With investment suitability becoming a regulatory requirement in many countries in recent years, most financial institutions have introduced respective processes. However, the impact of tax regulations on client investments often remains untapped, be it in an investment advisory or discretionary asset management context. This fact contradicts an increasing expectation from investors that require tax efficiency as an essential feature for every financial instrument in their portfolio.
As a financial institution, you can optimise the after-tax performance of the client portfolios you manage using an embedded adaptable tax efficiency check. It allows you, as a financial institution, and your clients to understand the general tax implications of a portfolio and the relative costs of the tax impact.
While some investment advisers and portfolio managers do not have any information on tax regulations at hand, others struggle with the incredible complexity of applying country-specific tax laws at the investment product level. Typically, this process requires reading tax manuals applicable to the client's tax domicile country or consulting in-house tax experts. Both approaches are inefficient and come with the constant risk of the tax rules being outdated.
Investors (for example, from advisory or discretionary management context) expect answers to the following questions when dealing with tax implications:
- What is the general tax implication for a financial instrument on its own, and how does it compare to other available products?
- What is the after-tax performance of an investment product?
- Which instruments to avoid due to their negative tax impact?
Today, the main challenge in answering those tax questions is the number of data attributes needed to run such a tax assessment, hence to characterise the financial instrument from a tax perspective.
This integration guide explains how to integrate tax impact information into your processes to offer tax-efficient investment management services with the Apiax rules for Equities, Bonds, Investment Funds, Derivatives and Structured Products.
Before starting, ensure that you have:
- A SaaS subscription to the Apiax API (optional subscription to the platform)
- An active subscription for the relevant digital compliance rules (content)
- A user account with access rights
- A ready to use API authentication and access
- A capable customer-facing solution to integrate
For more information, see Apiax initial account setup.
Use cases and studies
Apiax offers a series of business cases and studies to gain further insights into the business benefits of switching to embedded compliance rather than following traditional compliance approaches.
Refer to the use cases webpage on apiax.com or contact Apiax for more information and an overview of how you can move your business forward with ready-to-use solutions for embedded compliance.
This integration guide provides step-by-step instructions of a business case, taking you through the process of embedding compliance into your environment, team or process. Follow these steps with your specific case and situation in mind. Adopt and extend rules, attributes and API requests where necessary.
Apiax offers test and live API keys and rule governance and versioning functions for you to test and validate changes before applying them.
Example to get started
Financial Institution AG, a Swiss wealth manager, distributes financial products such as Bonds, Equities, Investment Funds, Derivatives and Structured Products to investors. The company has a securities dealer licence for Switzerland. Adam, the client, an investor with tax residence in Italy, wants to understand the tax impacts of undertaking an investment into a specific Investment Fund. Adam relies on the Financial Institution AG's transparency on such Tax details.
Objective: Financial Institution AG seeks to receive tax impact information related to that specific Investment Fund Adam is focussing on, to better judge the tax implications and optimise this investment for Adam, their client.
The Apiax Tax Impact rules offer them three categories of information:
- Tax categorisation - based on the investment product classification, the Apiax rule screens and classifies the product for the tax impact.
For example, concerning Italy (ITA), an Investment Fund could classify as a Qualifying IRRP Funds.
- Tax impact for different objects - based on the input of the tax domicile of the client and the product data, the Apiax rules describe separate tax objects and their impact results. These results apply to multiple objects such as dividends, interest, capital repayment, capital gains, capital losses. For example, output regarding equities could look like: Dividends, Impact Yes, 26%, and a detailed description.
- Tax impact rating - based on the tax impact results of the various objects, the Apiax rules provide an overall tax impact indication for the investor through a Red/Amber/Green colour rating, which shows how beneficial the investment is from a tax impact perspective. An example output could be Green (positive) with a detailed description.
Green colour rate - is an investment whose tax treatment can generally be clearly determined and which generally offers a beneficial tax outcome for the investor.
Amber colour rate - is an investment which, although its tax treatment can generally be clearly determined, the tax outcome for the investor may be less beneficial than the Green investments.
Red colour rate - is an investment which, although its tax treatment can generally be clearly determined, the tax outcome for the investor is generally less beneficial than the Green and the Amber investments.
The figure below depicts the typical action flow of the portfolio manager or investment advisor using an Apiax-powered tool to check the tax impact of the investments.
This section explains how to integrate the example by providing the necessary information.
Apiax recommends reading Understanding Digital Compliance Rules before starting your integration.
Digital Compliance Rule Sets
Regardless of the client's tax jurisdiction, the linked Apiax rules are always Tax - Impact, a rule set family which provides text answers on how taxes apply to financial instruments in different jurisdictions.
Tax - Impact includes the following rules:
- Asset Class Tax (mandatory for any integration process)
- Equities Tax
- Bonds Tax
- Investment Funds Tax
- Derivatives Tax
- Structured Products Tax
Input attribute types
- Default input: Static evaluation values for the API that don't change on a case-by-case basis.
- Dynamic input: Dynamic evaluation values for the API gathered on a case-by-case basis.
- Referenced input: Dynamic evaluation values for the API passed through link actions from other digital compliance rules or logic from the platform.
Gathering rule set attributes
To build your request, you need to understand the regulatory properties (RegProps/attributes) and values of a specific digital rule set.
To get an overview and description for all attributes (regulatory properties) based on the digital rule sets and countries in scope, access the Apiax inspection endpoint: it provides you with all the information about a digital rule set.
See Rule Inspection for more information.
Alternatively, access the Apiax platform and graphically navigate the digital compliance rules. Access to the platform depends on your subscriptions. Find out more about the Apiax platform here.
Defining values of the key attributes
In case of uncertainty of which default to apply to a specific attribute, Apiax recommends you to use a low-risk default, in which case the default value selected provides the most conservative outcome, and therefore, the lowest risk. It is important to define the attributes together with legal and compliance and align with your organisation's risk policy. Contact Apiax if you need assistance.
Digital compliance rule evaluation
The Apiax API evaluates digital compliance rules to get regulatory answers and dynamically display financial services, products and other content on websites.
See Rule evaluation for a step-by-step guide to build an API request based on attribute values. Optionally, see how to build a filter and display only content according to the relevant website visitor attribute values.