They signed a memorandum of cooperation (MoC) on June 30, and have up to 18 months to implement any necessary domestic arrangements.
“The timing is very tight, and what is missing in the MoC is a tax framework,” which is perhaps the most challenging roadblock, Amy Ang, EY ASEAN financial services tax leader, told FSA.
“These economies are trying to [minimise] the mismatches between domestic and passported funds. What can be done is to give general and consistent guidelines, as different countries interpret the tax rules differently.”
ICI Global, the international arm of Investment Company Institute, agrees. “Tax issues facing cross-border regulated funds are the most important challenge facing the ARFP as unequal tax treatment of funds could limit investor choices and reduce their returns.
“Failure to [resolve tax issues] will erode the benefits of investing in a passport fund,” said Qiumei Yang, ICI Global APAC CEO.
To compare, the ASEAN Collective Investment Scheme (CIS) framework, launched in August 2014 between Singapore, Malaysia and Thailand, had more aligned tax regimes, she noted. The smaller scale also made it easier to reach a consensus.
In Thailand, based on the initial analysis, residents might benefit more if they invest in a foreign fund instead of a domestic fund in terms of tax treatments, Ang said.
Even if the tax issues are resolved, there might still be challenges ahead.
Based on discussions with some fund houses, Ang noted tax is not an incentive for them participate.
“They need to think about whether the scheme is worthwhile. Can the new scheme help [the fund managers] open up the market a lot more? It’s still uncertain.”
For instance, “if they still need to do fund registration for the passport scheme, then they need to weigh the costs and benefits”.
BNP Paribas earlier said that differing investment cultures and divergent tax schemes could be major constraints, while Cerulli pointed out the challenges for foreign fund managers seeking distribution in Australia.