The market for hedge funds in Italy could soon be opened up as a firm decision on their tax status m...
The market for hedge funds in Italy could soon be opened up as a firm decision on their tax status moves closer.
Hedge funds were given the ability to set up and sell in Italy for the first time in September last year, but there is still doubt as to their tax status.
The Bank of Italy will shortly decide whether or not to levy the 12.5% flat tax rate that other investment vehicles were recently shifted to, or whether the standard rate of tax, which can range up to 50%, is applicable. In doing so it will probably decide the long term popularity of the structure in Italy.
Hedge funds have no investment restrictions, just disclosure requirements. The taxation argument comes from the fact that the 12.5% rate was not supposed to be applied to the purchase of commodities, bullion or the controlling stake of a company, all of which are possible in a hedge fund.
The standard rate of tax ranges up to 50%. Indecision on tax status has meant that only two applications for hedge fund status were received by mid-December 1999.
Foreign companies are not yet able to sell hedge funds into Italy, but the Bank of Italy has already been given the power to allow it if they so wished, according to Fabio Galli, head of Assogestioni, Italy's mutual fund association in Milan.
However, if domestic hedge funds get low tax status, this could dampen domestic interest in foreign hedge funds which might find it difficult to compete.
Others are less confident that the decision will see a quick resolution to the problem.
Manfredi Vianini Tolomei, a partner in law firm Simmons and Simmons in Milan, said: "We cannot expect anything until March next year at least. I would not be prepared to take a position on an outcome until then."
The new hedge, or 'speculative', fund structure was introduced by the Bank of Italy in a regulatory paper in September 1999. Each fund can have a maximum of 100 investors and each must invest at least E1m.
Broadly speaking this paper aims to relax investment restrictions. Closed-ended funds, for instance, no longer have to list the fund after three years and rules governing how often they have to calculate NAV are less.
Galli said: "Closed-ended funds regulation is now much more aligned with that in the UK and the US."
Open-ended funds, whose regulation used to pretty much mirror Ucits, now have a much broader definition, so Ucits funds are only a section of Italian open-ended funds.
These changes come on the back of general financial legislation enacted in February 1998, which delegated sweeping powers to the Treasury, Consob and the Bank of Italy over all aspects of the finance industry.
The Bank of Italy has responsibility for the asset management sector.
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