Non-Investment Alpha

Foreign withholding tax reclamation offers risk-free operational alpha. Dividend and interest income on foreign securities is often taxed at a high “statutory” withholding rate. Under double taxation treaties, however, investors can qualify for a more favorable “treaty” tax rate and reclaim historically over-withheld taxes. Investors who benchmark against indices such as the EAFE or ACWI-ex US can expect to increase performance by upwards of 25 basis points by reclaiming taxes, depending on their entity type and country of residency and investment.

Fortunately, the current uncertainty and shift to remote environments has not halted the global tax recovery process. Typically, tax recovery is a paper-laden process, as investors need to present considerable evidence to demonstrate eligibility for entitlements. In response to the global crisis, financial intermediaries and Tax Authorities have been taking steps to digitize their operations in a work from home environment. Some Tax Authorities have (temporarily) begun to accept scans in lieu of original documentation, and most have continued to pay out refunds at a normal rate, injecting much-appreciated funds into investor accounts. 

With so many unknowns, increasing operational alpha is vital in the present reality. Despite the benefits of tax reclamation, administration of the activity is a tedious, time-consuming, and complex process, and investors don’t often have the bandwidth to complete it in house – even in the best of times. Timing here also matters. Markets employ Statute of Limitations– strict deadlines for investors to submit their reclaim applications. These SOLs place even more urgency on the importance of proactively reclaiming over-withheld taxes, as entitlements that are not recovered are forever surrendered to Tax Authorities.

GlobeTax remains fully operational in the COVID-19 environment, processing claims and continuing to onboard new clients. To see how your portfolio can benefit, contact for a free analysis.