Axa’s Dublin-domiciled Delegation bond (launched in the third quarter last year) is an offshore single premium life assurance product which, unlike most offshore bonds, allows the policyholder to access usually “non-permitted” assets such as direct equities, fixed income, derivatives and structured products.
Axa claims the product is able to do this and provide the tax advantages of an offshore bond, because the investment decisions are outsourced to a discretionary fund manager (DFM).
According to Axa, the product can only work, and is within the rules, as long as the client has no direct influence on the investment decisions made by the DFM.
However, some technical experts have disputed Axa’s claims and argue the product does not fall within HM Revenue & Customs’ offshore bond tax code, and is actually a personal portfolio bond (PPB) and therefore cannot invest in “non-permitted” assets.
Mark Armstrong, managing director of Dublin-based Canada Life International Assurance, said CLIA’s analysis suggests the product “fundamentally” does not work.
“The fundamental principle is the client should not be seen to be directly influencing the assets within the bond,” said Armstrong.
“However, the client sits down with the adviser and says, ‘I don’t like Uruguay, I don’t like developed markets’ etc, with that conversation continuing until the signing on date. At that point Axa says the client must stop talking to them – but he’s already done it, he’s already been directly involved in how the mandate will not just work in general, but specifically at stock level.”
Armstrong said this same situation presents itself each time the client decides to move to another DFM or changes their investment objective, both of which Axa allows in each year of the bond’s life.
Armstrong said he is also concerned that in trying to “get around the rules” Axa “flies in the face of HMRC’s intentions” and it runs the risk of damaging the relationship the industry has built with the Revenue since it introduced the PPB legislation in 1999.
Axa refuted the claims. A spokesperson said: “This product is not about trying to circumvent the regulations; it is about providing more choice for a DFM using the legislation provided. The product is carefully designed so it isn’t against the spirit and intention of the tax code.”
Margaret Jago, international technical manager at Aegon Ireland, said an additional claim made by Axa – that there is a no VAT payable on the DFM charges – is also incorrect.
Jago said: “The PPB rules in Ireland are different to the UK and if the policyholder asks the life company to appoint the DFM, that still counts as the policyholder selecting the assets so if the DFM does go down the direct equity route and things like that, then there will be VAT.”
Axa disputed this, saying: “We believe the bond qualifies for VAT relief.”
