HM Revenue & Customs’ (HMRC’s) decision to tax unit and cash rebates could violate UK case law on competition, as the move will imply that the platforms be forced to abandon negotiating individual discounts with manager, according to a platform consultancy.
A number of larger platforms, including Standard Life, Skandia and Axa Elevate, are lobbying fund groups for cheaper "super clean" share classes.
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AdviserAsset director Colin Turton said: "It feels like we are going back in time. The only challenge I can see is from TISA who are lobbying for a delay. [It’s] a fundamentally incorrect and flawed approach."
A 1984 House of Lord tax case – Furniss v Dawson – set a precedent that tax should be applied on the effect of transactions, not the way they have been organised for tax purposes.
Of the proposed super-clean share classes, Turton said smaller platforms would simply "stand well clear" of negotiations, before coming in and picking up the best price for themselves.
In February, AdviserAsset wrote to the FSA with findings from a study of 1,317 clean share classes.
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By GlobalDataOf those, two thirds could be obtained at a lower cost via another class of the same fund after the application of rebates.
The average difference in charges between clean share class funds and lower cost versions of the same fund was 25bps in favour of the rebated funds, Turton said – though from next week, much of is this advantage will be wiped out by taxation.
