Property lobbyists are set to do battle with the EU as fears escalate it may try to impose a tax which would undermine the benefits of Real Estate Investment Trusts (REITs) and shrink returns from property funds.
The British Property Federation (BPF), EPRA, INREV and AREF have united in a bid to stop the proposed financial transactions tax (FTT) from hitting REITs and real estate funds, should it be introduced.
Industry concern is centred on the wide-ranging definition of financial institutions to which the tax would apply. At present, this includes alternative¬ investment funds and their fund managers.
However, the definition of AIFMs and AIFs set out in the EU's Alternative Investment Fund Management Directive remains unclear and could extend to REITs as well as funds.
John Christian, Real Estate Tax Partner at international law firm Pinsent Masons said: "The financial transactions tax has been presented by its European supporters as a tax on banks, but this hides a much broader impact.
"For example, the real estate funds sector finds itself potentially caught under the enormously wide definition of a financial institution. Applying the tax to real estate funds and managers does not affect banks but instead impacts investment yields to pension funds and other investors.
"The real estate sector needs to continue to fight the drive to bring real estate investment within the financial services net."
REITs expert Robert Moir, Partner at Pinsent Masons, added: "The real estate investment industry is rightly concerned about any EU financial transactions tax, which will impact London disproportionately. If it were to go ahead, the definition of what is and isn't a financial transaction subject to tax should be clarified.
"As REITs are listed companies in the UK (LSE Main Market and, going forward, AIM) the UK Government will presumably look to ensure REITs are excluded from the scope of the tax, especially as it is trying to encourage them.
"The tax has arguably become more of a political issue than a legal one but clarity is key, as is a level playing field globally."
Source: MJ2 Ltd