Withholding tax reclaims
Deloitte developed a significant knowledge of the reclaims procedure in each EU Member State and gained strong experience in helping Luxembourg investment funds to recover unduly tax withheld in many different jurisdictions.
The Aberdeen case - the opportunity for funds
The issue - funds have paid unduly withholding tax for years
Dividend payments obtained by Luxembourg domiciled investment funds, i.e. FCP or SICAV, from other European Member nation could be subject to domestic withholding tax levied on outward dividends, unless provided otherwise by a Double Tax Treaty. However the tax treatment imposed to dividends paid to resident investment funds and comparable non-resident investment funds may differ and, as a result, this may give rise to a discriminatory treatment.
Following the ECJ decision in the Aberdeen case (C-303/07) dated 18 June 2009, and Santander case (C-338/11) dated 10 May 2012, investment funds have the possibility to claim back discriminatory withholding tax taken on EU source dividends. The ECJ resolved that the difference in treatment between non-resident investment fund and local investment funds represents a restriction to the freedom of establishment and the free movement of capital.
Investment funds might, on the basis of this law, claim a refund on the discriminatory withholding tax by which they have been charged. To demonstrate the discriminatory treatment, the investment funds will firstly have to be comparable to resident investment funds or corporations. Secondly, an effective discrimination in the tax treatment of non-resident vs. resident funds will have to be proved, along with an « effective prejudice ». Thirdly, the reclaims will have to be filed within the time limitation period enclosing the required documentation.
The above however implies a significant document and data collection process aiming at allowing Tax Practices to submit the Tax Reclaims by the different local tax authorities.
Challenges involve intricacy
Following the Aberdeen and Santander decisions, there are opportunities to reclaim Withholding Tax (“WHT”) suffered at source within 12 European Countries for Luxembourg Funds: Belgium, Finland, France, Germany, Hungary, Italy, Netherlands, Norway, Poland, Romania, Spain and Sweden on dividends paid to a Luxembourg regulated fund (UCITs or non-UCITs, e.g. SIF). This process will be burdensome but manageable when disposing with the appropriate human capital and tools.
We are providing tailor-made solutions to our clients from the feasibility study phase up to the effective filing of tax reclaims including reconciliation of recovered amounts.
Our services indeed usually focus on the following: cost/benefit analysis based on the client’s situation, assistance with the filing of tax reclaims (i.e. collection of supporting documentation, filing of the claims, liaising with the local competent authorities, etc.) as well as proper monitoring of the reclaims.
Our solutions: creating value and efficiency
We offer to be at the centre of the tax reclaim process, acting as:
- A single point of contact for all stakeholders
- A project manager and quality assurer
- The entity in-charge of documents collection and delivery
- A hands-on document collection coordination service aiming at maximising the efficiency of the document collection and communication process.