Hedge fund activity faces tax crackdown

The rapid development of new investment strategies devised by hedge funds has attracted the interest of tax authorities.

The focus on taxation is because of the complex arrangements employed by the industry.

Robert Mellor, a partner at PricewaterhouseCoopers, said that because of this complexity it could become risky for hedge funds to establish a taxable presence in European jurisdictions where tax policies remained uncertain.

‘With the emergence of some of the new fund strategies, the risk of creating a taxable presence in an onshore EU jurisdiction is significantly increased,’ Mellor said.

Debbie Payne, hedge fund senior manager at PwC, said the lack of consistency in taxation policy towards hedge funds in Europe was limiting the opportunities for the funds to distribute their products throughout the continent and fragmenting the market.

‘The industry wants to be able to distribute product in Europe without incurring unnecessary tax, but this will remain difficult if the tax treatments continue to differ in member states,’ she said.

Hedge funds are also facing a change to their corporate governance structures and internal controls, Payne said.

Regulators have taken a close look at the way funds are run, while the funds themselves have sought financial backing from mainstream institutional investors. As a result hedge funds had to revaluate the way they are managed.

Over the last year hedge funds have been the topic of consultations and discussions issued by regulators worldwide. The SEC, European Central Bank, the International Organisation of Securities Commissions and the European Commission have all developed discussion papers, rules and best practice guidelines for the industry.

Local regulators, including the UK’s Financial Services Authority and the Netherlands Authority for Financial Markets, have also reviewed and consulted on the activities of hedge funds.

TAX POLICIES FOR HEDGE FUNDS

Austria: Fund is tax transparent
Denmark: Tax exempt. Subject to a final withholding tax of 15% on dividends received on shares in Danish companies
France: Fund tax is transparent
Germany: Tax exempt
Ireland: Tax Exempt
Netherlands: Dutch funds are either transparent or subject to a special tax regime (0% corporate income tax)
Spain: Corporate tax on net profits at a 1% rate
UK: Funds organised as OIEICs/AUTs taxed on income at 20% with capital gains exempt from tax. Unauthorised unit trusts are taxed at 22%

Source: PwC

COMPANY REPORTS

Parker in Mondi link

Sir John Parker, currently the chairman of National Grid,has been linked to the chairmanship of paper and packaging giant Mondi,which is set for a listing on the London Stock Exchange. Mondi, currently a subsidiary of mining group Anglo American, is to be demerged via the listing. It is expected to be valued at £2bn, placing it on the brink of the FTSE 100.

If Mondi does break intothe top flight with Parker atthe helm, Parker could find himself in breach of the combined code on corporate governance. The code saysno individual should bethe chairman of two FTSE 100 companies.

Tomkins debt to grow

Ken Lever, the finance director at engineering company Tomkins, expects the company to increase the debt on its balance sheet as it grows.

In an interview on cantos.com, Lever said: ‘Debt will actually grow over time as the group grows, in order to maintain the efficiency of the balance sheet.’

He said increasing debt as the company grew was to the benefit of shareholders.

Data input for Pearson

The FT Group, a subsidiary of Pearson, has bought merger and acquisition data provider Mergermarket for £101m.

Mergermarket is anessential tool for corporate financiers and FDs involved in mergers and acquisitions. Mergermarket was formed six years ago.

Reed’s reward

Alison Reed, the FD ofrecently floated life insurer Standard Life, is to be rewarded for the successful demutualisation and float of the business on the London Stock Exchange with 337,880 shares in the company.

Standard Life’s shares have been trading at the 290p level, which values Reed’s award at approximately £979,000. In order to cash in on the windfall, Reed and the other Standard Life executives will have to deliver a 10.5% increase on embedded value by the end of next year.

Sands works hard

Peter Sands, the groupfinance director of Standard Chartered, has said he wants to work the FTSE 100 bank’s balance sheet harder by using more credit derivatives and securitisations.

‘We want to work the balance sheet harder. We are using credit derivatives much more, we’re using securitization much more. We want to use these tools to both help us optimise our risk profile and to extract even greater returns from capital,’ Sands told cantos.com.

Sands was speaking asthe FTSE 100 bank reporteda 27% increase in interim operating income to $4.1bn (£2.15bn).