The world of investment income withholding
tax (WHT) relief has always been riddled with mounds of paperwork, tight
deadlines, technical nuances, and endless complexity.
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”[1]. This suggests a real commitment to progress and harmonisation in a traditionally fragmented industry.
The OECD’s Treaty Relief and Compliance Enhancement (“TRACE”)[2]
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.