UK/Europe - The tax and regulatory aspects of Europe are increasing the costs of investment managers, according to David Newton of PricewaterhouseCoopers in London. Both these issues reflect the extent to which the single market was not working and were “costing institutions a lot of money”.

On the question of regulatory issues, Newton said that Europe’s investors were paying too much for financial services because of local regulation. He referred to a recent academic report which found that if all the restrictions affecting the European retail financial services market were removed and the single market made to work properly, there could be a significant boost to financial markets.

He mentioned another study undertaken as to what the impact would be if European markets had the same degree of regulation as in the US. “Europeans are paying $14bn(E16bn) annually more than the need to for financial products. That’s quite a big number!

“The first study said that one of the key barriers is taxation,” said Newton. “If you are an outside investment manager wanting to sell into Germany, France or Austria, you find it very difficult because of the tax system. Most extraordinary is the fact that such penalisation is illegal. If only the EC or companies would take cases to court, these countries would be struck down.”

But he noted that there were barriers to this, not least that it is expensive to litigate. “We reckon it costs £1m (E1.6m) to take a case through from a national court and to go to European level.” He pointed the case that the UK government had lost to the Hoechst group on advanced corporation (ACT) tax, which was going to cost the UK taxpayer £300m and more ACT cases were in the pipeline. “Now eight or nine companies have launched a concert party action, which enables them to split their costs.”

Newton said that investment managers were often afraid to take European countries such as France or Austria to court, as there could be hidden retribution in the subtleties of their regulatory systems. He reckoned that from enquiries PWC has made, that there were some 15 key general areas in the UK tax system contrary to EU treaty obligations. “These are illegal but it takes an exceptional group to take these issues to the ECJ.”

But he was optimistic about some harmonisation of tax practices, but not rates. “Because countries in signing up for the treaty of Rome have guaranteed free movement of capital services, it means that where there are taxation differences due to individual systems not interlocking, the ECJ will say ‘you have to make it interlock’. This will lead to more harmonisation, though not on tax rates.”

Newton was speaking at the launch of a CD-ROM ‘Global investment management industry profile’, which gives a national market profile for 36 markets worldwide, including legal, distribution and other aspects. It is available free of charge from: or