Menu
+41 43 430 0620 info@wtax.co
WTax Private Wealth video WTax Service Explanation video Speak to a Tax Reclaim Specialist arrow

Is a Complicated Tax Reclaim Process Leaving Pension Funds Out of Pocket?

Is a Complicated Tax Reclaim Process Leaving Pension Funds Out of Pocket?

Mar 29, 2021

Pension funds are usually tax-exempt in their home country but this is not always the case when they hold investments in foreign jurisdictions and, in most cases, the onus is on the pension fund to prove its tax-exempt status, when trying to reduce or eliminate foreign withholding taxes on investment income. Despite the availability of tax exemptions from foreign tax authorities, pensions funds don’t always maximize the refund opportunities available. The increased complexity and volume of documentation required by international tax authorities has resulted in an ever-growing backlog of outstanding tax claims and queries imposed on pension fund personnel.

To reduce foreign withholding tax leakage, pension funds generally have Relief at Source available which is usually facilitated by the custodian bank. In the absence of Relief at Source, either due to this relief not being available in the foreign investment country or as a result of a missed deadline, the pension fund must file a withholding tax reclaim, to be refunded the excess tax.

Where pension funds are entitled to file a tax reclaim, an accrual is usually recorded, and it is the responsibility of the pension fund’s finance team to provide the information and applicable documentation to support the tax claim. Once this information is provided, the tax reclaim is filed by the custodian or the respective sub-custodian. Ultimately, if the tax claim is unsuccessful, the accrual will be written-off.

The Challenges with International Pension Fund Tax Reclaims

This process seems simple but upon detailed inspection, pension fund finance teams are encountering a variety of challenges, which include:

  • Completion of tax authority documentation: The requirement to provide answers and applicable supporting documentation is often left to the pension fund’s finance team, which may not have access to clear guidance on the specifics of the relevant tax jurisdiction. This often results in a simple request taking days or even weeks to complete.
  • Lack of oversight: Depending on the reporting provided to the pension fund, it is often difficult for finance teams to have a holistic view of the status of all withholding tax claims. Due to the various stages and timelines in the reclaim process, inadequate reporting often leaves finance teams under pressure from filing deadlines.
  • Tax office queries and rejections: International tax authorities typically err on the side of caution and may reject or query a claim if they require additional information. In complex investment jurisdictions such as Switzerland or France, many pension fund finance teams are faced with investing a significant amount of time challenging a rejection in order to secure the refund, many years after the tax has been incurred.
  • Classification challenges: In order to maximize the recoverable tax values, pension funds need to ensure that the structure is appropriately categorized when filing a tax claim. Expert knowledge is required to determine the classification as an inappropriate conclusion may result in rejected claims or a lesser refund.

Over and above these challenges, many pension funds don’t take advantage of tax reclaims available through legal claim mechanisms or in markets that may fall outside the scope of their custodian bank.

How to Simplify Your WHT Reclaims Process

WTax helps its clients navigate through this challenging process. As our services are performed on a fully success-fee basis, our interests are always aligned with those of our client. We continuously enhance our reclaim process and consider the following approach to result in greater success and efficiency in the reclaim process. WTax offers its clients:

  1. A dedicated resource with a sole focus on withholding tax recovery
  2. A detailed analysis to determine the appropriate investment structure classification in different markets and how this affects withholding tax relief mechanisms
  3. Access to technical resources and detailed tax knowledge to assess claim eligibility which ensures an optimal claim combination and precise completion of documentation
  4. A strong understanding of tax authority requirements through broad experience of liaising directly with tax authorities and handling tax authority queries
  5. Resources focused on tracking claim progress and ensuring claims are followed through to successful refund

Get in Touch with WTax Today

If withholding tax recovery has become an administrative burden that hasn’t reached its full potential to increase returns, please reach out to WTax to discuss how an outsourced solution can maximise recovery yields and reduce withholding tax leakage.