New operating models in the asset management sector: What’s the impact on tax?
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New operating models in the asset management sector: What’s the impact on tax?

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Ralf Heussner and Anodri Suchdeve of Deloitte explore the tax impact of recent market and regulatory developments on the asset management sector.

In today’s world, asset management seems mostly about handling risks and costs in a marketplace that is more competitive and riskier than ever. Within the industry itself, rivalry has become more aggressive, regulations have grown even more complex, and technology has further altered the nature of competition.

As a response to increased cost pressure and new compliance requirements, especially those triggered by the EU’s second Markets in Financial Instruments Directive (MiFID II), many asset managers have embarked on radical changes to their EU operating models.

In light of these developments, the tax impact of these new operating models are explored and the areas that should be front of mind for finance executives for 2021 and beyond are explained.

New operating models

As margin pressure continues to grow across the industry, especially with the ongoing shift towards passive products, asset managers around the world are rethinking their operating models to support growth, adapt to change, and position themselves for the future. This addresses fundamental questions related to how products and services should be delivered across the asset management organisation in an integrated way.

Over the last 10 years, the global regulatory landscape has continued to change in complexity. Asset management firms that want to stay ahead are looking at the role of compliance through a new lens. MiFID II as a key regulation in the sector is not just being implemented regionally in Europe, but is under consideration globally. MiFID II, which has been at the heart of the regulatory reforms in the asset management sector, raises, among others, the level of governance, compliance, and transparency requirements across all key functions of the value chain.

MiFID II is designed to help integrate Europe’s financial markets and to establish a common regulatory framework for the continent’s securities markets. It does this by allowing regulated markets, multilateral trading facilities and investment firms to operate throughout the EU on the basis of authorisation in their home member state (through ‘passporting’). MiFID II also introduced new and more extensive requirements for firms, in particular for their conduct of business and internal organisation. One of the main purposes of MiFID is to harmonise investor protection and market transparency throughout Europe.

The key theme that is emerging across the industry in this respect is integration. As a result, asset managers have been starting to consolidate their legal entity structure and perform their distribution, and even portfolio management activities linked to segregated mandates for professional or retail clients, out of a pan-European branch network to achieve sustainable cost reduction.

Several leading traditional asset managers have already started restructuring programmes and it is expected that many more traditional (as well as alternative) players will follow.

With MiFID II now in force since January 3 2018, the compliance function within the operating model has become a vital role. Today, there are fundamentally many more rules to comply with—the type of rules have also changed, creating new compliance demands and the need for a more considered approach for the products that asset managers manufacture and distribute. In practice, the key challenge is to determine who takes on the responsibility for the more complex additional MiFID II-related compliance within the group.

So far, management companies (ManCos) have been exempt from MiFID II (as they are subject to their own specific regulation) although they typically have core competence in managing regulatory compliance. Instead, it was the investment management and distribution side of the business to which MiFID II had been applied in full but to which the new rules were either new or, the necessary compliance organisation, processes, and infrastructure did not yet exist.

As such, the logical conclusion for those asset managers operating under a cross-border distribution model was to apply for an extended MiFID top-up license for their existing ManCo and to establish a singular ownership for risk and compliance.

This is the point where the cost reduction and regulatory dimension overlap and the conclusion for asset managers was rather clear that the new pan-European branch network should be structured under the ManCo as the centrally regulated MiFID-entity and head office. 

Transfer pricing impact

Yes, the topic is complex and tax does not seem to be the first thought that comes to mind when considering the impact. Nonetheless, the ripple effect of these operating model transformations on prevailing TP models in the asset management sector is profound and needs to be considered carefully before embarking onto any restructurings.

Regulators expect that the new TP model is already defined when filing for the necessary regulatory applications, requiring asset managers to integrate tax/TP considerations from an early stage into their design process. At this point, we have already seen several requests from regulators in Europe on this topic as part of their on-site visits in light of the increased operational complexity and additional risks/costs borne by ManCos as the new centrally regulated MiFID-entity.

Before starting to analyse the TP impact, two prevailing TP models in the asset management sector are revisited below:

  • On the one side, there are decentralised models where the manufacturing and distribution of funds are performed locally in the jurisdiction where the key investors are based. The main cross-border transactions in this model relate to the provision of investment management and other services by related (or unrelated) parties. Typically, this model is less complex from a TP perspective but has become the exception rather than the rule in the market;

  • On the other side, there are centralised models where the manufacturing of funds is performed in one key jurisdiction by one ManCo (e.g. Luxembourg or Ireland) and the funds are managed, administered, and distributed on a cross-border basis. Here, the model is more complex from a TP perspective. It is also this case where we see most of the restructuring activities to establish the singular ownership for risk and compliance at the new centrally regulated MiFID-entity.

