Tax Co-operation Helps Foster International Savings Market

by Amanda Banks, Tax-News.com, London

06 March 2009

A new wave of co-operation between governments and the global financial services industry is needed if consumers around the world are to be encouraged to save and create a sustainable alternative to the wholesale markets as a source of capital, says a new survey from KPMG’s Global Financial Services Tax practice

The survey, “Future of the Saver”, looks at the taxation of savings in 12 of the largest economies, and the work being done by a number of international bodies both to open up the market in cross-border savings and to counter tax evasion. The survey suggests that the savings market must now be treated as an international, rather than domestic, market.

KPMG concludes that governments and the global financial services industry need to adapt to this new regime, working together to provide the necessary blend of opportunities and protection that savers need.

“The challenge for governments is twofold,” said Robin Walduck, Associate Partner, in KPMG in the UK’s Financial Services Tax group. “First, they will need to acknowledge that savers are more international and more mobile, and this will require domestic markets to embrace the need to open borders for savings. Second, they will need to accept that savers will be more demanding regarding savings products. Savers will require transparency, certainty and, in many cases, simplicity before they are confident enough to once again participate in the savings market; some coherence in the many different ways that savings are taxed will be a necessity.”

The KPMG study notes that an international market for savings is already developing in the European Union, with the European Commission frequently challenging member states in the European Court when savings rules discriminate in favour of residents to the detriment of non-residents.

The firm cautions that globalisation inevitably introduces other risks and participation in a global savings market will need to be tempered with initiatives to counter the movement of assets where this is perceived to be for the purposes of reducing or eliminating tax. But the survey suggests that governments wishing to increase savings ratios need to consider a number of factors; tax is particularly important among them.

Robin Walduck continued: “Our survey showed a considerable diversity of tax regimes in just 12 countries, but, we know from our member firms’ experience of working with business that there is strong international support for moves to harmonise the cross-border tax treatment of savings products where possible.

“The challenge for the financial services industry is to engage with governments early on this project. If savings products are to be made available on the international market, providers will need to take account of potentially more burdensome regulatory and disclosure requirements; however, companies offering products that are transparent, flexible and make the most of the available tax incentives in the international market will inevitably succeed. Companies should therefore be co-operating with governments now to help shape the new rules.”

The survey looks in detail at the taxation of savings in Argentina, Australia, Brazil, China, Germany, India, Japan, Singapore, Switzerland, Turkey, the UK and the US. It reveals a wide range of tax regimes, but little in the way of incentives to savers outside their domestic markets.

According to the KPMG survey, there are some signs of change. For example in Brazil, economic success has boosted confidence in the economy and savings have flowed in. Targeted tax concessions have also boosted foreign participation in the Brazilian stock exchange, and foreign savers have also been offered tax incentives to invest in special mutual funds set up by the government. European governments have also started to adapt their tax laws to allow cross-border distribution of savings products, such as investment funds. But progress on removing discrimination between some products, such as domestic and foreign pension funds, has been much slower. This will need to develop further if the market is to harmonize effectively, the firm said.

“Savers worldwide may be forgiven for thinking that the level of their return from savings has been a secondary consideration for governments anxious to avoid the worst effects of a recession,” said Robin Walduck. “This needs to change if savings ratios are to improve, and capital is to flow once more. Governments and the financial services industry have an opportunity to do this with the creation of a genuinely international savings market. This is an opportunity that should not be missed.”

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