Understanding 81-100 Group Trusts

As part of WTax’s commitment to continually boost withholding tax recovery opportunities for institutional investors, WTax will be releasing a series of articles to explore some common withholding tax relief-associated challenges faced by 81-100 Group Trusts. Given the distinctive and complex nature of Revenue Ruling 81-100 Group Trusts, this article series aims to explain the implications of their structure on withholding tax recoveries and will provide suggestions regarding how to manage these unique challenges. It will also present updates on prevalent markets where these structures are currently facing difficulties. As the opening segment of the article series, the below provides a brief overview of 81-100 Group Trusts, offering a broad understanding of how they are structured and an introduction to...

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Preparing Your 2024 Foreign Withholding Tax Recovery Process in 3 Guided Steps

The start of a new year marks an opportune time to critically assess your withholding tax recovery strategy and processing schedule, a step that could be key to bolstering investment performance throughout 2024. Proactive tax management and horizon scanning are core elements of WTax’s end-to-end outsourced tax reclaim services. However, for investors without an outsourced solution, we strongly encourage staying informed about the significant events affecting withholding tax timelines to ensure that no withholding tax recovery opportunities are overlooked, thereby avoiding unintended or unidentified tax leakage. To help in this regard, WTax has outlined a list of three key areas to be aware of as you plan your 2024 calendar, allowing you to maximise the efficacy of your foreign investment...

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Essential Steps to Optimise Your Withholding Tax Process

Benchmarking and accurately measuring the effectiveness of a withholding tax relief and reclaim process can prove difficult when the only reference point is experience. Therefore, a holistic perspective is required to identify areas of inefficiency and opportunities for process optimisation. Optimising this process can also be challenging, as it requires proficiency with various administrative tasks, clear communication, and diligent monitoring to maintain peak efficiency and mitigate potential risks at every step. To navigate this complexity, combat the risk of withholding tax leakage and the subsequent erosion of returns, it is essential to adopt a structured approach. Following the key steps detailed below provides a clear pathway to optimising the efficiency of withholding tax relief at source and retrospective reclaims on...

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Partnering with WTax: A 2024 Roadmap for Diversifying and Enhancing Your Back Office Solutions

In the dynamic world of asset servicing, diversifying and enhancing back office solutions is essential for maintaining a competitive edge and meeting evolving client needs. The WTax Partnership Ecosystem stands at the forefront of this evolution, offering a unique opportunity to access an extensive indirect tax recovery infrastructure. WTax provides customised partnership programmes with fund administrators, fund service providers, management companies and others, ensuring shared growth and maximum collaborative benefits. A strategic alliance with WTax enables partners to expand their product portfolio by tapping into a wealth of expertise from withholding tax specialists and utilising a global recovery infrastructure, integrated with cutting-edge, proprietary tax technology. Such collaboration is designed to significantly boost client satisfaction and retention by improving investment performance,...

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EU and National Law Withholding Tax Reclaims: No Time Like the Present

Over the past few years there have been numerous developments in the withholding tax space, owing to several notable cases which have been brought before the Court of Justice of the European Union (CJEU), as well as the relevant EU Member States’ National Courts. The applicants in these cases range from investment funds to pension funds and the subject thereof covers mostly one important principle: the free movement of capital. The CJEU's Role in Shaping Withholding Tax Recovery The CJEU has the responsibility of interpreting and ensuring the implementation of EU law across the European Union. One fundamental part of EU law is the principle of free movement of capital protected under Article 63 of the Treaty on the Functioning...

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The European Commission’s FASTER Directive: Transforming Withholding Tax Procedures in the EU

On 19 June 2023, the European Commission published a legislative proposal for a Council Directive (hereinafter “the Directive”) that aims to make withholding tax procedures in the European Union (EU) more efficient and secure for investors, financial intermediaries and Member States. The draft Directive, also referred to as FASTER (Faster and Safer Relief of Excess Withholding Taxes), was developed in response to the widely recognised need for simplification to the existing withholding tax relief procedures, balanced with a process that will provide tax authorities with tools to tackle fraud. The Directive currently proposes that Member States bring into force the laws, regulations and administrative requirements necessary to comply with the provisions of the final Directive no later than 31 December...

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A Consequence of War: A look into the effects of the Russia-Ukraine Conflict on Double Taxation Treaties and Withholding Tax Recovery

When thinking of the factors that may affect one’s ability to recover excess withholding tax, war is not usually one that springs to mind. However, in a world as complexly intertwined as ours, socio-political events have widespread ramifications. The recent, major escalation of the Russo - Ukrainian War stands testament to this. Alongside the extensive humanitarian consequences the military predicament has wreaked on the region and the world, diminished withholding tax recovery may be another unfortunate side-effect of the changing political landscape. The Role of Tax Treaties in Times of Political Tension Although the primary aims of Double Taxations Treaties (DTTs) include encouraging international investment, facilitating and promoting the inbound transference of skills and technology by residents of other countries,...

