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The Race to Withholding Tax Recovery – Statutes of Limitations

The Race to Withholding Tax Recovery – Statutes of Limitations

Aug 06, 2020

Withholding tax recovery opportunities unfortunately don’t exist forever. Every investment market has a statute of limitation for withholding tax (WHT) recovery claims to be filed. This means that each claim has an expiry date and the claims must be filed before this date, to ensure that the recovery is not lost.

Statutes of limitation are tax authority prescribed deadlines for filing WHT claims and are defined in domestic tax legislation or double taxation agreements. Generally, these range anywhere from 2 to 6 years from the end of the calendar year of dividend payment. For example, in France, the statute of limitation is typically 2 years from the end of the year of dividend payment. This means that WHT recovery claims for dividends earned in 2018 will expire at the end of 2020. If a claim is not filed with the French tax authorities by the end of 2020, the claim will expire and the opportunity to recover this tax will be lost. Most tax authorities prescribe December 31st expiry dates but some specify expiry dates linked to dividend payment dates, for example Spain where the claims generally expire 4 years from the date of dividend payment. It is imperative to monitor claims nearing expiry and to ensure claims are filed before the relevant deadline.

Many reading this article may be wondering why WTax is raising this in August when claims only expire in December, however the withholding tax recovery process is a complex one and documentation needed to support claims takes time to obtain. Firstly, tax residency certification is a crucial element for all WHT claims. This document confirms that the claimant is a resident of a particular country for tax purposes and is the basis for treaty eligibility and other claim entitlement. The time required to obtain this certificate varies by jurisdiction but in many countries can take up to 3 months. 2020 has also seen significant delays due to the COVID-19 pandemic as many tax authorities have been unable to issue tax residency certificates for substantial periods of time. 

There are various other documents needed to support claims for WHT recovery and these are procured from different parties often through the dividend payment chain. A final consideration is the fact that most claims must still be filed manually using postage and courier services and sufficient time needs to be allocated to ensure that claims reach the relevant tax authority before the deadline. Considering all these factors, it’s easy to see why WTax is already hard at work to ensure value doesn’t fall by the wayside at the end of 2020.

Filing claims before statute is not the end of the WHT claim process. Claims can be queried by tax authorities; these queries usually attract deadlines of their own. These also need to be adhered to and responses must be filed before the relevant deadlines. 

It’s important to note that statutes are imposed on taxpayers to meet filing deadlines not for tax authorities to assess claims. Using the French example of a 2-year statute of limitation, claims must be filed by December 31st of the 2nd year following dividend payment but the tax authority does not need to assess the claim by this date. As long as the claim is filed in time, the claim will be protected from expiry. There are some territories which prescribe timelines for tax authorities to assess claims as well and in some instances if a claim is not assessed within a prescribed period of time, it may be seen as a tacit rejection and appeal procedures may be launched by the taxpayer. This occurs in France, where if a claim is not assessed within 6 months of receipt by the French tax authority, it can be seen as a tacit rejection and the taxpayer may appeal the claim. 

At WTax, our goal is to ensure we maximise withholding tax recovery opportunities. For most of our clients, this means filing claims in the year following dividend payment and sometimes even in the year of dividend payment. Faster refunds improve cash flow and lead to higher investable capital. Where we deal with expiring claims, it’s important to start as early as possible because time required to gather documents can easily result in a missed deadline. 

We are only in quarter 3 of 2020 but the race to submission has begun; make sure you aren’t left behind. Contact a WTax representative to see how we can maximise your recoveries.

Please note that statutes of limitation mentioned in this article are generally applicable statutes but these can vary depending on claimant domicile and claim type.