International Fund Managers Slam Spanish Tax Law Change

by Carla Johnson, Investors Offshore.com

04 June 2002

International asset management companies with operations in Spain were angered by changes to the tax treatment of savings approved by the government last week.

Currently, Spanish investors are obliged to pay capital gains tax (CGT) when they switch between fund management companies. Under the new laws, designed to boost Spain's savings rate, investors will be able to change funds, and will not be obliged to pay CGT until the end of their investment period.

However, according to a Financial Times report, this has angered foreign asset management companies such as Schroders Investment Management, Templeton, and Fidelity, whose offerings will not benefit from the legislative change.

Under the terms of the new tax law, open-ended investment companies based in Luxembourg, and known as Simcavs or Sicavs (in Spain and Luxembourg respectively), will not be affected by the CGT break. These have become popular with wealthy Spaniards due to their exemption from corporate tax in Luxembourg, but there are fears that the Spanish government's recent decision will make them a less attractive option than domestic mutual funds.

Foreign fund managers have complained that the change in tax treatment is merely designed to pacify the country's top two banks, whose mutual funds have performed poorly over the last two years.

However, the government has denied that the new law is discriminatory. Speaking to the Financial Times last week, Director General of Taxation at the Finance Ministry, Miguel Angel Synchez explained that:

'We have made a distinction between mutual funds and Sicavs because the latter are companies in which shareholders hold voting rights. In the case of mutual funds, savers have no such rights.'

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