Asset managers are under pressure from the tax authorities as never before, and that pressure is likely to continue increasing in the coming years. Governments, with their significant resources, can deploy all manner of tools as they strive to maximise tax revenues and finance ever-growing public spending. They are also investing heavily in data capabilities, developing data science teams, and deploying AI, using analytics. upskilling staff, probably more quickly than most in the private sector realise. KPMG’s cutting-edge tax technologies, specialist global knowledge, and highly skilled and experienced professionals can help level that playing field.
The challenges facing asset managers include an explosion in tax compliance obligations and greater scrutiny from tax authorities. Asset managers certainly hold huge amounts of valuable data about their clients, and the tax authorities are increasingly adept at analysing that information, identifying any discrepancies, and demanding explanations from the asset managers. The consequences for getting any of the answers wrong can be severe.
And the pressure from tax authorities for data will only increase, adds Peter Grant, a partner specialising in operational tax at KPMG in the UK. “Across the globe, governments are demanding more and more data, and challenging data quality” says Hall. “The authorities see data as a ‘magic bullet’ that can tackle tax evasion and avoidance, help close deficits, and slow ever-growing levels of public debt.”
They can also use discrepancies they have spotted in one asset manager’s data to look for similar patterns in every other asset manager’s information.
The scope of the tax authorities’ hunger for data is constantly widening. As the tokenisation of assets increases, for example, reporting demands are expanding to cover that area, whilst at the same time domestic governments are seeking ever increasing levels of granularity before granting tax relief under treaties.
Squeezed from both sides
“At the same time, it is becoming increasingly difficult for investors to claim back money they are owed by a tax authority,” says Peter Grant, a partner specialising in operational tax at KPMG in the UK. In many countries, dividend, and in some cases interest payments, are subject to the deduction of tax at source. Thus, withholding tax can result in double taxation, and investors may be able to claim relief when double taxation treaties are in place.
Grant adds: “While it has always taken a long time to be reimbursed by the Italian revenue service, countries like Denmark, Germany and France, which have historically been much quicker at processing refunds, are also applying greater scrutiny and demanding more substantiating information, which significantly delays the refund process, to the point that investors are simply writing this money off.”
Any tax not recovered will reduce the performance of an asset manger’s fund and returns to the investor. That makes the fund less competitive and reduces the amount of money that investors can reinvest.
Consequently, both the revenue and spending sides of asset managers’ balance sheets are under pressure.
How KPMG can help
KPMG has been helping asset managers of all sizes overcome these challenges for many years. David Wren, operational tax partner at KPMG in the UK, says: “We have the skills and the technology to meet the growing demands of the tax authorities. Indeed, we often know what they are looking for, and the information they will request, long before they do so. That means we can help asset managers proactively deal with tax offices, pre-empting their needs and thus saving time and money while preventing any penalties.”
Moreover, KPMG can help clients wherever they operate, as well as those that do business across multiple jurisdictions. That, says Hall, is because “KPMG has people on the ground who constantly talk to the authorities and know the rules and regulations in place across all territories.”
He adds that KPMG also has the technology to provide simple and straightforward solutions. That capability is particularly important for smaller asset managers, which lack the resources needed to deal with the tax authorities in every global market.
Cutting-edge technology
Grant highlights KPMG’s significant investment with “more than $100m flowing in tax technology tools annually, and even more in equipping our people with the technology capabilities they need to thrive as modern tax professionals”.
KPMG has developed a one stop shop to support asset managers, designed in a modular way. This allows us to support everything from full outsourcing to targeted advice, and KPMG will add further tools to support as regulation grows – for example supporting crypto-asset reporting or the EU’s FASTER Directive. Two of the most innovative technologies: the KPMG investment tax insights centre and the automatic exchange of information (AEOI) reporting solution.
The investment tax insights centre is focused on helping asset managers who have outsourced their reclaim function, to identify opportunities for asset managers to reclaim taxes and accelerate reclaims, while helping them keep track of ever-changing local requirements. Clients simply hand data over to KPMG and the dashboard uses advanced analytics to assess that data and identify where tax may have been overpaid, so that clients can then reclaim that money. The problem facing many asset managers, particularly smaller ones, is that they may have generated a wealth of data they struggle to exploit fully, and this is where KPMG can help: the investment tax insights centre provides an answer, offering critical insights into the data.
Meanwhile, the AEOI reporting tool offers an end-to-end solution for the complex data issues that asset managers face. The solution includes data health checks to identify reporting problems prior to submission, a reporting module that converts data into the unique format required for each jurisdiction, combined with advanced analytics that gives asset managers insight into the full range of data that they are reporting, from errors through to year-on-year comparisons.
A costly business
Asset managers face a never-ending battle to satisfy the authorities – and the penalties for failing to do so can be heavy. Once tax officials are alerted to a problem in one area of a company’s dealings, they may decide to investigate all of the company’s tax affairs to see if they can identify other discrepancies.
“That can prove extremely time-consuming and hence costly for the business involved,” warns Grant.
There are other consequences of not responding adequately to demands from the tax authorities or even simply failing to pre-empt their likely demands. The reputational consequences can be significant.
Tax offices are now, for example, using intermediaries to gather information – and if that information is wrong, and a client finds they have been erroneously contacted by officials in pursuit of “unpaid” tax that they do not owe, the effect on the client–asset manager relationship can only be negative.
KPMG has the experience to assist asset managers wherever they operate. Hall says: “We act as a strategic partner to our clients, helping them to manage the competing pressures in the short term and supporting their response to challenges in the longer term.” Outsourcing the onerous burden of meeting the ever-changing and growing demands of tax offices to KPMG frees up asset managers to focus on their main role of generating returns for their clients.
It is far more efficient to let us invest in the latest technology and skilled personnel required to match the growing capabilities of governments across the globe.