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Spanish Supreme Court Confirms Discrimination Against Foreign Hedge Funds

The Spanish Supreme Court, being the highest court of appeals, laid down two separate judgements regarding the withholding tax rate which is currently levied on foreign hedge funds, also referred to as alternative investment funds (“AIFs”) or non-harmonised funds, which are resident in the European Union. The Court confirmed that the disparity between the withholding tax rate levied on non-Spanish hedge funds and that levied on comparable Spanish hedge funds is contrary to the Free Movement of Capital in Article 63 of the Treaty on the Functioning of the European Union (TFEU). These judgements are a welcome development not only due to the favourable ruling for foreign hedge funds who own Spanish listed shares, but also because of the Court’s...

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Spanish National Court Reaffirms US RIC’s Entitlement to Withholding Tax Refunds Under EU Law Precedent

On 7 March 2023, it was once again confirmed by the Spanish National Court (SAN 773/2023)  that a United States (US) Regulated Investment Company (“RIC”) qualifies for the reduced Spanish withholding tax rate of 1% applicable to Spanish and EU/EEA undertakings for collective investments in transferable securities (“UCITS”) investment funds. What makes this ruling noteworthy is that the Court clarified that it is irrelevant under EU law whether a US fund or its investors can claim a tax credit of the Spanish withholding tax in the US. The case addressed the so-called “neutralisation argument” which has often been cited by the Spanish Tax Authorities (“STA”) as a basis for rejecting claims.  The recent ruling further echoes the decision of the...

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Preparing for the German Tax Authority Electronic Filing Portal: Implications for Custodian Banks and End-Investors

The German Tax Authorities (GTA; Bundeszentralamt für Steuern (BZSt)) have confirmed that their new electronic filing procedure will become mandatory for exemption certificate applications and withholding tax (WHT) reclaims as of 1 July 2023. This new electronic filing procedure (BZSt OnlinePortal (BOP)) will replace the previous process of submitting hardcopy paper-based applications. Although the introduction of the BOP was effective as of 1 January 2023, and mandatory as of July 2023, the GTA confirmed that hard-paper reclaim applications are still permissible until 30 September 2023, for expiring reclaims only. The BOP must therefore be used from the respective effective dates for any investor (or their representative) submitting tax reclaim applications to the GTA seeking tax relief on German income, irrespective...

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Levelling the Playing Field: CJEU Ruling Ends Discriminatory Tax Treatment of Foreign Property Funds in Germany

In the judgment of L Fund v. Germany, C-537/20 (CJEU 2023) on 27 April 2023, the Court of Justice of the European Union (CJEU) determined that Germany's tax legislation contravened Article 63 of the Treaty on the Functioning of the European Union (TFEU), which safeguards the free movement of capital. The court found that Germany's corporate tax exemption for domestic specialized property funds, while excluding foreign specialized property funds from the same benefit, resulted in a less favorable tax treatment for the latter group when they received income from properties in Germany. The case primarily concerns property funds, yet the ruling carries substantial implications for foreign investment funds that suffered German withholding tax prior to 1 January 2018. This is...

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German Supreme Court Denies Canadian Pension Fund's Appeal in ECJ Reclaim Case

German Supreme Court Denies Canadian Pension Fund’s Appeal in ECJ Reclaim Case

The Supreme Court of Germany issued a ruling on December 1st, 2022 concerning the European Court of Justice (ECJ) reclaim submitted by the College Pension Plan of British Columbia, a Canadian pension fund. The Supreme Court dismissed the appeal against the rejection of the ECJ reclaim by the Federal Tax Court of Munich in December 2021, which meant that the German withholding taxes levied on dividends could not be refunded. The Supreme Court justified its decision by asserting that the Federal Tax Court of Munich had fulfilled the requirements outlined by the ECJ. This legal dispute has its origins in the ECJ case of November 13th, 2019 (C-641/17), in which the Court of Justice of the European Union (CJEU) determined...

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New Austrian Rules for Tax Relief Eligibility following Unprecedented Administrative Court Decision: Impact on Financial Intermediaries and Shareholders

Following the Austrian Supreme Administrative Court “Verwaltungsgerichtshof – (VwGH)” decision on 28 June 2022 (Ro 2022/13/0002) concerning short-term Cum-Ex-Trades and withholding tax refunds, the Austrian Ministry of Finance (MoF) published a new information letter on the 15 November 2022 with regards to the attribution of dividends for income and tax relief eligibility purposes. The newly published guidelines replace the previous guidelines, published in 2014, regarding the eligibility to dividends and withholding tax relief entitlement for non-resident shareholders. In accordance with established stock exchange practice, shares are traded with dividend rights (cum-dividend) up until a specific key date, known as ex-date. Shares traded on or after this date no longer transfer rights to an upcoming dividend (ex-dividend trading). The ex-date is...

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Introducing WTax’s Custodian Tax Product Offering

For the last two decades, WTax has been at the forefront of providing end-investors with access to tax technical expertise and expedited reclaim processing through proprietary reclaim technology, ensuring any eligible tax yield is obtained and the associated administrative burden of the ever-evolving and complex withholding tax reclaim process is alleviated. Throughout this time, WTax has built strong working relationships and operational workflows with foreign tax authorities and over 150 custodians, brokers and International Central Securities Depositories (ICSDs) globally. WTax’s global expansion has translated into a thorough understanding of the custody tax process and an acute awareness of the challenges custodians often face when it comes to delivering agile tax service solutions within the heightened sensitivity of time-to-market delivery. The...

