Harmonized tax policies must be introduced to ensure that the Asia Region Funds Passport (AFRP) is a long-term success, the Investment Company Institute (ICI Global) has said.
Singapore, Australia, South Korea, New Zealand, the Philippines, and Thailand have agreed to develop the ARFP, which was initially conceived through Asia-Pacific Economic Cooperation (APEC). When implemented by 2016, it will allow fund managers operating in a passport member economy to offer their funds in other passport member economies under a streamlined authorization process. It should facilitate the cross-border offering of collective investment schemes (CIS) in Asia, while investors in the region will also benefit from having access to a broader range of quality investment products.
As an inclusive regional initiative, it is hoped that the ARFP will strengthen the region's fund management capability, deepen capital markets, and provide finance for sustainable economic growth.
A public consultation opened in April this year on the proposed substantive rules and arrangements that will apply to participating fund managers and passport CIS. This consultation closed on July 11.
In its response, ICI Global called for additional changes to the proposal. It has made a number of recommendations on its operation, implementation, and on tax issues.
ICI Global has recommended that the ARFP should ensure that passported funds receive equal tax treatment, regardless of any existing home country tax advantages. A level playing field in taxation, it said, would support competition among firms, and increase choice and tax certainty for investors.
Specifically, ICI Global has recommended that a review should look into instances where a home country imposes withholding tax on distributions to foreign investors, or where local law requires local funds to distribute taxable income annually but also allows local investors to investment in foreign funds that retain income (and therefore enable the deferral of tax liability).
Qiumei Yang, CEO, ICI Global Asia-Pacific, said: "The timing [of the ARFP initiative] is excellent as it coincides with strong growth of the fund industry in the region. We believe this framework could help achieve the passport objectives including supporting deeper financial markets and industry growth to the benefit of investors."
"To be globally competitive and successful, fund firms are increasingly centralizing management resources and research systems, and the 'passport concept' of allowing a single fund structure to be offered efficiently across all six economies will benefit both fund sponsors and fund investors. The changes we recommend will help make the passport more economically and operationally feasible."
Membership in the ARFP remains open to other APEC economies, and those that have expressed an interest in the project include Hong Kong, Taiwan, Japan, Indonesia, Malaysia, and Vietnam. The next passport working group meeting is scheduled to take place in August this year in Seoul, South Korea.