PwC: asset managers will attract more focus from tax authorities by 2020

By 2020 it is expected that tax authorities will have the powers to impose much higher penalties, to demand real-time investor related tax information from asset managers and the ability to carry out much more detailed tax enquires than they do currently, according to a new report released by PwC today. ‘Asset Management 2020 and beyond: Transforming your business for a new global tax world’ notes the growing importance of scale to the asset management sector and focuses on the inseparable concepts of tax and reputation. Fund founders, senior executives and star portfolio managers will increasingly become the subject of a step up in tax authority and media scrutiny, meaning the management of tax risk will move closer to the heart of all strategic business decisions.

Rob Mellor, Global Asset Management 2020 leader, commented:

“Tax transparency will be a fact of life in financial markets by 2020 and the whole financial services industry, including asset management, will be expected to play its part in policing the global financial system. Those occupying the top positions in asset management firms will, by 2020, be highly proactive on the issue of tax as they will wish to avoid being tainted by association with inefficient and potentially inaccurate tax compliance. A key challenge for asset managers will be determining how to communicate with investors about tax matters and the tone will need to be set from the top. Highly skilled tax people will be placed throughout the business, distributing real-time tax expertise through front, middle and back offices."

By 2020, asset managers will be much more engaged with tax authorities in order to influence and guide the implementation of tax rules. PwC expects tax authorities to recognise that a collaborative approach to the industry is more productive than a strict, adversarial one. PwC expects tax authorities to move away from focusing on the physical nexus of an asset manager – its property and staff – in determining the location of taxing rights over a business. More focus will be placed on the economic value chain of an asset manager’s activities.

Rob Mellor, Global Asset Management 2020 leader, continued:

“At present, tax rules in many countries have not kept pace with new investment strategies and tax authorities often do not possess the same breadth of perspective on the industry as participants. The nature of fund managers’ business provides them with a global view, something often not available to local authorities. Given the option of the reputation agenda being driven by the organisation itself or the tax authorities, most asset managers will prefer the former.”

By 2020, PwC believes successful asset managers will be regularly engaging with politicians, regulators, the media and the public to explain the social usefulness of their industry. They will also sponsor education programmes to ensure that future generations understand the full range of investment products available, as well as the need for savings in a world where longevity continues to increase.

Rob Mellor, Global Asset Management 2020 leader, concluded:

“Tax is not just a risk for the asset management industry – it is also an opportunity. By 2020 post BEPS portfolio taxation will become a key battleground and funds that demonstrate tax efficiency relative to their peers will create a distinct advantage in a competitive environment. Within five years, we estimate that prospective investors will demand to understand the impact of tax on underlying portfolio returns before they invest. The market will see the emergence of post-tax fund ranking tables and seals of approval, allowing investors to compare funds. These will begin to be widely used on investment firms’ websites and in company literature.”

By 2020, technological innovation will have an impact across the sector:

-          asset managers will be able to make timely tax-informed investment decisions whilst improving efficiency and providing authorities with the transparency and reporting standards they will demand

-          tax authorities will have invested heavily in technology, allowing them to request whatever information they want from asset managers by having direct access to their IT systems

-          investors will be able to differentiate between the ‘alpha’ generated by the portfolio manager and the ‘alpha’ created (indirectly) by the capability of the tax team to manage tax leakage and tax risk

Ends                                                                                    

Notes to editors

1)       Rob Mellor is available for interviews. Please contact Ellie Raven on [email protected] or +44 (0) 207 804 3663

2)      To help asset managers plan for the future, PwC’s report ‘Asset Management 2020 and beyond: Transforming your business for a new global tax world’ sets out a vision of what the tax landscape will look like in 2020 and beyond, and examines what it means for asset managers and their clients. The report recognizes that change will come incrementally, but should be started soon with a long term strategic vision of how the tax function should operate, how it is resourced, and its role within the overall business, in mind.  The report then sets out the characteristics of such a vision.

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