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Taxation changes to Spanish SICAVs

On July 9, 2021, the Spanish Official Gazette (Boletín Oficial del Estado – BOE) published a major change in Spanish law 11/2021 in relation to measures to prevent and combat tax fraud. The law transposes Council Directive (EU) 2016/1164, laying down rules against tax avoidance practices that directly affect the functioning of the internal market, amending various tax rules and matters concerning gambling regulation. The law entails a substantial change for Spanish open-ended investment companies with variable capital (SICAVs). Under current Spanish tax legislation, certain Spanish Undertakings for Collective Investments in Transferable Securities (UCITS) (SICAVs included) are taxed at a reduced Corporate Income Tax (CIT) rate of 1% in accordance with article 29.4.a) of the Spanish law 27/2014, of November...

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The Future of Taxation for Financial Services, Tax Authorities and End Investors

During the course of October, WTax attended two conferences hosted by Hansuke Consulting: Operational Taxes for Investment Firms, and the Financial Services Tax Conference: Taxation in Times of Crisis. Two significant themes emerged from the insightful discussions held, namely, the evolution of the taxation landscape, and trust in the end-to-end taxation system. With gratitude to Hansuke and the expert panellists who spoke, WTax is echoing our taxation-professional peers’ calls to lean into technology developments to effectively manage an increasingly globalised tax landscape. The industry is required to embed compliance within tax systems, become more agile, mitigate risk, and restore trust. If we were to summarise the key learnings in two words, “Tax Integrity” would be an accurate fit. We have...

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Global ESG Investing: How to increase your investment’s impact

Overview - How to Make the Most of Your Environmental, Social and Corporate Governance (ESG) Investments Environmental, Social and Corporate Governance (ESG) focused investments have grown by more than 750% since they were first mentioned in the 2006 United Nation’s Principles for Responsible Investment (PRI) report. With the considerable growth in ESG investing, ESG factors are being incorporated within the financial evaluation of companies. At the time of writing, there are 4996 signatories, composed of asset owners, asset managers and service providers who represent over $121 trillion in assets under management per the latest PRI report The consideration of ESG factors is of increasing importance for investors and has become a critical component of investment decision-making in recent years. The...

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Good News for Luxembourg Investment Funds Under New Luxembourg-UK Tax Treaty

On 7 June 2022, Luxembourg and the United Kingdom (UK) signed a new double tax treaty (“DTT”) and a supplementary Protocol that will replace the previous DTT signed in 1967. The new treaty conforms with the latest international tax standards agreed upon by the OECD and includes positive changes that will be beneficial for Luxembourg’s collective investment vehicles (“CIVs”) and pension funds. The treaty has not yet entered into force and is still to be ratified by Luxembourg and the UK. The earliest date that the below provisions in respect of withholding taxes are expected to become effective is the 1st of January 2023. The new DTT could apply as soon as 2023 depending on the efficiency of the Luxembourg and...

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Italian Supreme Court Upholds CJEU Precedent on Dividend Withholding Tax for Foreign Funds

The Italian Supreme Court (Corte di Cassazione), hereafter the “Court”, issued six judgements (Nos. 21454, 21475, 21479, 21480, 21481 and 21482) on 6 July 2022 relating to United States (US) open-ended investment funds and another judgement (No. 21598) on 7 July 2022 relating to a German open-ended investment fund. The Court established that withholding taxes levied on dividends paid by Italian issuers to foreign investment funds, as far as comparable Italian investment funds were exempt from or subject to a lower rate of withholding tax, is incompatible with the principle of free movement of capital as set out in Article 63 of the Treaty on the Functioning of the European Union (TFEU). These rulings are significant as they collectively constitute the...

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Finnish Update: CJEU Rules Finnish Tax Exemption for Contractual Investment Funds is Contrary to EU Law

In the case A SCPI v. Finland (C-342/20), a decision on 7 April 2022 by the Court of Justice of the European Union (CJEU) found that Finnish legislation, which exempted contractual investment funds from paying income tax, while comparable corporate foreign investment funds were subject to income tax, is contrary to EU Law. The Applicant’s Case against Finland’s Tax Exemption Regime The tax exemption under question in case C-342/20 is contained in §20a of the Finnish Income Tax Act. The tax exemption, which came into effect on 1 January 2020, exempts foreign contractual based investment funds from Finnish income tax, while investment funds established under a different (corporate) legal form are not privy to this exemption. Although the case specifically...

