uniform tax would boost cross-border fund sales, sa
The UK's Investment Management Association (IMA) has called for the introduction of a flat rate of tax for investment funds across Europe. This would level the playing field between UK and non-UK funds and could increase the attraction of offshore funds to UK investors.
Julie Patterson of the IMA said the industry body wants tax within funds, including corporation tax and stamp duty, to be abolished. Investors would face one rate of tax rather than at their marginal rate.
"Our analysis has shown that if there was a flat rate of tax of 15% on funds in the UK, the Treasury would not lose out financially. Indeed, it would come out at a net gain, given the savings in the cost of administering the current complex tax regime," said Patterson.
"The flat rate of tax would only be levied on realised gains and income. It would not be applied against paper gains that have not been redeemed from the fund."
This regime should apply to all funds, whether they are Ucits, non-Ucits retail (NUR), Qualifying Investor Schemes, hedge funds or Reits, according to Patterson.
"Such a change would simplify a tax regime that costs time and money for asset managers to administer. There would be no need to establish whether distributions are dividends or interest payments."
A flat tax would simplify the regime across Europe and help move a step closer towards a single market for funds. Patterson highlighted the different treatments of VAT in European countries as an example of the complication of tax for cross-border asset managers.
The delay in introducing Reits in the UK is another example. In the 38 countries where Reits have been introduced, the investor is typically subject to their personal rate of tax on dividends but the gains and income are usually tax-free. Reits generally have to distribute 90% of their income to shareholders.
Dividends are not taxed at source but where the investor lives. The UK and Germany do not want overseas investors to be able to take these dividends out of their countries without paying tax, and have been examining ways of collecting the tax before it leaves their countries.
Patterson said the UK cannot simply apply a withholding tax on these distributions because double tax treaties have different interpretations of dividend payments or do not refer to dividends. It would be required to renegotiate these treaties. Patterson said the government had yet to propose a solution.
A withholding tax or over-riding double taxation treaties could also be challenged in the European Supreme Court.
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