Australia's financial centre status limited by tax barriers: FSC

Overseas fund managers are unlikely to service clients in Australia unless certain regulations are changed, according to the Financial Services Council (FSC).

In a submission to the Senate Select Committee on Australia as a financial centre, the FSC said more needed to be done to remove barriers to Australia as an exporter of financial services.

While the country had one of the largest pools of managed fund assets in the world, foreign capital only represented just over 5% of fund management assets.

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A big factor had been the creation of the Asia Region Funds Passport in 2013 which sought to make it easier for Australian fund managers to export funds offshore and foreign fund managers to export into Australia.

While this presented opportunities for Aussie fund managers, this would only be the case if they were treated on a level playing field with foreign funds.

“The concern is when the playing field is not level – if Australian fund managers face a more restrictive tax and regulatory regime, then these settings give an inappropriate advantage to foreign managers and they can outcompete Australia purely on the basis of government policy settings,” the submission said.

“In the case of the passport, if Australian policy settings are not right, fund managers might prefer to service Australian investors from offshore (particularly from Singapore if they join the passport) rather than locally.”

Currently, there were no Australian fund managers using the passport as the non-resident withholding tax and lack of well-designed corporate collective investment vehicle (CCIV) were two barriers for them.

“Implementing a well-designed CCIV will assist by providing foreign investors with a more familiar corporate investment vehicle than Australia’s managed investment trust structure,” the FSC said.

A well-designed CCIV would improve corporate governance and legal certainty compared to the existing managed investment trust structure. It would also help to increase competitiveness by lowering barriers of entry for fund managers looking to operate in Australia which would offer greater product choice for consumers.

However, it felt that the CCIV proposed by the Government in its 2018 draft would harm the industry if changes were not made.

“The FSC considers that the CCIV tax rules in the 2018 draft, if implemented unchanged, would harm the industry rather than making it more competitive,” the FSC said.

“What is more problematic, two of the harmful changes would be imported into existing collective investment structures. These changes are the proposed tightening of the tax penalty regime for collective investments and removing the CGT discount for collective investment structures.

“Aligning Australia’s regulatory framework with well-developed international regimes can lower the barriers to entry for new fund managers seeking to operate in Australia. This can increase competition and allow Australian consumers greater product choice, including exposure to new asset classes.”

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