UK investors missing out on £1bn in unreclaimed tax
May 27 2011, 2:31 pmProfessional Pensions | 27 May 2011
Pension funds and other UK investors missed out on more than £1bn last year by failing to reclaim withholding tax on foreign investments, according to tax reclamation experts.
The withholding tax is levied on all cross-border securities, but a proportion – or in some cases all – of that tax can be reclaimed by custodians on behalf of their clients.
GOAL group put the figure for unreclaimed tax for global investors at £10.72bn – a quarter of all withholding tax that could potentially be clawed back.
GOAL chief executive Stephen Everard said the increasing popularity of cross-border share-holdings and the resurgence in equity dividend payments meant that levels of unreclaimed tax could continue to rise.
Everard said: “Since savvy investors are increasingly adopting a global investment strategy to maximise their earnings from securities – both equities and bonds – a substantial proportion of their rightful returns will risk languishing in foreign tax regimes if the reclamation of withholding tax is not treated with the due attention it deserves.”
KPMG partner Chris Morgan said the amount UK investors could claim back was potentially greater than £1bn a year.
“You do find very big discrepancies in what clients can claim under the existing double tax treaty and what they do claim,” he said.
“But there is another angle – tax regimes can be challenged.”
In 2009, KPMG successfully challenged the Dutch system using Strathclyde Pension Fund as a test case, paving the way for UK schemes to reclaim an additional £93m. (PP Online, 28 January, 2009)
The Dutch tax authorities accepted Strathclyde Pension Fund’s claims they should not have levied a withholding tax on dividend payments to tax exempt bodies – such as pension funds – located within the European Union but outside The Netherlands.
KPMG is currently challenging the French regime on behalf of investment fund clients. The case has been referred to the European Court.
“So there are two areas,” added Morgan. “There is checking existing rules, and there is the European law angle. That means there’s potentially a lot more at stake.”
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