The impact on centralised models

Typically, the core activities of centralised models along the value chain of asset managers are well-defined and covered by distinct legal entities.

First, there is the ManCo (UCITS ManCo or Alternative Investment Fund Managers, i.e. AIFM) that typically performs the principal function of risk management and oversight of delegated functions. In practice, we typically observe that fund administration, distribution, and investment management are being delegated by the ManCo to either third- or related- parties. While the functional profile of the ManCo as such is somewhat limited to risk management, compliance, reporting, internal audit, and related activities, the ManCo bears significant risks, both towards the investors and regulators, and owns the regulatory license as a key intangible.

Second, there is the fund administrator. In practice, the function is performed either by related or third parties where transfer prices (again, a share of the management fees) can be readily identified.

Last, there are the distribution function that markets the fund products to investors (and retains existing investors) as well as the investment management function that is responsible for generating the investment returns. Both functions typically share into the residual of the management fees once the ManCo and fund administration functions have been remunerated.

Before the rise of the new operating models, the ManCo typically retained a share of the management fees based on its function and risk profile. This remuneration can, in practice, be benchmarked against so-called third-party ManCos that exist in the market and perform similar activities under a full delegation model.

With the extended MiFID top-up license, the ManCo now also shares into key functions and risks linked to the distribution and investment management activities. While in practice the additional functionality of the ManCo on the distribution and investment management side would be somewhat limited (i.e. typically some senior employees and/or directors), the additional risks and ongoing costs borne by the ManCo as the centrally regulated MiFID-entity are significant and need to be considered in the TP model (i.e. the waterfall of fees and related fee split).

Consequently, the ManCo should earn an additional part of the return for the distribution and investment management functions that covers its additional function, risks, and MiFID-related costs on top of its core function as a ManCo.

The additional complexity from a TP perspective also arises that in addition to a proper profit attribution analysis between the head office and its distribution and/or portfolio management branches, based on the OECD Guidance, an Attribution of Profits to Permanent Establishments needs to be established.


All key stakeholders in asset management organisations (ranging from the executive, regulatory/risk, legal to the tax side) need to respond to the tax challenges by considering the following:


(1) Assess the impact of any changes to the operating model on existing TP policies (especially the conversion of local activities from legal entities into a branch model and the potential re-allocation of functions/risks in the group);

(2) Address the tax treatment of restructuring related costs linked to the migration into new operating models;

(3) Examine the potential exit tax dimension of the restructuring in case any existing contracts, customer base or something else of value is transferred in a cross-border context;

(4) Decide where MiFID-related costs (both one-time and ongoing costs) should be borne and how these costs are reflected in the TP model;

(5) Properly document the new TP model (including the profit attribution approach and question of attribution of asset as well as determination of free capital for the branches);

(6) Prepare for questions and scrutiny by financial regulators on a real-time basis when filing for the necessary regulatory applications;

(7) Consider potential reporting obligations under the Directive on Administrative Cooperation (DAC 6) if relevant TP hallmarks are met; and

(8) Prepare for potential scrutiny by tax authorities and consider upfront dispute prevention options.


Click here to read the entire 2020 Deloitte/ITR Financial Services Guide

Ralf Heussner



Deloitte Germany

T: +49 151 5448 3911

Ralf Heussner is a partner with Deloitte based in Germany. He specialises in the financial services sector and is part of Deloitte's global financial services leadership team. He has worked for many of the key players in the asset management industry (ranging from the traditional sector to private equity, real estate, and hedge funds), banking, and insurance during his prior tenure in Tokyo, Hong Kong SAR and Frankfurt.

Over the past 18 years, Ralf gained extensive experience advising clients on a range of tax, TP, valuations, and controversy-related engagements. His experience covers TP planning and policy setting, risk reviews, operationalisation, documentation, restructurings, and dispute resolution engagements. He has worked on more than 35 APAs and numerous high-profile controversies on both the local and competent authority levels with authorities in China, the EU, Japan, the US, and other key jurisdictions.

Ralf is a frequent speaker at tax seminars, has participated in consultation projects with various governments about tax reform, and has contributed to thought leadership on TP issues in various publications.

Anodri Suchdeve


Senior manager

Deloitte Germany

T: +49 697 5695 7232


Anodri Suchdeve is a senior manager at Deloitte in Frankfurt, Germany. 

Anodri started her career at Morgan Stanley and worked in the corporate tax department in New York, and financial control group in Frankfurt, primarily focused on controlling, TP, financial and regulatory reporting and then thereafter the operational TP team in New York. After serving many years at Morgan Stanley, Anodri joined Mitsubishi UFJ Financial Group in New York, and led the operational TP group while continuously streamlining operations, systems and especially alleviating and harmonising challenges between business units and related parties.

At Deloitte, Anodri advises a number of financial services clients on various TP matters, including operational TP topics.

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