Asian Passportable Funds Market Needs To Overcome Some Hurdles - EY

Tom Burroughes

5 September 2016

A drive to create a cross-border funds market in Asia on a par with the European Union's market faces continued challenges, requiring solutions to fiddly details around regulation and tax, EY said in a recent analysis.

EY examined the current state of play among the countries that on 30 June signed a co-operation pact for the Asia Region Funds Passport (ARFP): Australia, Japan, South Korea, New Zealand and Thailand. The professional services firm also ran the rule over the Philippines, Taiwan and Singapore.

The report found that there is not yet solid agreement on how to define what constitutes “permanent establishment” as far as a fund is concerned, and also highlighted differences in countries’ tax rules as a potential roadblock. One idea, EY suggests, is that countries should align tax treatment between domestic and passported funds.

The idea of enabling funds to be bought and sold across national borders without the need for separate registration in each jurisdiction – “passporting” – has gained ground around the world. In the European Union, the bloc has its UCITS fund regime, considered to be one of the more successful examples of the European Single Market. Over a year ago, Hong Kong and mainland China formed the Mutual Recognition of Funds regime to facilitate such a market. The ASEAN fund passport initiative, which is another development, relates to how Singapore, Malaysia and Thailand have agreed a framework for the passporting of funds to enable cross-border offerings, and there is the ARFP system. (To see an interview with the firm Calastone about these issues, see here.)

“While there seems to be consensus that the absence of a permanent establishment (PE) created by either the passported fund or the foreign fund manager or both would generally limit adverse tax implications for either the passported fund or foreign fund manager or both, the challenge would be to align the rules and guidelines on what would constitute a PE,” EY’s report said.