Global assets under management (AuM) are set to swell to $102 trillion in 2020 and tax function will play critical role in determining front-runners in global asset management, according to a new report from PwC.
According to the report titled, ‘Asset Management 2020 and beyond: Transforming your business for a new global tax world’, as banks and insurers retreat from many business lines, asset managers are becoming more influential across a range of products, creating a new breed of global mega-managers.
"This is attracting huge focus from tax authorities, who, come 2020, will have specialist teams with the capabilities to carry out much more detailed enquiries than in the past, and the powers to request real-time investor-related information," the report said.
Therefore, investors will expect asset management providers to have efficient tax infrastructures. They will have minimal tolerance of tax uncertainty or tax adjustments and gravitate towards providers that offer products reflecting investor-specific tax profiles.
The report added that prospective investors will ask about tax disclosures even taking their individual tax charge into account before they consider investing in a fund. They will seek more certainty with respect to tax issues.
Asset managers will routinely have to carry out full assessments while launching new products to make them competitive in all channels.
With more transaction taxes, local withholding and self-assessment capital gains regimes, every asset purchase and sale will have to be carefully examined from a tax risk and reporting perspective. This will require asset managers to have real-time access to data on global tax regimes.
PwC said it expects a number of integrated businesses combining asset management, wealth management and private banking activities with the ability to provide a full tax advisory service to clients, to emerge.
PwC global tax leader for asset management William Taggart said: "In the lead up to 2020, investors’ evaluation on how their portfolios perform will focus predominantly on post-tax yields. Asset managers therefore, will have little choice but to respond by dispersing their strategic tax resources throughout their business operations to give front, middle and back office staff access to real-time expertise.
"In tandem in-house asset management tax teams will need to evolve to deal with perpetual audits and to engage with tax authorities on a frequent basis to influence policy and help guide the implementation of tax rules."
According to the report, technology for tax will enable investment firms to make timely tax-informed investment decisions and provide investors and tax authorities with the transparency and reporting they demand.
Technology will not only be close to the heart of asset managers – the tax authorities will also have made significant investments by 2020 too hence the age of selected paper-based reporting by asset managers to the tax authorities will be over.