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Tax

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Global cross-border investment losses on unclaimed withholding tax hits GBP13.2bn

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A total of GBP13.2bn (USD22.4bn) of investors’ rightful returns from foreign shares and bonds were lost in the latest financial year because withholding tax (WHT) on dividends and income is not being reclaimed.

That’s according to new research from global WHT and class action services specialist, Goal Group.
 
This figure represents an increase of nearly 30 per cent in the annual amount lost since 2011. UK investors chalked up the second highest losses, at GBP680m (USD1.15bn), just behind the US who forfeited GBP1.63bn (USD2.77bn).
 
Reclamation rates on WHT have seen a marginal improvement since Goal Group last examined the situation in 2011, with just under 24 per cent now being left unclaimed. However, major increases in market capitalisation and dividend distribution since the last Goal Group study has meant that worldwide unclaimed WHT has seen a substantial net increase. 
 
Cross-border investing and equities are on the rise. According to the statistics from the International Monetary Fund and from global stock exchanges, the market capitalisation of global equities investments rose 81 per cent between 2003 and 2012 and the value of cross border equities investments rose 141 per cent, over the same period.
 
This rising proportion of portfolio investment devoted to foreign securities means that the lack of tax recovery needs urgent attention from fund managers and custodians. Investors are becoming increasingly rigorous in their scrutiny of investments and are putting pressure on fund managers to provide greater transparency.  In fact, some fund managers are even making this fiduciary duty to maximise returns compulsory clauses within the contracts they hold with investors.
 
Vicky Dean, sales and relationship manager EMEA, tax reclamation, Goal Group, says: “As the global economy continues to recover, investors are increasingly adopting an international investment strategy to maximise their earnings from securities. In all events, these cross-border shares are subject to a tax on returns that is deducted at the source. Although a proportion of this is available to be recovered, a substantial amount is still being languished in foreign tax regimes as the reclamation of WHT is not treated with the due attention it deserves.
 
“All those in the fund management community should take the issue seriously and make every endeavour to enhance investors’ returns. A number of leading custodians have already recognised the market opening and effectively utilised tax recovery services, both for their clients and as an interbank services opportunity.  However with 24 per cent of recoverable WHT lying unclaimed in foreign tax systems every year, there is still a clear opportunity for custodians to increase the scope and efficiency of reclamation services.”
 
Tax recuperation rates, rules and timings vary widely around the globe, making the retrieval method complex. However, technology solutions are now more widely available to automate the process, making it a profitable procedure for custodians and fund managers under pressure from their investor clients.

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