Following a landmark ruling from the Swedish Tax Agency, Northern Trust has become the first custodian to work with a client to secure reduced withholding tax rates for Swedish investors holding equities through a tax-transparent, cross-border asset pooling vehicle. Investing in an Irish-domiciled Common Contractual Fund (CCF) could potentially increase total return for Swedish investors via such vehicles by approximately 50 basis points a year, according to Northern Trusts proprietary calculations.
Confirmation of tax-transparency by tax authorities is pivotal for cross-border pooling. It enables underlying investors in a pooled investment fund to obtain the same withholding tax rates as if they had invested directly in equities, with the added benefits of investing via a pooled fund for example, tighter governance, better risk management, economies of scale and access to new asset classes.
Removal of the tax drag is good news for investors and their investment managers, said Phillip Caldwell, asset servicing pooling product manager at Northern Trust. Investing in a tax-transparent asset pooling vehicle should result in greater returns for Swedish tax-exempt investors and may help investment managers to achieve better performance for their tax-exempt institutional investors.
Earlier this year, using a model that incorporates dividend taxation rates across a range of popular equity mandates, Northern Trust announced proprietary analysis which found that a tax-transparent asset pooling vehicle can enhance returns by as much as US$81 million on a US$1 billion portfolio invested in broad market indices over a 10 year period.
As Swedish institutional investors, such as pension funds and insurance companies, continue to grapple with regulatory change and global economic uncertainty, they increasingly face demands to reduce bottom-line costs and improve top-line performance, said Belinda Burgess, country head of Northern Trust in the Nordics. Choosing the right investment vehicle is one way to achieve this, and we are pleased to provide asset servicing solutions for tax transparent-asset pooling vehicles that help our Swedish clients achieve enhanced performance.
Northern Trust is an industry leader in the provision of asset pooling solutions to institutional investors and asset managers worldwide and was the first to fully support tax-transparent funds, created to pool the assets of investors with multiple tax rates, investing in multiple jurisdictions. As of June 30, 2012, Northern Trust has 25 clients on its tax-transparent, global pooling platform, with more than U$62 billion of assets under custody. It is actively involved in working with the UK tax authorities in their establishment of a new UK tax transparent asset pooling vehicle to sit alongside the Irish domiciled CCF, Luxembourg Fonds Commun de Placement and Dutch Fonds voor Gemene Rekening.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2012, Northern Trust had assets under custody of US$4.6 trillion, and assets under investment management of US$704.3 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.
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