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Italian Tax Court Judgement Regarding Luxembourg SICAV Spells Good News for Global Investors with Italian Investments

The Provincial Tax Court of Pescara issued a judgement on 7 February 2022 (Decision No. 49). The judgement established that a Luxembourg SICAV (Société d'investissement à Capital Variable) in accordance with the Directive 2009/65/EC of the European Parliament (“UCITS Directive”) is eligible for a full refund of Italian withholding taxes levied on dividends. The judgement’s determining factor is that the Luxembourg SICAV is deemed comparable to an Italian investment fund. This is a significant favourable ruling for foreign investment funds with Italian investments. The ruling is also consistent with the legal precedent established by the Court of Justice of the European Union (CJEU) upholding the free movement of capital. Facts and Circumstances Leading to the Appeal The most recent case...

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Foreign Sourced Income Tax Changes in Malaysia — Now Taxable With Limited Relief Until 2026

Historic Treatment of Foreign Sourced Income From 2004 until 1 January 2022, Foreign Sourced Income (“FSI”) received in Malaysia by Malaysian taxpayers was exempt from income tax under Paragraph 28, Schedule 6 of the Income Tax Act, 1967, apart from a resident company carrying on the business of banking, insurance or sea or air transport. The Changes in Tax Treatment of FSI in Malaysia The government announced during the 2022 budget that effective from 1 January 2022, the tax exemption which was available to Malaysian tax residents on income received in Malaysia from FSI, will be removed. The Ministry of Finance later announced that a tax exemption will be provided to the below groups of tax residents on FSI received...

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Opinion: Advocate General of the CJEU Finds Finnish Tax Exemption for Contractual Investment Funds Contrary to EU Law

CJEU Advocate General Issues Opinion on Finnish Tax Exemption Relating to Investment Funds On 6 October 2021, the Advocate General of the Court of Justice of the European Union (CJEU) issued an opinion on case C-342/20 Veronsaajien oikeudenvalvontayksikkö (Exonération des fonds d’investissement contractuels) pertaining to Finland’s tax-exemption regime for contractual investment funds. The Advocate General concluded that this regime contains a restriction on the free movement of capital. The opinion of the Advocate General follows an earlier judgment by the CJEU on 9 April 2021 in case C-480/19 which held that the income received from a foreign corporate-form fund should not be treated differently from the income received from a Finnish contractual-based fund for Finnish tax purposes because the funds...

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The Solution to Successful WHT Recovery for Individuals

WHT can be as high as 35% when investing internationally, which results in a material impact on investment performance. In some instances, WHT recovery can increase dividend yields by up to 50 basis points. To compile and submit a successful WHT claim, information and documentation need to be sourced from the underlying investor, financial intermediaries, custodians and sub-custodians. In addition to sourcing this information, challenges such as completing onerous claim forms, dealing with language barriers, navigating points of contact at foreign tax offices and collating supporting documentation further complicates the process. Once claims are successful, there are further hurdles to address, such as dealing with queries from tax offices as well as tracking and accounting for recoveries when repayment dates...

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Seeking True North: How to Manage The Challenges of International Withholding Tax as an Investor

Cross-border taxation is complicated at the best of times. However, harnessing the refund opportunities embodied in taxation legislation can be even more daunting for any investment firm’s finance team. Julia Bricker, withholding tax expert and Managing Director of WTax North America, states that investors are often not recovering all available withholding tax. If you are looking for a simple route when it comes to securing a successful withholding tax reclaim, then you should look to the experts to handle the administrative burden. Should you wish to confront this task yourself, success will depend on your depth of knowledge and endurance as the process has many steps and requires persistence. “A True North” to Successful Refunds Unfortunately, there is no fast...

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Denmark Denies Dividend Withholding Tax Refunds to Foreign Investment Funds Pursuant to Recent Supreme Court Ruling

Overview and Case Outcome The much-anticipated Danish Supreme Court judgement in respect of the Fidelity Funds Case (Case 59/2019) was finally handed down on 24 June 2021.  The main question posed in the Fidelity Funds case was whether it is in line with EU law that foreign investment funds suffer withholding tax on dividends distributed from Danish shares, while Danish resident investment funds which have elected to be taxed under section 16C of the Tax Assessment Act (TAA) (often referred to as “investment funds with minimum taxation”) are exempt from tax on Danish-sourced dividends. The Supreme Court judgement dealt a blow to foreign investment funds which were hoping for a favourable outcome. The ruling that foreign investment funds investing in...

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Contractual Finnish UCITS Ruled Comparable to Corporate Luxembourg SICAV by CJEU

A judgement rendered by the Court of Justice in the European Union (CJEU) on 29 April 2021 in case C-480/19 - Veronsaajien oikeudenvalvontayksikkö (Revenus versés par des OPCVM) (“C-480/19”), could help non-Finnish corporate form investment funds (such as Luxembourg SICAVs) justify their eligibility for preferential Finnish withholding tax treatment going forward. Unlisted Luxembourg SICAVs have suffered unfavourable withholding taxes on Finnish sourced dividends for many years, but a new CJEU ruling could be the start of full withholding tax recovery for corporate-form investment funds. Disparate Treatment of Foreign and Domestic Entities Under Finnish Tax Law According to Finnish domestic legislation (Section 3 of the Act on the Taxation of Non-residents' Income) dividends paid by a Finnish issuer to a foreign...

