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Tax holding back European asset management growth, says CEPS

EUROPE -There is no need for a separate asset management directive to supercede those currently covering the European fund management industry, according to a high-level European report unveiled today by Brussels-based think-tank, the Centre for European Policy Studies (CEPS).

However, the report argues that there is still much work to be done on the issue of taxation, which it claims is hampering the growth of pan-European asset management.

Backing moves by the European Commission (EC) to eliminate restrictive tax practices by initiating infringement cases in the European Court of Justice (ECJ), the report comments: “The current taxation system operates along national lines and cases of overt tax discrimination hamper pan-European asset management.

“It increases the cost of asset management and reduces returns to investors as national tax rules lead to the duplication of fund structures.”

CEPS argues that the EC should initiate more of these cases with industry helping out by flagging any such discriminatory examples.

The report adds: “Member states are concerned to see their citizens’ savings placed abroad and hence beyond their tax powers. In response, member states often resort to tax and other measures that discourage citizens from placings with foreign service providers. If such measures discriminate between service providers on the grounds of nationality, they violate EU law, as evinced by several decisions of the ECJ.”

Overall though, the report, presented by CEPS chief executive and co-author of the study, Karel Lannoo, at the European Asset Management Congress in Frankfurt, argues that agreement on the two new investment fund directives – UCITS ii and iii and that of the pan-European pension funds directive - have already made sufficient and important steps towards an integrated European market for asset management, with what it calls :”a truly single passport”.

Consequently, CEPS notes that the choice of asset management regime has now been extended to include discretionary asset management as an option for UCITS management companies and for the application of the prudent-man rule to the pension fund business of life insurers.

The report argues, however, that both these sets of legislation need to follow the spirit of the Lamfalussy report by focusing on so-called level 2 & 3 issues – that is to guarantee co-operation between European supervisory authorities. This, it points out, is not yet in place.

It notes that the UCITS Committee currently has only limited powers of implementation and is not formally part of the Committee of European Securities Regulators that could ensure harmonised implementation.

Equally, the insurance committee should be upgraded to cover the secondary legislation of the pension funds directive, says the report.


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