The asset manager's new normal: responding to tax risks and transparency

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The backing of the exchange of tax information between all countries by the G20 summit will have a massive impact on the industry including enabling developing countries to hunt down unpaid tax. In our survey and video, we explore on the current effectiveness of the industry’s management of tax risks associated with the fund business model.


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In the last six months we have witnessed an increase in the global debate on tax.  There is no doubt that this will impact asset managers and their fund products. 

The debate has focused on three main areas. Firstly, the apportionment of profit between countries.  Governments and tax authorities are working together to ensure that in the more connected world, tax is paid where value is created. 

Secondly, whether companies and wealthy individuals have been pushing the boundaries to avoid tax.  At the 2013 G8 Summit it was declared that an historic advance had been made with the potential to rewrite the rules on tax and fight the scourge of tax evasion.

And finally transparency and information sharing between countries to stop secrecy.

The OECD’s report to the G8 concluded that vast amounts of money are kept offshore and as the world becomes increasingly globalised it is becoming easier for all tax payers to make, hold and manage investments through foreign financial institutions.  It is clear that increased transparency and information exchange will have the greatest impact on asset managers. 

Since 2001 the number of European cross border fund registrations has risen from 20,000 to over 70,000.  As fund distribution continues to increase and the world becomes more transparent, funds must report to a greater number of tax authorities. 

In the face of such change, we believe a strategy is central to successfully managing operational tax risk. 

In our survey, The Asset Manager’s New Normal, we found that nearly two-thirds of asset managers had no such policy.  It is clear to us that this is not sustainable.

So the question is how will your organisation respond to this challenge?

Continuing regulatory and taxation reform, fiscal deficits, low growth, sovereign risk, and globalisation are unlikely to be viewed merely as short to medium term consequences of the financial crisis. The asset management industry is facing opportunities and challenges in the form of demographic shift, the rise in power and interconnectivity of the emerging markets, changing investor behaviours, technology and social media and state directed approaches to economic development.

Tax authorities continue to combat under reporting of income by some taxpayers and in particular, the use of ‘offshore’ investments. There is an increased emphasis on transparency and cooperation between governments. Extensive tax reforms that are emerging from many countries, including the US Foreign Account Tax Compliance Act (FATCA) EU FATCA, EU Savings Directive and bilateral exchange of information. Given increasing governmental appetite for tax and transparency, collecting taxes and providing information to governments will be the asset manager's new normal.

We conducted a survey of 30 global asset managers to ask about the following:

  • The types of strategic policies they have in place for operational taxes.
  • The way in which operational tax risk is managed and controlled.
  • The availability of resources.
  • The use of technology to manage operational tax risk.

And the results show:



... of the industry has no strategic policy to manage operational taxes.



... of the industry suggests that it has no operational tax risk controls.




...of the industry has no operational tax resource.



... consider technology will be important in managing operational tax risks.


We found that the majority of managers are adopting a reactive, ad hoc approach rather than a strategic controls based approach to managing operational tax risks. This fragmented approach will increasingly become a problem for asset managers who will come under more operational and cost pressures as new financial transaction taxes emerge and tax information reporting regimes begin to take shape.