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Foreign Withholding Tax Reporting: Why Access, Transparency and Expertise are Key

Access to WHT Reclaim Reporting As an investor, the importance of optimizing foreign withholding tax (WHT) recoveries cannot be overstated. Reducing tax drag has an appreciable effect on investment performance, even more so if the reclaimed funds are reinvested over an extended period.  However, achieving such optimization is a rather complex task that requires sophisticated analytics and technical knowledge. The basis for an accurate analysis of an investor’s WHT position and its overall impact on investment yield is premised on access to data, data transparency and technical expertise. As an asset manager or an investor, a plethora of reporting is readily available. However, whilst it is relatively easy to obtain data on withholding taxes, it’s not so simple to evaluate....

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The Only Constant is Change: The Latest Trends in WHT and WHT Recovery

It’s often said that the only constant in life is change, and that the only certainties are death and taxes. Withholding tax on investment income is undoubtedly one of these certainties, but the industry is on the cusp of momentous shifts in the way taxes are levied, recovered and tracked. Withholding tax contributes considerable revenues to investment jurisdictions around the world but the landscape is changing. The complexity and rate of change is making it increasingly difficult for global investors to keep track of the tax consequences of their investment decisions while also minimising their withholding tax leakage. Tax Authorities Continue to Raise the Burden of Proof The last 20 years have been filled with scandals against foreign tax authorities....

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What You Need to Know About Proposed Changes to Danish Dividend Withholding Tax Law

Recently proposed amendments to Denmark’s tax laws are expected to rectify the discriminatory withholding tax treatment of certain comparable Danish and foreign entities.  On 14 April 2021, the Danish Government presented a bill proposal to Parliament suggesting changes to Danish tax law to align the taxation of dividends of non-residents with EU law. The bill is largely as a result of the decision of the Court of Justice of the European Union (CJEU) in case C- 480/16, Fidelity Funds. Under the bill (Bill No. L 211), the Danish tax treatment of certain domestic and foreign entities is expected to become more equitable, which will positively impact non-resident charities which hold Danish shares. How Danish Tax Law Currently Treats Comparable Foreign...

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Everything You Need to Know About Double Tax Treaty Withholding Tax (WHT)

Understanding the Basics of Double Taxation on Investment Income Put simply, double taxation occurs when two countries tax the same income.  For example, in the context of international equity investments, when a domestic resident derives dividend income from a foreign investment country, the foreign tax authorities tax the income, based on the fact that it is considered to be taxable in their jurisdiction. In addition, the domestic resident is usually also liable to pay tax on the dividends in their domestic country as residents are generally taxed on their worldwide earnings. Hence, the dividend income may be taxed twice. Double taxation agreements (otherwise referred to as double taxation treaties) have been enacted between countries to, among other functions, eliminate or...

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Is Hong Kong the World’s Next Fund Hub?

In February 2021, Hong Kong’s Financial Services and The Treasury Bureau (FSTB) issued a proposal for easier migration of foreign funds to Hong Kong, in order to encourage more locally domiciled funds and thereby boost the investment market in Hong Kong. Re-domiciliation is not a new industry concept; many major fund jurisdictions have introduced necessary measures to ensure that this is an easy and seamless process for market players. Jersey, the British Virgin Islands, Luxembourg, Ireland and more recently Singapore, with their Variable Capital Company (VCC) structure introduced in early 2020, are of a few notable jurisdictions that have created a more conducive and attractive environment for funds to re-domicile. Hong Kong’s Case for Re-Domiciliation Hong Kong, a major regional...

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How to Capitalise on EU Law-Based Withholding Tax Reclaims

In the world of cross-border tax, it has been challenging for the European Commission to harmonise the different regulations and laws that govern EU-law based withholding tax reclaims. This adds complexity for institutional investment firms which need to navigate the withholding tax reclaim opportunities available to them through double taxation treaty agreements and previous tax discrimination case law commonly known as European Court of Justice claims. EU law-based withholding tax reclaims via double taxation agreements  The most common method of reclaiming foreign withholding taxes from Europe is by applying double taxation agreements. These agreements exist between the country of residence of the beneficiary of the income and the investment country.  A withholding tax refund opportunity exists when there is a...

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

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...

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The Benefits of Outsourcing the Withholding Tax Reclaim Function

The asset management industry was in a state of flux, even before Covid-19, with an increased emphasis on the reduction of costs and the maximisation of returns. Meeting and even exceeding the demands of clients has become the norm and clients expect their investment managers to be at the forefront of the latest technologies and solutions. It is therefore imperative that the investment community stay abreast of and apply the various technological developments in the fields of process automation and artificial intelligence. The benefits of non-core outsourcing Historically, asset managers have embraced outsourcing, since it became apparent that there is inherent value in focusing solely on the primary or core business. This in turn resulted in the creation of custodians,...

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Withholding Tax on Separately Managed Accounts – An Overlooked Opportunity?

Withholding Tax on Separately Managed Accounts – An Overlooked Opportunity?

