BEPS remains high on the corporate agenda. EU Directives covering this Plan are coming into force in 2019, and new multilateral action to tighten up double tax treaties was announced in late 2016. With the aim of identifying the level of awareness about BEPS, we’ve interviewed asset managers across Europe on how the OECD’s final recommendations would affect the whole industry. About 30 fund managers, based in seven major countries within the EU, participated. Discover the main results of our research in this article.
A high level of BEPS awareness among asset managers
Overall 80% of respondents to the PwC survey report that they are now, with certainty, monitoring, or planning to monitor, BEPS developments.
BEPS issues are attracting attention at main board level, most significantly at larger fund managers, where 60% of respondents were certain that BEPS had been on the agenda.
In addition, fully a half of respondents had given input on BEPS issues to an industry association – clearly a relatively high degree of engagement.
Tax treaty access needs a single approach
Two-thirds of respondents felt that the OECD should belatedly recognise a single preferred approach for according tax treaty benefits to mainstream investment funds. This needs to be the simplest possible “base case” alternative – i.e. that already recommended in paragraph 6.17 of the Commentary on Article 1 forming part of the 2014 edition of the OECD’s Model Tax Convention. This “base case” approach calls for treaty partners to define explicitly in their treaty precisely which types of fund vehicle are eligible for treaty benefits. That treaty should then accord to such fund vehicles – without any further restriction, or qualification linked to the status of investors in the fund – treaty benefits that match those granted to individuals (i.e. physical persons).
Two-thirds of respondents also felt that the OECD approach to dealing with treaty entitlement for funds should prioritise eliminating the need to identify the tax status of every investor over gathering this information based on a TRACE-type process.
A third of respondents felt that BEPS-mandated anti-treaty-shopping measures would result in a perceptively negative impact on fund performance. However, nearly half of respondents said that they were “uncertain” that this would be the case, and over a quarter of them felt that the BEPS Project could turn into a catalyst for positive change in the treaty entitlement position for funds.
Sadly, since we issued our survey, the pessimists may have turned out to be right. The text of the formal Convention that the OECD has drafted, and which would – if ratified – revise swathes of bilateral tax treaties to implement the BEPS measures, was published on 24 November 2016. It has not a word on changes that would clarify the position of funds.
Asset Managers don’t see “tax footprint” as an issue – but it may well be
Only around a third of respondents had considered whether any of their fund distribution arrangements, their travel policies relating to contract negotiations, or their information gathering arrangements, might give rise to unexpected local “tax footprint” exposures.
An extension of the scope of the rules in tax treaties that define what constitutes a “tax footprint”, which was one of the main recommendations made in the BEPS reports. The main target was groups that sold products or services over the internet, but the rules are very widely drawn. Perhaps for this reason, was not yet widely seen as a pressing issue by the PwC survey respondents. Less than a third of respondents said that they would be looking further at this aspect, and in each of the cases noted above the majority of these were fund managers who had already been considering “tax footprint” issues. Yet, one in four of the respondents reported that they had already experienced some form of “permanent establishment” or “tax footprint” challenge – evidence that these issues are something for asset managers to be concerned about.
Transfer pricing issues are on the radar
Transfer pricing challenges in the fund management sector are clearly becoming increasingly commonplace. Nearly 40% of the respondents of the PwC survey had had some form of transfer pricing challenge in the last five years that had caused more than immaterial amounts of management time or professional fees having to be spent. A quarter of these resulted in more than EUR 250,000 of additional tax having to be paid.
The BEPS Final Reports rewrites large parts of the OECD Transfer Pricing Guidelines. However, only one in ten respondents reported that they were already thinking about making major BEPS-driven changes to how they do their transfer pricing. Nearly 60% of the fund managers responding believed that they already had sound transfer pricing practices in place and that these would remain appropriate in a post-BEPS world. However, 83% of respondents confirmed that they are now taking steps to ensure that transfer pricing documentation is in place, and also follows the new post-BEPS format and framework, as set out in the 2015 revised text of the OECD Transfer Pricing Guidelines. The BEPS reports have completely rewritten this chapter of the Guidelines.
Also, starting with companies’ fiscal year 2016 results, asset managers having global revenues of EUR 750 million or more will face new tax reporting requirements. Nearly 50 countries have now already acted to implement this particular BEPS measure.
The reporting requires information intended to provide a transfer pricing risk assessment tool for tax authorities. Companies will need to give an overview of their global business, aggregating data from all of the countries where they operate and providing a report separately for each country, with business and tax information about the local entities and operations in each territory. Although, according to the PwC survey, the awareness about the BEPS Project is high among asset managers. Indeed, they are familiar with the increasing level of reporting requirements. Yet, complying will represent a challenge as groups might not have the people or systems in place to efficiently gather, organise, and document all of the necessary data.
To know the latest transfer pricing developments, watch our video.
 published in October 2015
 The primary objective of this research was to look at three specific issues, namely: 1) potential loss of tax treaty benefits for funds; 2) extra taxable “footprints” for fund managers, and 3) more rigorous rules on, and policing of, the transfer pricing used by fund managers – each seen as specific concerns for the asset management industry.