Reclaim Withholding Tax Successfully

Withholding Tax (WHT) will significantly impact the returns of your foreign investment portfolio. How can you ensure you get the most back from your cross-border investments? That’s easy - make certain you are getting your withholding tax back from your foreign investment dividends.

Withholding tax can be reclaimed in three ways:

• By following the stipulations of the Double Tax Treaties (DTTs) between the country of residency and the country where the income is earned.
• Domestic Tax Legislation: Claims based on the country's domestic legislation with regards to investment vehicle taxation.
• By following the claims of the European Court of Justice (ECJ): reimbursement method based on EU (European Union) case law with the goal of eliminating tax discrimination between resident and non-resident firms.

Why should you reclaim the total amount of withholding tax?

Funds should ensure that they reclaim their withholding tax (WHT) to fulfil fiduciary responsibilities, protect yourself from investor liability and boost the performance of your investment vehicles. Let’s take a deeper look at these methods.

The European Commission has struggled to harmonize the various regulations and laws that regulate EU-law-based withholding tax reclaims in the sphere of cross-border taxation. This complicates matters for investment businesses, which must manage the withholding tax reclaim potential provided by using double tax treaties and earlier tax discrimination case law. These are known as the European Court of Justice claims.

Double taxation agreements for EU law-based WHT reclaims.

Double taxation agreements are the most prevalent technique for reclaiming international withholding taxes from the European Jurisdictions. Where there is a difference between the statutory tax rate of the country within which there was an investment and the tax rate agreed upon between two countries in their double tax agreement, a withholding tax reclaim opportunity exists.

An astonishingly high percentage of global recoverable withholding tax goes unclaimed annually. This significant tax leakage is the result of a combination of specific filing requirements, onerous administrative procedures and a time-consuming reclaim system. In order to file claims, investors need to undertake substantial data analysis and gather the required supporting evidence. With the success of these withholding tax reclaims, investment portfolios can be greatly improved and return on investment (ROI) can be increased considerably.

Withholding tax refunds based on EU legislation via ECJ judgements

ECJ judgements (tax discrimination cases) provide an additional mechanism for recovering withholding tax refunds based on EU legislation. This approach is based on precedent tax discrimination lawsuits that went to the European Union's Court of Justice. The Aberdeen Property Fininvest Alpha Oy (C-303/07) against Finland and the DFA Investment Trust Company's Emerging Markets Series vs. Poland (C-190/12) are just a couple of examples.

The rulings from these cases established a standard for how non-EU investment corporations seeking EU compensation should be treated. These precedents allow non-EU investment firms to receive a WHT refund if their beneficial owners are structurally analogous to an EU investment firm equivalent.

Discrimination-based claims can significantly boost portfolio returns. However, the environment is continually changing and thus onerous to navigate. Under the precedent of these court rulings, we have addressed some of the most common misconceptions about reclaiming tax below:

1. Discrimination in the application of withholding taxation within the EU

EU Member States tax domestic investment funds differently than equivalent foreign investment funds on the same type of revenue, this is generally considered unjustifiable discrimination. This leads to unequal treatment of residents and non-residents in similar circumstances which is contradictory to the TFEU (Treaty of the Functioning of the European Union) which is based on the free movement of capital, goods, and services within the European Union. The TFEU prohibits any limitation on capital movement inside the European Union or between the EU and any outside countries.

2. Using ECJ judgements to claim withholding tax

ECJ claims are attractive as they often boost returns by 15% of gross dividend income. However, in order to maximize this advantage, the procedure necessitates a thorough understanding of the process as well as the applicable legislation. While it is not uncommon to utilize custodians or in-house teams to manage withholding tax refunds via DTTs, performing ECJ claims properly is difficult, if not impossible, and professional assistance is advised. Look no further. Global Tax Recovery to here to help you.

An investment company must first find a prior judgement on which to base the reclaim argument. Following that, the critical work of demonstrating comparability is required. A corporation will be required to show paperwork to prove that the investment fund seeking a refund is comparable to funds in the jurisdiction from which the refund is sought.

3. Keeping a watch out for withholding tax refund prospects in the future

There are many issues involving suspected tax discrimination by EU member states that are still being considered in European courts (for example, in Germany). Investors should pay great attention to such instances, as the rulings could lead to additional refund opportunities in the future.

How we can help you

Global Tax Recovery (GTR) are global specialists that provide investors with a simple and seamless turnkey solution to recovering excess withholding tax on foreign dividends. Our highly skilled and experienced staff can attend to all the recovery methodologies available. Our thorough knowledge of both international tax law and foreign tax office procedures ensures that we resolve your specific claim successfully and in the shortest possible time.