member states must transpose the directive into national law by July 2011.
