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The world of investment income withholding tax (WHT) relief has always been riddled with mounds of paperwork, tight deadlines, technical nuances, and endless complexity. However, global investors are becoming more educated and committed to minimising WHT leakage and the demand for change is very real.
The challenges surrounding withholding tax relief
WHT relief is a balancing act between various stakeholders. On the one hand, tax authorities continue to raise the burden of proof for ultimate beneficial ownership following years of scandal, tax evasion and fraudulent WHT claims, in order to ensure that only valid relief is approved. On the other hand, financial intermediaries must keep abreast of ever-evolving document requirements to support their clients in securing relief, while weighing up the risks associated with assessing relief entitlement and determining the classification of investors in foreign jurisdictions. Inbetween, global investors need to manage deadlines, technical complexity, and voluminous paperwork to reduce WHT expense and maximise recoveries.
How withholding tax processes are improving
Stakeholders continue to work together to harmonise the ecosystem and simplify relief processes. The goal is to encourage global investment and break down the barriers which WHT may cause for end-investors.
Tax authorities are digitising processes which is evident in greater acceptance and adoption of electronic documents to replace previously manual, paper-based processes. Furthermore, tax authorities are shifting towards electronic portals to simplify claims for the refund of excess WHT and shorten the processing time of these claims.
Another sign of progress is the EU Commission's latest WHT initiative which aims to ?introduce a common EU-wide system for withholding tax on dividend or interest payments?. This suggests a real commitment to progress and harmonisation in a traditionally fragmented industry.
The OECD's Treaty Relief and Compliance Enhancement (?TRACE?) system, which was first implemented in Finland on 1 January 2021, aims to simplify the process for correct withholding tax treatment by ensuring tax is charged at the correct rate at the time of dividend payment. The introduction of this system is another step towards simplified processes; however, the outcome and additional countries? adoption remains to be seen.
The future of the industry is showing signs of significant improvement and a shift towards a more unified global approach where global investors are less hindered by the burden of WHT compliance and relief procedures.
As an external service provider to the industry, WTax works with global investors to help simplify the often daunting processes for WHT relief.
Julia Bricker, Managing Director, North America, WTax