Withholding Tax Reclaims: time to overcome the burdensome processes?

The financial industry is currently facing many very complex, time-consuming, and paper-driven withholding tax reclaims processes. Could we turn these challenges into opportunities in the digital era?

In today's increasingly complex tax environment, investors in the asset management and insurance industries are facing complex, time-consuming, and paper-driven withholding tax reclaim processes. The question that arises is: how can today’s technology help overcome what has historically been a big burden for the industry?

Background

For several years now, asset management groups, banks, investment funds and insurance companies have been filing reclaims for the refund of unduly levied withholding tax on dividend and/or interest payments. These reclaims are based on three types of legislation:

• The domestic legislation of the investment jurisdiction
• The double tax treaty between two jurisdictions
• The “free movement of capital” principle established by the Treaty on the Functioning of the European Union

In most countries, withholding tax reclaims are lodged on an annual calendar-year basis and need to be constantly monitored so that opportunities to file claims are not missed. To avoid losing out on any reclaim opportunities, timely and prompt action is required. This involves many operational and organizational as well as resource challenges.

Today’s challenges

Applying for either the relief at source or tax refunds requires information and documentation required by every jurisdiction of investment to be separately gathered, prepared and filed. The greatest challenge is to collect this information, keep it up to date and identify changes in both domestic legislation as well as the respective tax treaties that could affect the right to claim a refund. Thus, an access to local experts with deep domain expertise is key in this process.

The calculation of a potential to reclaim per beneficiary is another challenge that financial sector professionals are facing today, as a complex Cost/Benefit analysis is required. To rapidly determine relief or reclaim opportunities, it is therefore essential to have centralized and automated solutions to undertake a Cost/Benefit analysis.

Highly secured technology-based tools that guarantee the security of data is another requirement that is essential.

Furthermore, the overall tax reclaim process involves a complex procedure with excessive documentation requirements and can be extremely time-consuming, as each jurisdiction has its own procedures, processes, specific requests concerning documentation, information flows. In addition, the local tax authorities have various ways of dealing with these applications. This complex process requires broad and deep technical expertise and a well-structured and managed process.

Ways to overcome the challenges

Although the financial industry is currently facing all these challenges, there are opportunities to address these challenges. A deep understanding of the organizational procedure, efficient management of tax information and technology-advanced solutions are some of the key means to successfully navigate these challenges.

EY’s operational tax model offers a market-leading, technology solution which supports clients in performing these services efficiently and effectively.

Due to our extensive experience and extremely well-connected global network we assist clients in filing reclaims based on the Court of Justice of the European Union jurisprudence (“EU reclaims”), Double Tax Treaty (“DTT”) reclaims, National Law reclaims (“Domestic”), relief at source (RaS”) as well as with the monitoring of changes in withholding taxes.

Our team stands for responsiveness and transparency, aiming to work with our clients in a coordinated and collaborative way. We stand for the highest quality, efficiency, and outstanding customer experience in the delivery of our services.

Our clients appreciate the benefits of a continuing investment program in our technology and innovation to help drive efficiency, oversight and control and risk management.

Just reach out to us – we remain at your disposal and do not miss our dedicated webcast to find out further information on operational tax and withholding tax reclaims!