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