Tax Harmonization or Tax Coordination in Europe? Implications for Asset Managers and Financial Markets

Finadium Research Report

Tax Harmonization or Tax Coordination in Europe?
Implications for Asset Managers and Financial Markets

Finadium
September 2010

Regional Focus: Europe

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Tax harmonization and tax coordination are heated topics in Europe, and the question of taxation cuts right to the heart of what the European Union means. For European Commission executives in Brussels, both tax harmonization between member states and the power to tax directly enhances their ability to advance major pan-European goals. For member states, tax harmonization means the loss of important competitive advantages in attracting businesses, not to mention national sovereignty. While tax coordination is less threatening, it can still mean large-scale economic and financial changes.

In European financial markets, the prospect of tax harmonization or tax coordination between member states can be both a blessing and a curse, and our analysis has identified strong arguments pushing both for and against change. While UCITS has proven to be a strong success for asset managers and banks, taxation carries a different set of consequences. The fact that there will be both winners and losers from tax changes is not lost on asset managers and other participants in financial markets.

This report offers new thinking about the pros and cons of tax harmonization and tax coordination for asset managers and financial markets. Our analysis is based on conversations with European asset managers and broker-dealers, as well as our review of European Commission proposals and rules on development, fiscal policy and taxation. The report also provides a perspective on actions by member states that offer alternatives to a single pan-European tax program.

This report is 26 pages with 9 exhibits.

TABLE OF CONTENTS
■ Executive Summary

■ The Idea of Tax Harmonization in Europe

■ The Push from Brussels and Europe 2020
– Country Surveillance

■ The Counter Argument from Member States

■ France, Germany and Tax Coordination without Brussels
– Progress in Financial Markets
– The Difficult Case of Corporate Dividend Payments

■ Likely Outcomes for Asset Managers
– Securities Lending

■ Likely Outcomes for Financial Markets
– Contracts for Differences

■ About the Author

■ About Finadium