It is anticipated that by the year 2020 the product offering of asset managers will continue to expand in response to a shrinking banking and capital markets industry. The opportunities afforded by new legal constructs and investment techniques will surely mean that asset managers that heretofore focused on domestic offerings will seek to penetrate new global markets with the result that more and more managers will be doing business in multiple jurisdictions.
The projected global growth and importance of the asset management industry will continue to pique the interest of tax authorities who will no doubt investigate every aspect of the new breed of mega global asset managers and in particular their attitude to and compliance with taxation rules at, portfolio, fund and investor level. There will be increased opportunity to initiate audit activity based on investment reporting information flows from brokers and other Fintech groups under enhanced tax transparency measures. With the advent of the OECD’s BEPS (Base Erosion & Profit Shifting) measures, the Common Reporting Standard, and the EU’s Tax Transparency package, the tax reporting burden for asset managers should not be underestimated.

By the early 2020s performance evaluation and attribution will focus predominantly on post-tax yields. It is likely that portfolio taxation will become a key competitive area for asset managers and will feed into performance benchmarking utilised by investor groups who will expect certainty with regard to tax issues on investment. With more transaction taxes, local withholding and self-assessment capital gains tax regimes, every asset purchase and sale will require asset managers to have real-time access to data on global tax regimes. The fly-in fly-out model of fund distribution will no longer suffice and thus where sales and/or marketing professionals are engaged in local territories for a specified period, asset managers will need to 'heat map' their footprint in order to assess potential corporate tax Permanent Establishment (PE) exposures globally.

Against this background, the 'tax function of the future' will take shape. Based on the projected future landscape, it is clear that the existing tax function in asset management groups is due for a revamp. Responsibility for tax compliance and tax as a strategic resource is currently outsourced or the preserve of legal, compliance and/or financial reporting teams, this model will no longer suffice. Managers will need to 'resource-up' in the area of taxation, building dedicated in-house specialised teams to support the business in all areas of taxation policy and compliance.

Finally, tax technology to support timely tax informed decisions and to support transparency and reporting will proliferate. Enterprise wide systems will replace stop-gap self-build excel spreadsheets. Technology in 2020 will be critical for the delivery of operational efficiency, minimising the tax compliance burden as well as enabling asset managers make timely, tax-informed decisions and to provide investors with the transparency and reporting they need.