Its established funds management offices in Sydney, Tokyo and its joint-venture with DSP in Mumbai have been joined in recent years by an Asian equities base in Hong Kong and fixed income team in Singapore to manufacture product for local tastes. So far, the regulatory steroids used by Singapore and Hong Kong have been very effective. Their low tax rates and central locations in Asia have trumped Australia’s drawcards: the depth and sophistication of the domestic industry, and the lifestyles to be enjoyed in Sydney and Melbourne. “Across corporate and personal taxes, when we compare ourselves to places like Hong Kong and Singapore, we are at a fairly massive competitive disadvantage in attempting to attract asset management businesses, and also potentially the flow-through of funds,” Cooper says. To further internationalise Australia’s funds management sector, the Johnson Report recommended the Asia funds passport should be taken up with some new rules to give offshore investors more certainty about how they will be taxed.
It recommended Australia follow the lead of other financial centres – such as New York, London, Tokyo, Singapore and Hong Kong – and establish an ‘investment manager regime’ to make it clear how offshore transactions made through Australian vehicles will be taxed. It should apply to institutional funds, including alternatives vehicles, and retail funds. The regime would mean that offshore investors using an independent investment advisor, funds manager or broker in Australia will be exempt from tax on overseas investments, while investments in Australia would receive the same tax treatment as any direct investment made by the foreign investor. For offshore investors using a dependent intermediary acting at arm’s length, investments in all foreign assets will not incur tax, while investments in Australian assets would be taxed as they currently are. The regime, Weir says, makes it clear that offshore investors in Australia-domiciled products would not have a taxable presence in Australia.
“The idea is to provide precisely the certainty that’s lacking.” Greater tax certainty would improve the export appeal of Australian-managed funds. But the lack of a basic and shared regulatory architecture across Asia- Pacific jurisdictions will make the negotiation of a funds passport a long and difficult task. The first UCITS standard was developed in 1985, but the evolution and popularity of the structure accelerated in the years after the European Union (EU) was formed. The EU system provided a framework allowing member states to engage through a common political and monetary framework: they are represented in the European Parliament, share the European Central Bank and many deal in the same currency. Asia is a long way from this. There are two-way agreements and regional associations such as APEC and the Association of South-East Asian Nations, but no multilateral system.