As we close the chapter on 2024, the withholding tax recovery landscape has undergone many shifts marked by regulatory advancements, court rulings, and technological innovations. Throughout this dynamic year, WTax has continued to lead the way, helping clients maximise recoveries and navigate complexities with precision and expertise.
From significant legal decisions to major strides in digital transformation, this year reinforced the importance of specialist knowledge, advanced technology, and proactive solutions in withholding tax recovery.
Below, we reflect on the key milestones of 2024 and share insights that have defined the year.
The Year in Review: Key Developments and Achievements
Court Decisions: Acknowledging and Addressing Discriminatory Withholding Tax Practices in the EU
Technological Advancements: A Year of Innovation
Looking Ahead: Key Trends for Withholding Tax Recovery
A Wealth of Insights from WTax’s 2024 Blog Series
Technical Insights on Market Updates
General Withholding Tax Insights
WTax Internal Spotlight Series
Tailored Insights for Investment Structures
The Year in Review: Key Developments and Achievements
Regulatory Highlights
Faster and Safer Relief of Excess Withholding Taxes (FASTER) Directive: Harmonising Withholding Tax Relief Across Europe
On 10 December 2024, the EU Council officially adopted the FASTER Directive, introducing harmonised and digitised procedures for withholding tax recovery across member states. This landmark decision aims to resolve longstanding inefficiencies, including delayed refunds and administrative complexities, which have burdened investors for years.
Key features of the directive include:
- Streamlined procedures for claiming tax relief at source.
- Adoption of Electronic Tax Residence Certificates (eTRCs) to simplify reclaim processes.
- Enhanced obligations for Certified Financial Intermediaries (CFIs) to support compliance and transparency.
Read the official EU Council press release here for more details.
Positive Developments for U.S. RICs: The Norway-U.S. Tax Treaty Update
On December 2, 2024, the IRS announced a landmark Competent Authority Agreement between Norway and the U.S., addressing longstanding challenges faced by U.S. Regulated Investment Companies (RICs) in reclaiming withholding taxes. This agreement eliminates the restrictive ownership requirements previously imposed by Article 20 of the Norway-U.S. Double Tax Treaty, restoring U.S. RICs’ ability to claim treaty benefits.
Key Points of the Agreement:
- U.S. RICs are no longer required to meet the 75% U.S. resident ownership threshold, which was nearly impossible for funds to document effectively.
- The reclaim process has been simplified, reinstating eligibility for treaty benefits, reducing the withholding tax rate from 25% to 15%, and enabling a 10% reclaim opportunity for dividends paid to U.S. RICs.
- Although the agreement’s retrospective applicability is unclear, it could allow RICs to reclaim withholding taxes for past years still within the statute of limitations.
This development marks a significant improvement in cross-border tax cooperation, removing barriers that have existed since 2008. For U.S. RICs, it signals a return to equitable treatment under the treaty and new opportunities to recover previously unreclaimed amounts.
At WTax, we are closely monitoring the implementation of this agreement to assist clients in maximising their claims and navigating any complexities.
Court Decisions: Acknowledging and Addressing Discriminatory Withholding Tax Practices in the EU
This year brought a series of important judicial rulings that highlight a critical trend: courts across Europe are continuing to recognise the discriminatory treatment of foreign investment funds. This ongoing acknowledgement reaffirms the principle of fair tax treatment and opens significant pathways for reclaiming overwithheld taxes.
Some notable cases from 2024 include:
- Portugal: The Portuguese Supreme Administrative Court ruled against discriminatory withholding tax practices imposed on US investment funds, aligning with EU principles of fair capital movement.
- Sweden (KEVA Case): The European Court of Justice (EC) determined that Sweden's tax treatment of foreign pension funds breached EU laws, strengthening investor rights across borders. The ECJ noted that imposing withholding tax on dividends from Swedish companies to foreign public pension institutions, while exempting similar dividends to Swedish public pension institutions, violates the principle of free movement of capital.
- Netherlands: The ECJ addressed the discriminatory nature of the Dutch dividend withholding tax regime concerning non-resident unit-linked insurance companies. This decision underscores the EU's dedication to upholding the free movement of capital under Article 63 TFEU, particularly in matters related to dividend withholding tax.
- Germany: Germany’s Federal Financial Court (Bundesfinanzhof) addressed years of discriminatory practices by ruling that foreign investment funds are entitled to reclaim withholding tax on dividends paid before 2018. This decision corrects a longstanding inequity, allowing eligible funds to recover substantial sums. This milestone judgment reinforces the importance of adhering to EU principles of non-discrimination and ensures that foreign funds are treated equitably, regardless of jurisdiction.
These decisions are significant for two key reasons:
- They validate the rights of foreign investors to challenge discriminatory withholding tax systems, unlocking new recovery opportunities.
- They serve as a catalyst for tax equity, pushing jurisdictions to align domestic tax practices with EU legal standards.
By challenging discriminatory treatment, these rulings contribute to a fairer, more transparent tax landscape—ultimately enabling foreign funds to benefit from the same favourable treatment as their domestic counterparts.
