Presented by Ernst & Young

 

By Michelle Segaert, Partner - Financial Services Law, Ernst & Young 

 

Ernst & Young hosted FSC members at a Regulatory and Tax Update on the latest draft of the Corporate Collective Investment Vehicle (CCIV) legislation on 20 February in Sydney and Melbourne. The briefing covered the key improvements in the legislation and the key issues that remain.

The policy objectives for the CCIV regime announced by the Government are to create a competitive investment vehicle which is globally and regionally aligned and which can be the key investment vehicle to support the Asian Region Funds Passport.  With these policy objectives in mind, there have been substantial improvements in the draft legislation over the last two years, however there are still some fundamental issues to resolve to meet these policy objectives. The Asian Region Funds Passport regime went “live” on 1 February indicating the importance for the key CCIV issues to be resolved speedily.

The main improvements with tax legislation are:

  • Comprehensive tax rollover relief provided to AMITs to restructure into CCIVs
  • Quarantining of tax penalties to single sub-funds

Key issues with tax legislation are:

  • Penalties for failing the CCIV tax eligibility and trading tests
  • Penalties where a CCIV fails to exercise reasonable care in relation to tax matters
  • The complex and uncompetitive non-resident withholding tax rules
  • The proposed removal of CGT discount at the CCIV fund level

Key improvements to date with the regulatory aspects:

  • Retail CCIV test aligned with MIS test
  • Depositary oversight to have a “reasonable care” test
  • Functional (not structural) test for independence of Depositary
  • Streamlined replacement of Depositary
  • Depositary to have obligations for sub-custodians similar to existing MIS arrangements
  • Improved ringfencing of sub-fund assets, liabilities and sub-fund transactions and certainty for sub-fund statutory demand and winding up processes
  • Removal of inappropriate capital maintenance rules
  • Less stringent requirements for wholesale CCIVs

Key issues for improvement with the regulatory aspects:

  • Requirement that a CCIV must be wholly retail or wholly wholesale
  • Prohibition on listing of CCIV sub-funds
  • Prohibition on sub-funds in a CCIV investing in another sub-fund to provide hedging or currency overlay strategies
  • Restriction on sub-funds owning joint assets
  • Personal directors’ liability for insolvent trading, despite the CCIV not being a trading entity
  • Requirements for a Compliance Plan and audit regime which does not align with international standards
  • Additional regulatory burdens on wholesale CCIVs compared with wholesale MIS
  • Narrow transition provisions, including restrictions on CCIVs changing into companies and vice versa

The briefing compared the CCIV with the new Singaporean Variable Capital Company (VCC) and the importance for Australia to be competitive with this structure and to follow much of the learnings from this structure. The Hong Kong OEFC and Singapore VCC regimes introduced recently represent the models of variable capital company fund structures which Australia will need to compete with in the Asian region on the Asian Region Funds Passport.

The FSC encouraged all members to provide their input into the consultation process to ensure the views of industry are heard. FSC members can obtain more information on how to be involved from policy@fsc.org.au