Talked to Jorge Morley-Smith

With most of 2013 still ahead of us and the Budget on the horizon we took the time to catch up with Jorge Morley-Smith the current Head of Tax at the Investment Management Association (IMA) to discuss the year ahead and the current issues the industry faces.

With most of 2013 still ahead of us and the Budget on the horizon we took the time to catch up with Jorge Morley-Smith the current Head of Tax at the Investment Management Association (IMA) to discuss the year ahead and the current issues the industry faces.

What is the IMA’s role in the industry? How does this translate from a tax perspective?

The purpose of the IMA is to support and promote a commercially successful and growing UK investment management industry as we seek to improve the financial outcomes for customers – savers and investors. It is the trade association for the £4.2 trillion UK-based investment management industry with over 200 members, accounting for over 95% of the industry operating in the UK.  We also provide essential data and statistics for the industry and sector classifications.

On tax matters the IMA lobbies for policy change and represents the industry on a wide range of issues, leading on topics such as the tax regime for UK funds and the UK offshore funds.  The association is also responsible for the IMA SORP which forms the basis for fund accounting and by extension the reporting
fund status regime.

What do you consider to be the key tax developments for the industry in 2013?

The fallout from the financial crisis continues to impact tax policy. Governments want to protect tax revenues and for the financial industry to pay its fair share towards the cost of the financial crisis.  There has been a steady stream of policy changes, ranging from measures to tackle tax evasion/avoidance with the likes of GAAR and FATCA, and other steps to tax raise taxes on the industry such as the proposed FTT.  Recently we’re witnessing resistance by tax authorities to grant treaty benefits and tax being used as a trade barrier.  IMA has been getting heavily involved in discussions about funds accessing treaty benefits.

What are the three largest tax issues for managers/funds in 2013?

1) dealing with multiple tax changes across multiple jurisdictions and ensuring that investors get a fair tax treatment and are not unduly penalized;

2) the EU proposals for a financial transactions tax; and

3) dealing with the requirements for tax information exchange – FATCA and other initiatives.

How would you best describe the current attitude of HMRC towards the investment management industry?

The government has for some time recognized the importance of the fund industry to the UK economy and its role in making the UK a key financial centrecenter that employs a large number of people be it within managers or service providers.  There has been significant engagement over the past 10 years with the industry to push the UK funds agenda.  At a practical level the Sheffield funds team of HMRC is widely considered to be a success.  The Government is now beginning to view the industry as an export product for the UK which will be increasingly important in the future with Asia/the Far East being the obvious target markets.  As such, we want the government being seen to be very ‘Pro-UK’ supporting the investment management industry.

What steps should managers be taking now to plan for the future/mitigate tax risk?

Tax is much more high profile than it was previously and is a key topic at board level. Businesses will need to consider not only tax technical points, but also the context of a tax issue, the ethical position and the spirit of tax legislation.  Tax is often front page news so businesses need to consider the reputational risk of how they manage their tax affairs.

Will reducing income tax and corporation tax rates attract more managers to the UK?

Tax rates are one of many features for choosing where to do business.  But it’s not the only one.  The economy, talent, language, property and lifestyle are all important features.  Clearly having a competitive tax regime is critical to the success of the UK as an asset management sector, but there are also other factors.  The UK has a strong position on language, time zone and lifestyle.
The government needs to continue to back that up with a competitive tax regime.

What tax policies would make the UK more competitive for managers?

Again too many to list, so I’ll mention just a couple, the first being stability.  For an industry to flourish it needs to know the parameters in which it operates, particularly when it comes to tax.  Stability nurtures confidence from investors and is vital to the long term success of the industry.  Secondly, for UK funds specifically, the abolition of schedule 19 which imposes a special Stamp Duty Reserve Tax (‘SDRT’) regime for collective investment schemes.

Last, but by no means least, you’re a big Real Madrid fan – how do you fancy your chances in the second leg at Old Trafford?

The first leg was not a great result for us.  It’s been a difficult year for us domestically and we’re pinning our hopes on the Champions League, so I think we’ll definitely give it a go.  Old Trafford has been good to Real Madrid in the past.  One of my favorite ever goals was in the 2000 Champions League tie there – the famous Redondo back heal.  Like now, Real Madrid had had a difficult year domestically but still managed to unpick a fancied Man Utd side, so you never know…