Meeting today’s asset management tax challenges

Get specialized insights in this podcast series

Asset managers have encountered numerous new tax challenges in recent years, necessitating new strategies to minimize the tax burden across the industry’s various sectors.

Depending on your organization, issues such as legal entity structuring, the deductibility of interest expenses, the capitalization of research expenditures, state and local taxes, global minimum tax rates and other considerations may affect your current tax planning.

In this podcast series, Grant Thornton Advisors LLC Asset Management Tax Leader Eric Coombs discusses recent and evolving tax trends in the industry with the firm’s asset management tax specialists.

Structuring and planning for state and local taxes

Upfront structuring and planning for state and local taxes is a critical component of fund setup and investment strategy. In this episode, Rob Michaelis, Grant Thornton Advisors LLC Principal for State and Local Tax Solutions, discusses the complexities of state filing requirements, the pros and cons of pass-through structures and blocked structures, and the importance of having a clear vision of the tax attributes that matter to your prospective investors.

“We never say we can necessarily minimize tax, because tax is what it is sometimes,” Michalis said. “But it’s about being efficient about it, right, not paying more than you should be paying, not putting structures in place that are inefficient.”

Listen to Michaelis and Coombs delve into the key aspects of state and local tax planning.

14:43 | Transcript

Leveraging analytics for tax efficiency in asset management firms

As asset management firms work to comply with these new and changing regulations — as well as existing rules — data analytics may provide substantial advantages for firms’ compliance efforts. Tara Soileau, a Transaction Advisory Managing Director for Grant Thornton Advisors LLC, cited sales tax treatment of employee purchasing as one example.

“We use data and analytics to pinpoint taxable versus nontaxable vendors, for example, and quantify very specific segments of purchasing that are relevant to a tax diligence scenario, such as sales and use tax, as well as employee classifications and classifications of employee spend,” Soileau said.

Listen as Soileau and Coombs discuss this and other perspectives on data and analytics in this podcast episode.

8:17 | Transcript

Effective tax planning for private credit and collateralized loan obligations

Private credit has become an increasingly popular asset class in the past two years as high interest rates constrained bank lending. These private funds require careful structuring upfront to minimize the taxes that investors will pay on interest income. “Because this private credit market is booming in recent years, it’s really important to have appropriate tax planning done at the outset,” said Satish Katikala, Partnership Tax Solutions Senior Manager for Grant Thornton Advisors LLC.

In this podcast episode, listen as Coombs and Katikala describe the tax considerations for private credit as well as for collateralized loan obligations (CLOs), which are often formed in jurisdictions outside the United States and may run the risk of triggering effectively connected income tax when there is a debt-to-equity restructuring by the borrowers.

9:24 | Transcript

Navigating international tax challenges: Insights on the YA Global case and Pillar 2

Some of the current international tax challenges for asset management firms are related to the U.S. Tax Court’s ruling in favor of the government in the YA Global case and the new Pillar 2 global minimum tax requirements.

Asset managers may wish to carefully review the Tax Court’s ruling that YA Global was engaged in a U.S. trade or business and was a dealer in securities. Although the case’s fact patterns were unique, they may prompt a closer look at fee-sharing arrangements. “I don’t think this case upsets those arrangements in most cases, but I do think it’s worth a fresh look, particularly if you have a unique fee-sharing arrangement,” said Cory Perry, a Principal in the Washington National Tax Office for Grant Thornton Advisors LLC.

Meanwhile, Pillar 2 introduces a global minimum tax of 15% for large entities with at least $750 million in consolidated global revenue that are subject to tax in at least two jurisdictions. While the United States hasn’t yet adopted Pillar 2, many other countries — particularly in the European Union — are moving forward with the regulation.

Perry and Coombs discuss these international tax issues in detail in this episode.

12:53 | Transcript

Tax strategies and regulatory insights for private equity funds

In this episode, we discuss private equity with Melanie Krygier, M&A Tax Leader for Grant Thornton Advisors LLC. We explore how some PE portfolio companies have been adversely affected by Section 163(j), which governs interest expense deductibility, and Section 174, which requires capitalization of research and development costs.

Krygier said some portfolio companies might respond to the 163(j) challenge by capitalizing interest expense into other assets. “It might actually provide an opportunity to attract some of those interest costs to those other assets, which could either be depreciable, amortizable, or deductible in the current year,” she said.

Listen as Krygier and Coombs discuss other PE considerations, including additional regulatory and tax reporting requirements at the fund level that have further drained resources.