European mutual funds: detecting recurrent differences in the taxation of their private unitholders

Abstract

The taxation of capital gains realized by European private investors in mutual funds must be analysed in order to detect distortions of competition of this relevant financial industry in the European Union. Using a contingency table methodology in different investment scenes, we detect that there are some EU countries whose private unitholders obtain persistently higher returns after taxes than others.

Acknowledgements

The authors would like to express their thanks to the University of Zaragoza and to the Financial Group Ibercaja for the award of Research Projects 268-96 and 268-128. Any possible errors contained in this paper are the exclusive responsibility of the authors.

Notes

¹UCITS stands for ‘Undertaking for Collective Investment in Transferable Securities’, a collective investment fund that complies with the European Union Directive 85/611/EEC of 20 October 1985 (OJ L 375/3 of 31.12.1985) and can consequently be marketed in all EU countries.

²The taxation systems have been gathered, among others, from KPMG (2004) and FEFSI (2004). For a complete description of the taxation principles, see the table in the appendix.

³This last parameter is significant due to the tax framework applied in France where capital gains by individuals on accumulated UCITS are only taxable if the total proceeds from the sale of the securities exceed an annual €15 000. (Code Générale des Impôts, Art. 150-OA)

⁴Special vehicles for saving in France (PEA, Plan d’Épargne en Action) and United Kingdom (ISA, Investment Savings Account) are also analysed.

⁵This test was applied by Malkiel (1995) to test performance persistence of US mutual funds.

⁶Brown and Goetzmann (1995) calculated Odds ratio to test performance persistence of US mutual funds.

⁷Khan and Rudd (1995) obtained the Chi-square statistic to test performance persistence of US mutual funds.

⁸Fisher's statistic was used by Cortez et al. (1999) to test performance persistence of Portuguese mutual funds.

⁹Cortez et al. (1999) provides an in-depth analysis into the effect of small sample bias on these measures.