Introduction to SMAs Separately Managed Accounts (SMAs) are portfolios of individual assets managed by a professional money manager on behalf of an investor. Instead of investing in traditional mutual funds or Exchange Traded Funds (ETFs), where securities are pooled or track an index, SMAs allow investors to own the assets directly. SMAs have traditionally been reserved for high net worth individuals or institutional investors as the account minimums usually range between $100k-$250k or higher. Not only does this allow investors to take advantage of their personal tax situations but it adds a degree of flexibility to the investments they hold. Instead of following a model portfolio based on a specific investment strategy, the investor can customise their portfolio to exclude...

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France: Comparability Criteria for WHT Exemptions of Collective Investment Funds

A recent update published by the French tax authorities (FTA) on the 12th of August 2020 offers revised guidelines as to the requirements non-European Union (EU) collective investment funds must meet, in order to be entitled to withholding tax exemptions on French source dividends, pursuant to Article 119 bis, 2 of the French Tax Code. Historical tax treatment of non-EU collective investment funds In keeping with the mandate of the Treaty on the Functioning of the European Union (specifically Articles 63 to 65), EU member states are prohibited from treating comparable Collective Investment Vehicles (CIVs) differently, based solely on where they are resident. In order to reflect this, French tax law has, since 2012, allowed for certain foreign CIVs to...

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US Withholding Tax Refunds from Canadian Pooled Fund Investments

By guest author Max Reed. Max is a cross-border tax lawyer and the founding partner of Polaris Tax Council Canada. WTax partners with Polaris Tax Council in recovering US withholding tax for investors of Canadian pooled funds. Many Canadian tax-exempt investors invest in US equities through a standard Canadian pooled fund. This means that they pay the 15% US dividend withholding tax on US equity investments. This can be refunded. To illustrate, assume that a Canadian charity invests in Apple stock through a standard Canadian pooled fund. When the dividend is issued by Apple to the pooled fund, the 15% US dividend withholding tax is collected by the pooled fund and sent to the US Internal Revenue Service (“IRS”). However,...

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UPDATE: Dividend Withholding Tax: What Happens Post the Brexit Transition Period?

Earlier this year, WTax outlined some of the withholding tax implications of Brexit (click here). This article explores the latest developments, on how the UK’s official withdrawal from the EU will affect the withholding taxes levied on UK-domiciled funds, once the transitional period ends at the end of 2020. This is in light of the European Commission’s announcement on the 7th of July 2020, in which it was confirmed and stakeholders were informed that as from the end of the transition period (31 December 2020), the EU rules in the field of asset management — in particular Directive 2009/65/EC on Undertakings for Collective Investment in Transferable Securities (“UCITS Directive”) and Directive 2011/61/EU on Alternative Investment Fund Managers (“AIFM Directive”) —...

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Know More About International Withholding Tax Recovery

There is a great deal to be gained from understanding the inner workings of international withholding tax (WHT) recovery – especially when it comes to dividend income. Institutional investment firms stand to increase their clients’ ROI on foreign investments by up to 0.5% by simply unlocking the various dividend WHT reclaim methodologies. If you want to know more about international withholding tax recovery, this article will provide a good foundation. What is international withholding tax? Most tax authorities see an event that generates income as an opportunity to levy a tax on that income. International withholding tax is incurred when an investor domiciled in one country receives income from dividends or interest paid by an entity domiciled in another (foreign)...

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Withholding Tax Refunds: Unlocking 0.5% Increase in Fund Performance

While global markets continue to recover from the COVID-19 pandemic and uncertainty still lingers around the immediate future of dividends, investment firms should be looking for sound and innovative ways to boost investment performance.  One such avenue should be unlocking withholding tax (WHT) refunds – an overlooked cash injection that in the past may have been considered immaterial. However, during challenging times, a 0.5% increase in investment performance can be a real silver lining and a way to reduce the effects of the current downturn.   How can withholding tax recovery contribute to investment performance? Institutional investors are eligible to recover some or all of the foreign tax suffered on foreign dividend and interest income. They can recoup as much as...

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To Accrue or Not to Accrue — That is the Question

To Accrue or Not to Accrue — That is the Question

Should you be accruing for withholding tax recoveries on foreign investment income or should these recoveries should rather be accounted for on a cash basis? In the accounting world, the eternal goal is to ensure that financial records accurately reflect the financial position of a particular entity at a point in time. This generally means accounting for transactions when they occur as opposed to when the cash implications are felt. As a global withholding tax recovery specialist, WTax is constantly asked by its clients whether they should be accruing for withholding tax recoveries on foreign investment income or whether these recoveries should rather be accounted for on a cash basis.  In most markets, investment income attracts withholding tax for foreign...

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The Race to Withholding Tax Recovery – Statutes of Limitations

The Race to Withholding Tax Recovery – Statutes of Limitations

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...

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Tax Exemption for CITs

Collective Investment Trusts (CITs) or group trusts as they are commonly referred to, are addressed in Internal Revenue Service (IRS) Revenue Ruling 81-100 (as modified by Revenue Ruling 2004-67, Revenue Ruling 2011-1 and Revenue Ruling 2014-24). The IRS provided special dispensation for CITs in the form of exemption from income tax to ensure that these structures can be used to pool assets of various qualified retirement plans, individual retirement accounts and other similar plans without creating unnecessary income tax obligations. The goal is to ensure that pension-related money and the returns earned through investing that money, are not eroded through income taxes. CITs have become increasingly popular to improve efficiencies both operationally and from a cost perspective, when US retirement...

