Delivering UK Tax Transparent Funds
Tax Transparent Funds (TTFs) are a pooled vehicle that treat investors as though they hold investments directly in each domicile and benefit the investor through Withholding Tax reductions where tax treaties between domiciles exist. This new TTF structure benefits both asset managers and asset owners. It provides opportunities for; fund rationalisation of funds, increased marketing opportunities, linking multiple asset types and transparent tax payments to investors. HMRC has been active in enabling the fund structures to ensure the tax advantages of treaties and different investor types can be fully claimed. Some areas still need to be fully developed, such as the securities lending for the Authorised Contractual Schemes (ACS), but engagement with the authorities and borrowers is already underway. There are many benefits of exploring the use of a TTF within in any type of organisation and ISC are well positioned to assist you with this. A greater description of the fund structures and the benefits can be found in our article Tax Transparent Fund Solutions - The Fund Administration Challenge
How can ISC Assist?
ISC offer support in reviewing the fund structures for suitability and where benefits can be gained. We document the drivers for change in business cases at both client and board level and define the Target Operating Models (TOM's) that will support the structure. We provide expertise in project managing, analysing investor tax profiles, establish pricing controls or defining data flow processes and so free up key client resources to focus on product design. ISC are experienced in both system and provider selections. These selections are critical to establishing an efficient TTF.
ISC can assist in reviewing current fund structures and defining new ones, where using a TTF structure would be beneficial. During this exercise we become fully acquainted with your organisation and your clients' tax profiles to recognise the opportunities for any fund rationalisation. Rationalisation helps realise; economies of scale, cost and tax savings for both fund managers and clients, which could result in the TTF becoming an attractive option to a wider audience.
ISC are well positioned to support any fund launches via our New Product Delivery Service
An example of a typical life company rationalising their range of US Equity Funds
Each mix of structures will need a sound business case to promote the changes, to satisfy Fund Boards, Chief Executives and Clients. The production of suitable documentation to satisfy all stakeholders requires consideration of a number of aspects below:
Target Operating Model
Once agreement has been achieved from all stakeholders the operating model will need to be adapted. An impact analysis that includes a review of all the touchpoints with third parties is necessary. This analysis should consider the platforms involved that require linking; pricing points, registers and the storage of taxation data both at client and asset levels. As each organisation is different, this impact analysis will derive an appropriate and efficient TOM.
If a TTF structure is considered beneficial, there will need to be a number of parties involved in setting this up. With the amount of complexity involved, the selection of the most suitable partners is even more critical. There will be obvious benefits in selecting a number of the services from the same supplier, as interfacing of data requirements will be very complex across multiple providers. ISC has experience of the capabilities of each provider to enable the best fit to ensure the capturing of the benefits.
Post the selection, ISC can assist to implement the TOM with the chosen provider, ensuring suitable controls are in place to create a robust solution to support the current and future TTF structures. Once the TTF structure is established, a post implementation review ensures benefits have been realised.