GLOBAL - Northern Trust's application to patent its cross-border pooling solution is expected to be published in the next month. The patent pending is set to protect the solution developed by the company's staff and allows for future innovation at a time of increasing demand for cross-border pooling by multinationals.
The company's solution was developed in response to consortium-defined requirements and addressed complex client issues. The consortium was formed in 2001 by two large multinational clients and Northern Trust, together with Goldman Sachs Asset Management and Mercer Investment Consulting.
The objective of the solution was to pool assets from pension plans across the world without any negative withholding tax consequences.
It taxes investors at different tax rates, which enables them to take advantage of tax treaty benefits. The cross-border pooling process also creates accounting records for individual investors by using transaction splitting and re-balancing, and reports capital gains and holdings at investor level. It also derives a suggested securities lending rate based on the calculation of a blended tax rate.
Northern Trust believes that it is the only provider so far with a proven asset pooling solution. The company currently supports six tax-transparent vehicles for both multinationals and investment managers with $10bn (€7.6bn) in assets in nine investor domiciles. It also launched the first global equity common contractual fund (CCF) in Dublin and the first global equity fonds commun de placement (FCP) in Luxembourg for multinational clients in 2005.
Kathy Dugan, Northern Trust's cross-border pooling product manager, said: "Cross-border pooling benefits a pension plan in two ways: enhanced governance and risk management in order to achieve tighter controls around the decision-making process, and economies of scale. Our tax-transparent pooling solution enables us to support pooling vehicles with multiple countries of investors and multiple countries of investments in a tax efficient manner."
Other benefits include automated withholding tax processing for relief at source and tax reclaim markets, accurate capital gains calculation in markets that require tax transparency for capital gains and flexibility to provide regulatory and tax reporting at investor level. The process also supports securities lending for tax-transparent vehicles.
Northern Trust applied for patent in August 2005 with the US Trademark and Patent Office to cover the US and under the Patent Cooperation Treaty to cover other countries.