KPMG Luxembourg has today come out in defence of European jobs and retail investors, expressing its disappointment that final recommendations on BEPS, published on 5 October, failed to properly address certain fund industry warnings: namely that the tax evasion rules on treaty shopping , meant for multinationals, should not be applied to investment funds . KPMG Luxembourg Managing Partner Georges Bock commented:
“With its promise to tackle tax evasion by multinationals, the BEPS initiative has laudable aims, as clarity was needed in this area. However, I’m surprised and disappointed that our words of caution about the scope of the initiative have gone unheeded. The OECD was out fishing for multinationals, but somehow retail investors got caught up in their net.”

“As a result, the safest and most widespread European cross-border investment funds, UCITS, will not be protected from double taxation and will therefore reduce the return for the investor. As many pension funds in Europe invest heavily in UCITS due to the quality of the investment, lower returns in this area are particularly worrying. Our retirement savings will take a significant hit, with national governments making up the difference.”

According to Mr. Bock, changes under BEPS will also make European funds less competitive on an international scale. With the way that the rules are defined today, cross-border funds will lose ground to homegrown funds in countries like Japan and the US. The latter will not have to cope with extra hidden costs that may come from double taxation, whereas European funds will – meaning lower returns.

“The European fund industry is currently flourishing and has a brilliant future. But if our funds become less attractive, this might mean more competition, leading to fewer exports and jobs. And this will not only affect fund domiciles like Luxembourg and Dublin: to bring funds to market, a number of cogs have to turn around Europe, meaning jobs stretching from France and Germany in the west across to Poland and the Ukraine in the east are implicated. The repercussions will be far-reaching.” 

Since the OECD revealed details of the initiative in June 2014, KPMG Luxembourg has campaigned tirelessly on the issue in an attempt to create awareness and encourage the OECD to act in favour of investors and Europe. KPMG Luxembourg calls for a watertight directive that would not leave individual countries the option to put punitive rules in place. Georges Bock is optimistic that a solution can be found:

“Our hope is that action can be taken on a European level to take the sting out of the OECD’s recommendations. An EU agreement, for example, could stop double taxation within Europe’s borders. However, this will not address the issue of competitiveness. The OECD is still looking into the overall treatment of pension funds under BEPS, so it stands to reason that the main types of funds that pensions invest in - namely UCITS and other Collective Investment Funds (CIVs) - will have to be reassessed as part of this process. We hope that the decision will be positive for investors around the world.”