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.