At WTax, we specialise in navigating such legal developments to deliver exceptional results. With expertise in handling complex ECJ claims and leveraging these precedents, we ensure clients recover the maximum eligible withholding tax, turning legal progress into tangible financial outcomes.
Technological Advancements: A Year of Innovation
In 2024, digital transformation continued to reshape withholding tax processes, with key markets adopting new systems to drive efficiency and automation, for example:
- Germany: The rollout of the BZStOnline-Portal in 2023, followed by the launch of the DIP.KaFE interface for bulk submissions in July 2024, represented a significant step toward fully automated tax filing. WTax’s integration of robotic process automation ensured clients transitioned seamlessly through these changes.
WTax’s investment in advanced AI-driven tools continued to revolutionise withholding tax recovery:
- Document Management: Real-time tracking of millions of records, paired with AI-powered OCR technology, ensured rapid and accurate claim processing.
- Claim Maximisation Engine: Our rules engine evaluates thousands of claim scenarios to determine the most optimal recovery mechanisms across over 30 jurisdictions.
- Client Reporting Portal: Customisable real-time updates provided unparalleled transparency and control for clients.
Innovation in Action: WTax has the largest in-house technology team dedicated to withholding tax recovery, comprising 40 dedicated specialists. This team spearheaded advancements that delivered faster recoveries and higher success rates, reflecting WTax’s commitment to driving efficiency and accuracy in withholding tax recovery.
Looking Ahead: Key Trends for Withholding Tax Recovery
As the industry evolves, 2024’s milestones provide a glimpse into the future:
- Harmonisation Initiatives: The continued rollout of the FASTER Directive will standardise tax relief processes, though full adoption remains on the horizon.
- Digital Tax Platforms: Countries are accelerating their adoption of e-filing solutions, making technology integration crucial for seamless claims processing.
- ECJ Recovery Pathways: With rulings increasingly favouring foreign investors, specialist expertise is essential to unlock claims through non-standard mechanisms, such as ECJ-based litigation.
- Increasing Scrutiny and Rise in Queries: Tax authorities are intensifying their scrutiny of withholding tax claims, driven by global initiatives like the OECD’s BEPS project. This has led to a notable rise in queried claims, with jurisdictions such as Switzerland now requesting additional documentation for a significant proportion of reclaims.
At WTax, our focus remains on delivering market-leading solutions to ensure clients stay ahead of these changes, maximising recoveries through innovation, precision, and expertise.
A Wealth of Insights from WTax’s 2024 Blog Series
Throughout the year, WTax shared valuable analyses, industry updates, and strategic advice through our blog. These articles are designed to help clients and investors navigate the evolving landscape of withholding tax recovery.
Below, we’ve grouped this year’s blog articles into key themes to ensure you caught all the essential insights:
Technical Insights on Market Updates:
This section of the blog series delved into pivotal updates and innovations in the withholding tax recovery landscape. Covering new regulations, key court rulings, and market-specific strategies, these articles provide insights for investors navigating the complex and ever-changing withholding tax landscape.
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Portugal ECJ Claims: A Comprehensive Timeline for Investment Funds |
Provides a timeline for ECJ claims in Portugal, focusing on their implications for investment funds. |
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Germany’s Bundesfinanzhof Landmark Decision: A Victory for Foreign Investment Funds |
Examines a ruling allowing foreign funds to reclaim withheld dividend tax. |
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BFH’s Verdict in L Fund Case Unleashes New Horizons for Foreign Investment Funds in Germany
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Examines the BFH's ruling in the L Fund case, which grants foreign real property funds tax exemptions in line with domestic funds, highlighting its impact on reclaim opportunities in Germany. |
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The Move to T+1: Will it Impact Withholding Tax Recovery? |
Analyses the transition to a T+1 settlement cycle and its impact on tax recovery processes. |
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Changes in Dutch Tax Laws: Withholding Tax Implications Investment Managers Should Know
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Examines recent amendments to Dutch tax laws affecting investment managers, focusing on changes to dividend stripping measures and the tax classification of foreign entities, and their implications for withholding tax recovery processes. |
General Withholding Tax Insights:
Focusing on the intricacies of withholding tax recovery, these articles explore practical strategies, emerging challenges, and actionable solutions for optimising reclaim processes.
