Regulatory scrutiny sees asset managers ratchet up tax focus

By Kristen McGachey

Added 25th April 2016

A sophisticated operational tax function is becoming a prerequisite for asset managers, PwC said.

Regulatory scrutiny sees asset managers ratchet up tax focus

In a new report, the consultancy said: An environment of increasing scrutiny and tax savvy stakeholders has forced asset managers to seriously revaluate the ways in which they tackle a host of matters, not least of all, operational tax risks.

As a resutl, the firm said, 53% of asset managers have actively expanded their operational tax management teams in the past three years and a further 45% plan to expand their own offerings in the next five years.

While the demand for formalising compliance and governance protocols in the asset management industry is apparent and sees asset managers taking crucial steps in the right direction, the study shows there is still a way to go.

In particular, there remains an obvious disconnect between asset managers and custodians around each party’s role and responsibilities in monitoring operational tax risks. The PwC study found that a significant proportion of asset managers mistakenly assumed that custodians were responsible for addressing compliance concerns around core areas like stamp duty and other forms of indirect tax.

Operational tax strategies and objectives also remain ill-defined by the majority of asset managers (approximately 66%) as do key performance indicators. Furthermore, only 2% of asset managers surveyed by PwC would describe their compliance and risk monitoring system as “robust.”

 PwC asset management tax partner Teresa Owusu-Adjei said: “Operational tax risk is increasingly being recognised as worthy of attention in the board room but the job remains half done.” Given the growing complexity of global markets and the increasing multi-jurisdictional nature of asset management operations, a deeper understanding of regulatory and tax compliance is even more vital to avoid the “real danger of penalties, charges and reputational damage.”

Moving Forward

In addressing these operational tax concerns, there is no convenient one size fits all approach. Some asset managers may wish to further enmesh their operational tax group into the foundation of their business model. Others may prefer to be less reliant upon in-house counsel and custodians, favouring external tax providers or legal professionals. But, Pwc adds, one thing is clear – “operational tax is now seen as a significant potential risk that is worthy of board room attention.”

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