Fund participants were encouraged at Guernsey’s Fund Forum to pay close attention to negotiations over base erosion and profit sharing (BEPS) rules.
The Organisation for Economic Cooperation and Development’s (OECD) BEPS project aims to harmonise global rules.
Speaking at Guernsey’s Fund Forum event on 11 May, tax experts Tony Mancini of KPMG and Abhijay Jain of PwC stressed that fund participants should remain alert as to how negotiations at the OECD unfold.
Mancini said: “BEPS is not intended for the investment management sector, but the problem we have is that we could be collateral damage. There’s a steamroller that if it carries on we could just get squashed.”
Groups such as the British Private Equity & Venture Capital Association and Alternative Investment Management Association are pushing back to ensure that exemptions for funds are guaranteed, but BEPS still has a long way to go, according to Mancini.
A present danger is that the brains behind the BEPS principles do not necessarily appreciate the importance of investment funds, nor how they operate.
Mancini added: “A continuing focus on the term ‘substance’ and what constituted ‘substance’ from both funds and commercial business perspectives had created a lot of noise—much of it misdirected—which could lead to BEPS and related EU initiatives being misapplied to the funds sector.”
In agreement, Jain said: “What this substance argument is doing is providing ammunition to local countries and local governments and local tax authorities to say, ‘you know what, I’m going to ignore all of that and I’m going to penalise you’. So, if you are doing investment into an Italian business, Italy will argue that you have a business of fund management in Italy itself and they will tax you for every dime you make in Italy.”
“That’s where I think it becomes something the fund management industry does need to watch out for, because the application is not uniform. Every country has its own version of what BEPS really means.”