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Preparing Your 2024 Foreign Withholding Tax Recovery Process in 3 Guided Steps |
Practical advice for optimising tax reclaim strategies in 2024. |
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Five Essentials for Improving Withholding Tax Efficiency
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Identifies five key strategies to enhance withholding tax efficiency, including leveraging CJEU reclaims, exploring emerging markets, outsourcing administration, ensuring transparent reporting, and effective query management. |
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How Withholding Tax Recovery Supports ESG-Aligned Asset Management
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Explores how effective withholding tax recovery enhances ESG-aligned asset management by demonstrating good governance, supporting financial integrity, and building stakeholder trust. |
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Outsourcing Investment Operations: Directing Focus Towards Strategic Priorities
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Analyzes the increasing trend of outsourcing investment operations among institutional investors, highlighting motivations such as scalability and strategic focus, as well as challenges like security concerns and ROI considerations. |
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An Investor’s Checklist: Selected Key Documents for Cross-Border Withholding Tax Recovery
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Provides a guide to essential documents for cross-border withholding tax recovery, including Tax Residency Certificates, UCITS Attestations, and the Austrian Declaration of Widely Held Foreign Investment Funds, highlighting their significance in reclaim processes. |
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The Impact of Queries on Your Withholding Tax Operations
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Examines the increasing frequency of tax authority queries in withholding tax reclaims, emphasizing the importance of effective query management to ensure timely and successful refunds. |
Helping You Boost Returns:
These articles focus on strategies and solutions designed to maximise the returns from your cross-border investments. From addressing delays in tax recovery to unlocking immediate value through innovative approaches, these articles provide actionable insights to enhance the efficiency and effectiveness of your withholding tax processes.
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Summary |
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Essential Steps to Optimise Your Withholding Tax Process |
A guide to improving efficiency in withholding tax recovery. |
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The Real Cost of Delays in Withholding Tax Recovery
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Examines how postponements in reclaiming withholding tax can lead to missed reinvestment opportunities and financial losses, emphasizing the importance of timely recovery. |
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Unlocking Immediate Value from Withholding Tax Claims Through WTax’s Monetization Solution |
Highlights how WTax enables immediate financial benefits from withholding tax claims. |
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Are You Getting the Best Returns from Your Canadian Stocks? Optimise Your Withholding Tax Recovery
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Discusses strategies to maximize returns on Canadian investments by efficiently managing withholding tax reclaims, ensuring investors receive entitled refunds. |
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Withholding Tax Efficient Investing: Four Investment Jurisdictions for Optimal Returns
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Identifies four key investment jurisdictions with favorable withholding tax rates, guiding investors towards maximizing returns through tax-efficient investment choices. |
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WTax Continues to File German Reclaims Despite Industry Hold
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Details WTax's proactive approach in continuing to file withholding tax reclaims in Germany, even amidst industry-wide pauses, ensuring clients' refund processes remain uninterrupted. |
WTax Internal Spotlight Series:
In these interviews, WTax’s leaders share their expertise and provide a behind-the-scenes look at the strategies and innovations driving success in withholding tax recovery.
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Summary |
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Spotlight on WTax’s Service Department: An Interview with Julia Bricker |
Discusses client challenges and WTax's solutions. |
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Spotlight on WTax’s Tech Team: An Interview with Ashley Gritzman |
Focuses on WTax’s tech innovations and how they enhance withholding tax recovery solutions. |
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Spotlight on WTax’s People and Development Department: An Interview with Nicole Lieman
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Discusses WTax's journey, commitment to fostering a positive workplace, and strategies for attracting and retaining top talent. |
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Spotlight on WTax’s Tax Technical Team: An Interview with Lelanie Marais
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Explores how the team navigates the complex landscape of withholding tax, adapts to regulatory changes, and anticipates future industry trends. |
Tailored Insights for Specific Investment Structures:
These articles provide targeted insights into some unique structures and challenges faced by specific investment vehicles. From 81-100 Group Trusts to Luxembourg SICAVs, these articles explore jurisdiction-specific treatments, barriers to treaty access, and opportunities to optimise withholding tax recovery for specific investment structures.
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Summary |
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The Luxembourg SICAV’s Guide to Additional Withholding Tax Recovery |
Guidance for Luxembourg SICAVs to identify additional withholding tax recovery opportunities. |
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Understanding 81-100 Group Trusts |
Explores the structure and reclaim challenges faced by 81-100 Group Trusts. |
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Treatment of 81-100 Group Trusts in France and Switzerland
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Examines how France and Switzerland perceive U.S. 81-100 Group Trusts, focusing on the complexities these entities encounter when seeking withholding tax relief in these countries. |
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Barriers to Treaty Access for 81-100 Group Trusts |
Discusses the obstacles that 81-100 Group Trusts face in accessing treaty benefits, highlighting the need for tailored strategies to navigate withholding tax relief challenges. |
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Are US RICs Suffering Excess Withholding Tax?
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Investigates whether U.S. Regulated Investment Companies (RICs) are subject to excessive withholding taxes on foreign investments and explores potential remedies to mitigate tax leakage. |
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Navigating ECJ Reclaim Opportunities for Pension Funds
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Examines how pension funds can leverage European Court of Justice rulings to reclaim withholding taxes, ensuring compliance and maximizing returns. |
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Reclaiming International Withholding Taxes: Maximising Returns for a Tax-Exempt Organisation |
Provides strategies for tax-exempt organizations to effectively reclaim international withholding taxes, thereby enhancing overall investment performance. |
Looking Ahead
As we enter 2025, WTax is committed to further advancing the field of withholding tax recovery by enhancing our technology, expanding client support, and keeping you informed of the latest developments.
Let’s make 2025 a year of continued growth and success!
