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For hedge fund managers, tax reclamation is a valuable way of maximizing portfolio income. Large funds often hold very large positions, especially if their portfolio is highly leveraged. As a result, hedge funds are likely to be entitled to a significant amount of recovery in the form of tax which has been over-withheld from them. Moreover, new compliance, fiduciary and corporate governance regulations are increasing pressure on fund managers to obtain all income available to their investors – including excess withholding tax.
However, the legal partnership structure of most hedge funds as “transparent/flow-through” entities means that reclaiming over-withheld tax on investment income can be highly complex. Tax authorities require that lower treaty rates only be made available to the ultimate beneficial owner of a security. Since there is no way for a foreign tax authority to discern who the partners are in a given fund, they are usually taxed at a high statutory rate. Fortunately, GlobeTax can help hedge funds comply with this requirement by “piercing” the partnership structure of the fund and claiming benefits on behalf of the underlying beneficial owners. By doing so, hedge fund managers can maximize the profits on their investments and obtain the maximum benefit available for their end investors.
Most hedge funds don't maintain the in-house staff and infrastructure necessary to effectively file reclaims on behalf of their partners. Prime brokers generally have no knowledge of the underlying partners of their hedge fund clients, and as such do not have the information required to calculate and file reclaims.
GlobeTax has long-standing relationships with all major prime brokerages, and contracts directly with funds in order to maintain strict confidentiality. If you’re engaging in tax reclamation for the first time, you may be entitled to multiple years of recovery. Statutes of Limitations vary by market, but are generally between 2-5 years. Because of this, the initial recovery is often a windfall for the fund. An average hedge fund with foreign investments can realize a gain of 50 bps (and often more) annually. If you’ve never filed a reclaim before and you are entitled to multiple years of recoveries, you could see an initial gain of 250 bps or more. Our objective is to help you maximize the income from your investments and deliver the highest possible return to your investors. To find out more about how you can maximize returns on your portfolio, please contact us.
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