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Cayman LLCs – Unlocking Withholding Tax Recoveries through a Unique Investment Vehicle

Cayman LLCs – Unlocking Withholding Tax Recoveries through a Unique Investment Vehicle

For many years, the US investment vehicle landscape has had a strong affinity to Cayman domiciled structures. Immense benefits can be achieved for US tax-exempt investors as well as non-US investors in US structures through the use of offshore, Cayman Islands domiciled feeder funds. However, in setting up these structures, withholding tax (and the ability to reclaim taxes incurred on foreign investment income) is often overlooked. As is common for most tax havens, the Cayman Islands doesn’t have a network of double taxation agreements which can be utilized to minimize taxes incurred on foreign dividend and interest earnings. Traditionally, many Cayman-domiciled feeder funds were established as Cayman limited companies. These Ltd. entities were non-transparent in nature (unless they ‘checked the...

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Companies Turn to Withholding Tax Recovery Opportunities as Dividend Payouts Plummet

2020 has certainly been a challenging year and very few corporates around the world will be unaffected by the COVID-19 pandemic. It’s no surprise that dividend payouts have decreased drastically and in this uncertain time, it’s difficult to predict how long this downturn will last. Media sources such as Forbes and CNBC commented on the significant decreases in dividend payouts over the last few months, as businesses take mitigating steps against the effects of the pandemic Janus Henderson's latest Global Dividend Index, published in May, warned that the impact of the pandemic for the rest of the year "will be significant" with dividend cuts already announced or likely impending and set to wipe at least 15%, or $213bn, off this...

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Withholding Tax: The Quintessential Guide to European Court of Justice (ECJ) Claims

What is the European Court of Justice in the context of Withholding Taxes? All countries that form part of the now 27-Member States of the European Union (EU) are subject to the laws and regulations set by the EU. The Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU) are the two main sources of EU law. The role of the European Court of Justice is to interpret EU law and ensure it is applied uniformly in all 27 EU countries. To this end, the Court confirms the legality of the actions of the EU institutions, ensures the Member States comply with their obligations and interprets EU law at the request of national...

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Swedish Withholding Tax Case Win For US Investment Fund Spells Good News for Other Foreign Investors

Last month, the Swedish Supreme Administrative Court issued a milestone judgement stating that Swedish tax authorities should not deny withholding tax refunds (that were requested based on EU Law) to a US investment fund, based on the Fund’s legal structure.   This is good news for the international investment community seeking withholding tax refunds from Sweden and whose applications may have been rejected over the past 3 years. The Supreme Court’s decision confirms that the mere fact that a foreign investment fund has legal personality doesn’t mean that the fund is not comparable to a Swedish investment fund. At the very least, it means that non-UCITS investment funds that were considered to be separate legal entities, such as U.S. RICs (Regulated...

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WHT Refund Granted to Spanish Pension Fund by Italian Supreme Court

In several judgements regarding withholding taxes on Italian investment income, it came as a surprise to many when Italian tax courts found that the dividend withholding tax (WHT) regime applicable to non-resident recipients may be seen to be discriminatory in certain cases and thus in violation of the principle of the free movement of capital as evidenced by CJEU case-law. This line of reasoning has recently been upheld by the Italian Supreme Court (Corte di Cassazione) in their judgement (No. 1967/2020 published on 29 January 2020) where it ruled that a Spanish pension fund should be entitled to a refund of the withholding tax on dividend payments from Italian resident companies. Background to Italian Supreme Court Judgement No.1967/2020 The Supreme...

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Withholding Tax: What Happens Post the Brexit Transition Period?

The 31st of January has come and gone and the UK has officially left the European Union. As the sign read outside the European parliament; “It’s not goodbye, it’s au revoir”. But let’s talk about goodbye. There is still a lot of uncertainty around the implications that Brexit will have on international withholding taxes. For now, these questions may be on the backburner while the UK enjoys a one-year transition period, allowing it to have access to the same EU-member rights that it had pre-Brexit. However, come the 1st of January 2021, foreign investors will need to be prepared for any withholding tax legislation changes that may occur. There are two main areas of withholding taxation that are likely to...

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Pension Funds, Are You Claiming the Withholding Tax that is Rightfully Yours?

Pension funds are often entitled to reclaim 100% of their withholding tax (WHT) on foreign investment income. But do all Pension Funds know this is the case? Are you claiming the full amount that is owed to you? With over $200bn in taxes withheld from pension funds alone globally, you should ask, how much of it belongs to you.  The Opportunities available to Tax-exempt Investors An opportunistic environment exists for pension funds seeking higher-yielding tax refunds. This is because pension funds are often entitled to reclaim a higher percentage (when compared with mutual funds) of the tax withheld on income from foreign securities and fixed income instruments. Furthermore, pensions funds should explore this tax reclaim opportunity because every unrecovered dollar...

