35 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s In the last 25 years of your career, what would you say are the key tax considerations relating to fund formation? Any differences depending on the asset classes? As it is widely believed that a fund is a mere pooling vehicle, any tax should therefore only be levied at the investors’ and at the investments’ level. As a result, in the past, the main tax consideration has always been focused on ensuring that the fund achieves tax neutrality, a concept that is used to describe the nonimposition of taxes on income and gains and withholding taxes on profit repatriation and return of capital. This objective is quite simply achieved through setting up the fund in a jurisdiction with a favourable tax regime or through a tax transparent structure. However, the key considerations relating to fund formation have evolved tremendously over time. Increasingly, we see added complexities arising from ensuring that the fund structure considers tax implications at the investment level. For instance, if you are setting up an open-ended Pan-Asian real estate fund, the structure must allow the fund to leverage on both treaty benefits and taxadvantaged domestic structures in the target location. These objectives must be balanced with the fund’s marketability, which is also important in determining the fund’s legal form and location. The level of complexity varies across asset classes. Hedge funds possess relatively flat structures and are generally the least complex while setting up a fund that invests in hard assets such as real estate and infrastructure (including renewables) involves greater rigour. This complexity arises from multiple tax considerations on various levels, as such funds tend to have many layers of structures. Funds focusing on private equity, venture capital and debt possess moderate complexity. Lastly, complications in funds focusing on digital assets largely result from the fact that tax treatment of such assets are relatively untested, and many tax incentive schemes globally typically include only conventional capital market products but not digital assets. Traditionally, funds are set up in tax neutral locations such as the Cayman Islands but the fund management functions are often located in a different country such as the US, Singapore, Hong Kong, UK, etc. Are you seeing the onshoring of funds in Singapore and Hong Kong as an increasing trend and if yes, what are the possible reasons? Such a trend has been observed in recent years and can be attributed particularly to changing policies, perceived risks and innovation in fund structures. Setting up and maintaining funds in traditional tax haven countries such as Cayman Islands have become significantly costlier due to increased regulations. On the contrary, it is becoming more cost-competitive to set up funds in countries such as Singapore, especially because of governmentissued grants to enhance attractiveness. “Singapore is a leading financial services hub and is regarded as being transparent, stable and a gateway to the Asia-Pacific region. “
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