How Taxes Can Alleviate Anxiety in Today’s Market

Monitoring your portfolio can be anxiety-inducing in times like these. With so many unknowns and a market that reverses course on an hourly basis, it’s harder than ever to generate consistent investment alpha.

Foreign withholding tax reclamation offers that alpha – risk-free – from an operational perspective. 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. Admittedly, the climate has inspired some firms to either postpone or halt their dividend payments; notable suspensions include Electrolux, Aegon, and Daimler. Fortunately, many of these corporate decisions stem from the need to migrate Annual General Meetings to virtual environments, and we expect many payments to resume after those delays are overcome.

Financial intermediaries and Tax Authorities are also taking steps to digitize their operations in a work from home environment. Typically, tax recovery is a paper-laden process, as investors need to generate considerable documentation to demonstrate eligibility for entitlements. In response to the global crisis, some Tax Authorities have (at least temporarily) begun to accept scans in lieu of original documentation. Most Tax Authorities have also 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, it 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. To compound 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.

Fortunately, 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.