While all beneficial owners can realize a substantial gain from tax reclamation, pension funds are especially well positioned to benefit from this service. Since many pension funds are legally tax exempt in their country of residence, it is likely that they are entitled to reclaim 100% of tax withheld from them on their global investment income, due to treatment afforded them by bilateral tax treaties. However, due to the complexity of the network of banks, brokers and intermediaries involved in pension funds’ portfolio investments, it is often unclear to a foreign tax authority who is the ultimate beneficial owner of a security. Pension funds may be taxed at a much higher rate than they are entitled to (often 25-35%) and it is up to them or their fiduciary to reclaim over-withheld funds. Therefore, it is important for fund managers and trustees alike to understand how withholding tax affects their portfolio so that they can be sure to receive the maximum profit from their investments. Due to the relative size of pension fund portfolios, these investors may be missing out on many thousands or even millions of dollars in unclaimed tax.
Given the potential benefit tax recovery can provide to a pension fund, it is no longer sufficient to assume that the fund custodian is filing for reclaims on your fund’s behalf. Due to the complexities involved in the reclamation process, many custodians and brokerage firms do not offer a full tax reclaim service. As a result, many pension funds are missing out on significant entitlements. For pension funds which have never engaged in tax reclamation before, it’s likely that there are entitlements to multiple years of recovery (specified under the Statute of Limitations of the country of investment), so the initial recovery amount is often a windfall for the fund. Conversely, if funds are not reclaimed before the applicable Statute of Limitations expires, they are lost forever.
As data on the terms of a comprehensive number of treaties is not easily available (and is subject to constant change) many investors and fund managers are not aware of potential recoveries. GlobeTax’s data aggregation and research, coupled with our expertise in cross-border withholding tax issues, ensure that we are in a unique position to analyze a securities portfolio and identify potential entitlements. We currently file over 2 million reclaims a year with a 100% success rate. To identify entitlements you may be not be receiving, click here to contact us.