The simplest solutions are often the most difficult to achieve. For years, multinationals sought to pool pension plan funds across borders to bring more efficiency to their management in terms of both governance and risk and economies of scale. Standing in the way, however, was the question of the tax treatment of pension fund dividend income. If the tax authorities of various nations were not able to look through the pooling vehicle and tax the ultimate holders of the assets, then the pensions would lose the benefit of double taxation treaties and pooling would not be tax efficient. The key, of course, was to find a tax-transparency. But for a long time, it was a quest for the Holy Grail.
Finally, in December 2005, Unilever PLC launched Univest, the first fully tax-transparent multinational pension pooling vehicle modeled after Luxembourg-domiciled Fonds Commun de Placement (FCP), which are similar to open-ended mutual funds.
Univest turned out to be Uni-lever's Holy Grail: With operations in 42 countries and 25 DB plans that ranged in size from $7 billion in assets to $1 million, Unilever could finally, through pooling, offer all of them best-in-class managers economically and without negative tax repercussions.
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Creation of the new structure was the result of four years of research and collaboration by a consortium that included investment managers Goldman Sachs Asset Management, custodial and fund accounting experts Northern Trust Corp. and pension consultants Mercer Investment Consulting. The group investigated three factors: pension regulations worldwide; tax transparency; and governance and an efficient decision-making framework, according to Kathy Dugan, senior vice president and product manager for pooling at Northern Trust. "We also needed to find a vehicle in which pension plans and trustees in different parts of the world would be comfortable," she says.
The consortium finally decided upon the Luxembourg FCP as the only one that met all the criteria, although the Irish government has created something similar since. Then, the consortium had to confirm tax transparency with authorities in the various countries. But Dugan adds emphatically, "Tax [savings] was not a goal. We're not trying to find the best possible tax haven. Essentially, what these multinationals wanted was to pay the same tax rate that they would pay if they invested directly in the market."
To be sure, cross-border pooling of assets is not for every company. "One size does not fit everybody," says Dugan. This approach only makes sense when both a sizable number of assets and countries are involved. "Companies are always talking about how to deal with having subsidiaries in five, 10, or 15 countries," says Dugan. "That's what this [vehicle] is designed to deal with."
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