Tax planning will increasingly become an operational risk for asset managers, according to new research report by PwC, a risk spurred by operational and compliance demands.

Researchers suggest asset managers plan for the addition of specialist resources and the use of technological advances dedicated to tax planning as key operational and business activities in the years ahead.

William Taggart, the global tax leader of asset management at PwC, says that as the volume of tax reporting is increasing, the need for instant access to tax information is evolving as well.

"With the changing environment and the need to be as efficient as possible, asset managers are focusing on technology that not only eliminates much of the manual aspects of the tax compliance process, but also which gives full transparency into information," Taggart says.

The report, "Asset Management 2020 and Beyond; Global Tax Gets Competitive," forecasts global AUM will reach nearly $102.3 trillion by 2020, $13.6 trillion from alternative investments, $47.5 trillion from mandates and $41.2 trillion in mutual funds. This is more than a $30 trillion boost from 2013 where there were $71.9 trillion in total global assets, and nearly three-times the size of where the industry was at $37.3 trillion in AUM in 2004, the report notes.

While this growth is expected to be rapid, researchers suspect that individual asset management firms will not find an automatic solution for this growth.

"As fund managers invest in myriad products, operate in numerous countries, embrace with new technologies, and deal with individual country tax systems which don't mesh together nationally, and were not developed to deal with today's business, asset managers are forced to manage a new operational risk in areas where there is no clear answer," he says.

As a result, Taggart says chief financial and chief operating officers, in addition to boards, are now asking more questions, not only about tax risks, but also about the tax risk management programs that tax departments are running.


Due to the increased operational risk that PwC researchers expect managers will need to develop in order to meet some of the compliance demands surrounding tax functions, Taggart says a risk management program must be integrated across operations units.

"As taxes have gotten more focus from governments and regulators, and as investors are less tolerant of subsequent tax adjustments, firms have started to think about taxes, not just as before, but now as an operational risk," Taggart says.

In the report, Taggart suggests that tax management is moving out of compliance and tax planning arms of asset management and into their operations. The future tax process, he says, is expected to move to a digital environment that connects existing tools to tax-sensitive databases that are connected via a centralized tax data hub.

"As the volume of tax reporting is increasing, and the need for instant access to tax information is also evolving. Tax Directors, as well as CFOs and COOs are looking for technology to do more of the heavy lifting," Taggart explains. "Historically, there has been a great deal of investment in technology for financial reporting purposes, but not much for tax purposes."

Taggart explains that there are several tools that managers can start to embrace, if they haven't already.

Work flow management technology, he says, can help track tax compliance filings. Advanced data reading technology can process a large number of tax forms, Data analytics tools now use tax data to assist in overall business management too.

Taggart expects tax directors to spend more time on risk management than on tax compliance and structuring, risk management committees will have a dedicated chair for tax director and tax departments will begin adopting tax control frameworks.

"By 2020, we are likely to see an asset management world where taxes are an operational risk, and investor will look at the quality of the tax infrastructure and calculate a service alpha," Taggart says. 

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