Asian companies represent forty percent of Fortune’s Global 500 list, a proportion poised to continue expanding. Indeed, the region is anticipated to remain the world’s fastest growing through 2030. To prepare the marketplace for the tax implications of this trend, GlobeTax cohosted a webinar with Alternative Investment Management Association’s (AIMA) Asia Pacific division. Entitled “How Much Money Are You Leaving on the Table?,” the discussion brought together David Gassman, VP of Regulatory & Tax Operations at Goldman Sachs, Brian Tsai, COO/CFO at Ghost Tree Capital, and Brian Sapadin, an Executive Director on GlobeTax’s Sales team for a ranging exploration of opportunities, trends, and market players positioned to reap benefits. GlobeTax Managing Director Craig Dudsak moderated the panel, bringing his extensive knowledge of the Asia Pacific securities landscape to the hour-long conversation.
FOREIGN WITHHOLDING TAX RECOVERY: OPPORTUNITIES AND BENEFITS
To educate listeners unfamiliar with the subject matter, the session opened with an introduction to foreign withholding tax reclamation. Mr. Sapadin acknowledged the nuances and challenges involved in recovery, but summarized the considerable benefits for investors that persevere. He cited GlobeTax research that tax recovery can add between 22 and 55 basis points to annual portfolio performance, when compared against MSCI’s EAFE Index. Because of the potential benefits, engaging in recovery efforts is viewed as a best practice and is increasingly identified as a critical item on fund clients’ due diligence questionnaires.
ENTITY TYPES AND RECLAIM FILING REQUIREMENTS
Considering the explosion of fund types in recent years, the webinar shifted to a discussion of entity types and how reclaim opportunities vary by investor classification. Mr. Sapadin opened, outlining the difference between opaque and transparent entities. The former category, consisting of entities such as corporations and pensions, are considered “end investors” and treated on the entity level for tax purposes. That category contrasts with transparent entities—LPs, LLCs, and most trusts—that must be ‘looked through’ to discover the ultimate beneficial owner(s).
Mr. Dudsak then asked whether filing requirements vary by tax authority – especially for transparent entities. The group answered in the affirmative. While several national tax authorities only require filings at the fund level, most also require disclosure of the names, addresses, tax IDs, and entity types of end investors. In addition to names and contact information, the strictest jurisdictions require certificates of residency (CORs) and other relevant documentation for the underlying population.
After establishing the general requirements, the panel began analyzing procedural differences across the major Asian markets.
- Japan and Korea: Tax authorities in Japan and Korea require CORs for each underlying investor in transparent funds. To contend with these requirements, some funds opt to disclose only their largest investors, while others pursue full entitlements and seek documentation from all underlying beneficiaries.
- Australia: In Australia, transparent entities may file at the fund level without disclosing underlying investors. However, as the speakers noted, countries are moving toward additional disclosure and documentation, so requirements may soon grow more stringent.
- China and Indonesia: These countries currently pose few or difficult-to-obtain opportunities for reclaims.
- Taiwan: While U.S. investors cannot pursue claims in Taiwan, opportunities exist for UK investors.
To conclude the webinar, the group shared success stories and takeaways. Mr. Tsai praised GlobeTax’s success in recovering entitlements for his fund’s investors. Mr. Gassman remarked that it should come as no surprise that investors are always happy to receive money that they did not anticipate, tax reclaims being no exception. Finally, Mr. Sapadin noted that a portion of his success stems from debunking the myth that all/most markets require full documentation from all investors; rather, there are multiple reclaim methods with varying levels of intricacy.