Australia’s financial center status limited by tax barriers: FSC
According to the Financial Services Council (FSC), foreign fund managers are unlikely to serve their clients in Australia unless certain regulations are changed.
In a submission to the Special Senate Committee on Australia as a Financial Center, 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 accounted for just over 5% of fund management assets.
A major factor was the creation of the Asia Region Funds Passport in 2013, which aimed to facilitate the export of funds for Australian fund managers overseas and for overseas fund managers in Australia.
While this presents opportunities for Australian fund managers, it would only be the case if they were treated on an equal footing with foreign funds.
“The problem is when the playing field is not level – if Australian fund managers are faced with a more restrictive tax and regulatory regime, then these parameters give an inappropriate advantage to overseas managers and they can outperform the Australia solely on the basis of government policy parameters, ”the submission says.
“In the case of the passport, if the parameters of Australian policy are not correct, fund managers might prefer to serve Australian investors from abroad (especially from Singapore if they adhere to the passport) rather than locally.”
Currently, no Australian fund manager used the passport as a withholding tax for non-residents and the lack of a well-designed corporate collective investment vehicle (CCIV) was two hurdles for them.
“Implementing a well-designed CCIV will help by providing foreign investors with a more familiar corporate investment vehicle than Australia’s managed investment trust structure,” said the FSC.
A well-designed CCIV would improve corporate governance and legal certainty compared to the current structure of managed investment funds. It would also help increase competitiveness by lowering barriers to entry for fund managers looking to operate in Australia, which would provide consumers with a greater choice of products.
However, she 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 without change, would hurt the industry rather than make it more competitive,” said the FSC.
“What is more problematic, two of the detrimental changes would be imported into existing collective investment structures. This is the proposal to tighten the tax penalty regime for collective investments and the abolition of the CGT discount for collective investment structures.
“Aligning Australia’s regulatory framework with well-developed international regimes can reduce barriers to entry for new fund managers looking to operate in Australia. This can increase competition and provide Australian consumers with a greater choice of products, including exposure to new asset classes. “