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Finland Taxation Changes Spell Big Opportunities for Foreign Investors in 2020

Foreign investors should take advantage of the 2019-passed amendments to Finnish legislation related to the taxation of investment funds. These amendments came into force on January 1st 2020 and are aimed at making Finland a more attractive investment market as well as allowing Finnish investment management firms to explore international investment opportunities without added taxation costs.  The changes to the legislation clarify the definitions of investment funds and special investment funds and outline the requirements for tax exemption for these entities.  The amendments clarify the scope of the law, reduces the administrative burden on the management company and removes ambiguities regarding current regulation. In addition, the proposal implements nationally the money market regulation, the regulation on European venture capital funds...

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The W-8BEN-E Form: Using it for Withholding Tax Benefits

For many global investment management companies, the completion of the W-8BEN-E form is complicated. Ultimately, the lack of understanding over its completion infringes on many investment firms’ ability to receive US dividend or interest payments at the treaty rate. This is especially true for those investment firms in developing countries. This guide explains the purpose of the IRS’s W-8BEN-E form within the context of foreign withholding tax and what role it plays within the US’s FATCA process. What is the W-8BEN-E Form? The W-8BEN-E form is a tax document that allows foreign companies to be exempt from the 30% US withholding tax on US source income. Whereas its sister document the W-8BEN form serves simply to confirm that you’re a...

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Ireland: Withholding Tax Rates Hiked up by 5% in 2020

Investors in Ireland must prepare for increased withholding tax rates in 2020 as Ireland increases the withholding tax rate in an effort to create a revenue boost to their exchequer. The dividend withholding tax percentage increased from the previous 20% to 25% and has been effective since 1 January 2020. The Irish Times reported that the move will come as a surprise to tax practitioners as it was not speculated as likely in advance of the budget and appears to be one of many revenue raising measures for 2020 which emerged late in negotiations. Foreign legal and natural persons with investments in Ireland will now suffer tax at the higher rate of 25%. Ultimately, should a company have existing procedures...

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Foreign Investments: The Challenges of Withholding Tax

2020 looks set to be the year where investors secure profitable growth by venturing into new demographic segments and geographies, leaving their comfort zones to perform new activities and harnessing investment technology to unlock agility and value (source). But despite technological uptake and a more explorative approach to investing, most investors are still completely in the dark when it comes to the complex maze that is foreign dividend withholding tax benefits - An often overlooked aspect of profit contribution despite it adding considerably to ROI. In this article we discuss the challenges of withholding tax refunds, why most investors are not maximising  these refund opportunities and how to turn what most consider sunk tax leakage into significant improvements in fund...

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DTT Withholding Tax Reclaim. Made Easy.

Introduction This guide to Double taxation Agreements and the withholding tax benefits, is intended to provide essential information of Double Taxation Agreements within the context of dividend withholding tax recovery. Why Foreign Investors Need to Understand International Double Taxation Treaties It has become a necessity for any foreign investor to understand the intricacies of international double taxation agreements. This is because as an investor, you will not be able to take full advantage of the benefits and rebates offered through these double tax treaty agreements if you don’t have a firm grasp of these laws. Furthermore, the benefits through double taxation agreement claims can often add considerable value to fund performance. Above all, in times of recession and unpredictable returns,...

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Withholding tax & the free movement of capital in the EU: what investors needs to know

As a political and economic union of sovereign states, understanding the regulatory framework of the European Union presents a unique challenge for investors. The mechanics of claiming withholding tax in the EU are a case in point. Any investor seeking to reclaim dividend withholding tax needs to take into account the relevant national legislation, as well as EU regulations, and then to consider how these may affect each other. That’s why we are so focused on research at WTax, and why we have local experts in place wherever a withholding tax claims needs to be made. We can get some insight into the complexities of reclaiming withholding tax in the EU by taking a step back and considering some of...

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Withholding tax claims for international investors in Europe: The case of Emerging Markets Series of DFA Investment Trust Company v Dyrektor Izby Skarbowej w Bydgoszczy

The free movement of capital is woven into the framework of the European Union. Article 63 of the Treaty on the Functioning of the European Union (TFEU) states that “all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited”. What are the limits on the prescribed free movement on capital? And how far does the principle of non-differentiation extend to investors based outside of the EU? The question was tested in Emerging Markets Series of DFA Investment Trust Company v Dyrektor Izby Skarbowej w Bydgoszczy (Case C-190/12), in which an investment fund based in the United States brought a case against the tax authority of Bydgoszcz, Poland. Impeding international investment?...

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Fokus Bank ASA v The Norwegian State: A test case for the single market

The European Single Market was founded on the principle of guaranteeing the “four freedoms” of open economies: free movement of capital, services, goods and labour between member states. The commitment to a common market with parity between states has clear implications for member-state tax fiscal policy, and for tax policy in particular. Free movement of capital is foundational to the agreement. Article 40 of the Agreement on the European Area is clear: within the framework of the agreement “there shall be no restrictions between the Contracting Parties on the movement of capital belonging to persons resident in EC Member States or EFTA States and no discrimination based on the nationality or on the place of residence of the parties or...

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