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Tax

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Northern Trust helps secure tax-transparency for asset pooling vehicle from Swedish Tax Agency

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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 Trust’s 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,” says 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 USD81m on a USD1bn 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,” says 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.”
 

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