Emotions have a strong influence on purchasing decisions. Because of the growing popularity of assets with a strong focus on environmental, social and governance (ESG) goals, scholars decided to look at what role emotions can play in determining people’s preference for sustainable investments.
In a new paper published this month in the journal Economics Letters, professors Alexandre Garel (Audencia), Adrian Fernandez-Perez (Auckland University of Technology) and Ivan Indriawan (University of Adelaide) found that pessimism and worse mood are associated with greater investment in sustainable assets.
The issue of WHT reclamation: the view from Northern Trust
Helping out with a recent feature I wrote about withholding tax reclamation for Asset Servicing Times magazine, Howard Rapley, global product lead, securities services at Northern Trust, emailed his views on the topic right on deadline. Unfortunately they did not make it through to the published pages, but Northern Trust has agreed that I can use Howard's contribution here.
Brian Bollen: What are the main themes and big issues currently relating to WHT that affect asset managers, custodians and their clients and other market participants or market servicers?
Howard Rapley: We see a convergence of two key pillars, harmonisation of the withholding tax landscape alongside increasing attention and governance from regulators.
Every market has its own set of rules, typically with specific documentation requirements and manual handling processes. This makes sense if you consider that entitlement has to be evidenced against local rules, however it places technical and administrative burdens on both clients and service providers working to pursue relief across multiple jurisdictions.
For instance, one of the challenges faced by clients is completing the various different tax forms while ensuring their technical veracity. Asset managers and custodians face the similar challenge of navigating a web of disparate tax procedures at scale, whilst also supporting their clients.
Additionally, with increased scrutiny from tax authorities, we anticipate the need for even more data and information sharing across market participants. This forms the basis for industry discussions around harmonised tax systems to drive a more efficient tax landscape.
BB: Have those changed in recent times?
HR: We have seen an increased focus on effective beneficial ownership, which extends through many different concepts from; legal form and structure, tax transparency, evidential documentation, transaction activity, and trade motivations.
BB: Have there been recent regulatory or cultural developments in any major markets that we ought to be more aware of?
HR: As part of the continuance of market change, the last six months presented a number of market consultations in the tax space. These afford the industry an opportunity to consider initial proposals, provide feedback, and engage with policy makers directly to influence change. Notable recent developments include:
EU: Consultation on Action 10 of the Capital Markets Union (CMU) plan to alleviate tax associated burdens to cross-border investment.
Germany: Updates on the Reform of the German Withholding Tax regime, including modernisation of withholding tax procedures.
Finland: Early adopter of the Tax Relief and Compliance Enhancement model (TRACE), a regime that is now live but one that has undergone extensive industry discussion over many years.
Sweden: A new proposal that is under consultation and shares some attributes of the Finnish framework.
Denmark: An example of a live consultation that could see changes to the mode of tax reliefs available to investors, depending on their profile.
Poland: not a regime overhaul per se but an example of an extremely fluid sequence of legislative changes.
Market and regulatory changes are not new phenomena. Custodians and service providers have always needed to navigate a complex and disparate rule book to provide global tax services to their clients at scale. These market developments reflect this and illustrate a range of perspectives – from those taking a central view on opportunities for market harmonisation to those with a more insular view.
However, the emergence of innovation and new technology heralds the opportunity for a paradigm shift, where key concepts of governance and market efficiency may more easily co-exist. After many years of industry debate, we could be at the precipice of real transformational change meaning that market advocacy efforts and input into industry consultations have never been as important in the tax space as it is right now.
BB: Can we expect to see further technology or infrastructure development?
HR: It is clear that digitalisation will reshape financial services and regulatory changes continue apace to ensure the banking system and all of the inherent layered protections remain robust and resilient. This presents interesting opportunities to create a brave new world where, for instance, digital tax identities integrated within distributed ledger technology might connect beneficial ownership principles to the asset and income record.
One of the benefits of digitalisation will be the step-away from iterative, gradual, and layered change towards a first-principle approach. The global tax system is full of market standards that have developed over time through a layering of rule changes making them complex -- not necessarily by design, but by evolution.
Yet opportunities will exist for all parts of the value chain to innovate. And for those providing tax services to their clients, this may provide them with the edge they need to increase alpha, improve client experience, and differentiate their product.
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