OEIC & SICAV fund structures

The retail funds offered by M&G in Europe are established as sub-funds of UK-domiciled open-ended investment companies (OEICs), or as stand-alone OEICs.

In this note, we summarise the key features of the OEIC structure, in comparison with the Luxembourg-domiciled société d'investissement à capital variable (SICAV), looking at two main areas; legal structure and regulation, and fund taxation. The tabulated information below demonstrates that the UK-domiciled OEIC structure does not put the European investor at any material tax disadvantage, compared with the Luxembourg-domiciled SICAV structure.

We also outline the background to our decision of the OEIC structure for the M&G retail funds.

Legal structure and regulation

OEIC SICAV
Definition
  • Open-ended investment company (UK-domiciled)
  • Société d'investissement à capital variable (Luxembourg-domiciled)
Background
  • A collective investment vehicle established in company form, domiciled in the UK
  • Commonly used in the UK, also used in Western Europe and other regions
  • Introduced in the UK in 1997 as a flexible alternative to unit trusts
  • A collective investment vehicle established in company form, domiciled in Luxembourg
  • Commonly used in Western Europe, also in other regions
  • Introduced early in the last century
Legal structure / UCITS
  • An OEIC can be established as an umbrella company with a number of sub-funds, or as a stand-alone fund
  • It can issue a range of shares, including hedged shares
  • It can be established to comply with UCITS or non-UCITS rules
  • A SICAV can be established as an umbrella company with a number of sub-funds, or as a stand-alone fund
  • It can issue a range of shares, including hedged shares
  • It can be established to comply with UCITS or non-UCITS rules
Regulatory authority
  • Financial Conduct Authority (FCA), in the UK
  • Commission Service du Secteur Financier (CSSF), in Luxembourg
Corporate governance
  • The Authorised Corporate Director (ACD) is responsible for the day-do-day operation of the OEIC
  • A SICAV can have a specific management company or be managed by its Board of Directors
Role of Depositary / Custodian
  • A Depositary is responsible for the custody of fund assets
  • The Depositary is also responsible for oversight of the ACD
  • The Depositary and ACD must be completely independent
  • A Custodian (Luxembourg-based) is responsible for the custody of fund assets and ensuring the interests of investors are maintained
  • Oversight is usually undertaken by the Board of Directors
Segregation of liability between sub-funds
  • Legislation to allow the segregation of liability between sub-funds in an umbrella OEIC has recently been introduced in the UK
  • Segregation of liability between sub-funds is provided for under Luxembourg law

Fund taxation

OEIC  SICAV
Fund Income
  • Income, net of expenses, is subject to UK corporation tax at 20%
  • ‘Income’ includes interest income and property income
  • Company dividends held by a fund are not taxable
  • Bond funds with more than 60% in debt assets pay no tax 
  • No tax is levied on the fund – all tax arises in the hands of the investor
Withholding tax
  • OEIC funds pay withholding tax on foreign dividends, levied by the country in which the dividend is paid
  • Due to the wide range of tax treaties in place with the UK, withholding tax is generally paid only at the treaty rate of 15%
  • Very few SICAV funds benefit from tax treaties; foreign dividends are therefore generally taxed at the rate of 30%
Other fund issues
  • Stamp Duty Reserve Tax of 0.5% is paid on transactions in UK equities
  • Taxe d'abonnement of 0.05% pa (0.01% pa for cash and currency funds) is based on fund net asset value

Investor taxation

OEIC  SICAV
Fund Income
  • Most European investors are taxed only on the actual distributions received (e.g., Italy, Spain), or on deemed investment returns from funds (Germany, Austria)
  • Most European investors are taxed only on the actual distributions received (e.g., Italy, Spain), or on deemed investment returns from funds (Germany, Austria)
Withholding tax
  • Non-UK investors can receive interest distributions from bond funds (with more than 60% in debt assets) gross of tax
 

M&G retail funds

For most practical purposes, the OEIC and SICAV structures are very similar, both offering the ability to establish umbrella companies with a number of single-priced sub-funds, and within the UCITS regime.

When M&G first considered offering funds in European markets, we had the option of converting existing UK unit trusts into sub-funds of an OEIC structure, or of setting up new funds in a SICAV structure.

The former route enabled us to distribute our existing UK-domiciled funds, such as the M&G Global Basics Fund, and subsequently launched funds, such as the M&G Optimal Income Fund, into Europe at no material tax disadvantage to the European investor.

In reality there is no tax difference between an OEIC structure and a SICAV structure, as very few OEIC funds actually pay tax. Further, UK-domiciled OEIC funds will suffer lower withholding taxes than SICAV funds.

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