Tax is complicated at the best of times. And not surprisingly, many players have argued that tax differences are hindering the seamless development of a European-wide framework for the alternative UCITS industry.
For UCITS to be a truly seamless fund framework across the whole of the EU, tax harmonisation across the different member states would be a key to creating this.
However, the 27 countries that make up the European Union all have different tax regimes, treatments, benefits and respective nuances – and are likely to remain very much able to choose their own fund tax regimes and systems.
But there is a possible solution. Many are arguing that the next directive, or relevant rulebook, should start to move towards a harmonised tax regime for UCITS funds.
Those in favour think removing cross-border tax obstacles for funds using the UCITS umbrella will resolve many issues thrown up like discrimination and double taxation.
This is all very nice in theory.
But greater harmonisation can also create its own problems. Some national EU countries may object to increasing reconciliation of the taxing of funds framework – as it could result in erosion or other unintended effects on other national tax regimes, like income taxes.
Changing the rules to make the taxation of UCITS funds more consistent across European member states will also probably result in clever accountants identifying possible tax arbitrages between different European jurisdictions – creating headaches for national tax collectors and a possible flight of assets to more tax favourable jurisdictions.