The Luxembourg SICAV’s Guide to Additional Withholding Tax Recovery - WTax

WTax’s experience in managing withholding tax reclaims suggests that Luxembourg SICAV funds often overlook unexplored withholding tax reclamation opportunities, even when the funds have a recovery plan in place. Typically, these plans only address specific types of reclaims, leaving potential opportunities out of scope.

In this article, we explore three main reasons behind unclaimed withholding tax for Luxembourg SICAVs, drawn from our analysis of thousands of global reclaim submissions facilitated for these funds. We show why comprehensive, tailored strategies are essential for unlocking their full potential.

Reasons for Unrecovered Value

Maximising withholding tax recovery is paramount for Luxembourg SICAV funds, as it significantly influences investor returns. By efficiently recovering withholding taxes, these funds can mitigate tax leakage, thereby enhancing after-tax returns for investors. While standard recoveries typically focus on reclaimable amounts under double taxation treaties and straightforward domestic legislation, niche recovery opportunities are often overlooked. This oversight can result in missed potential for additional reclaim value.

This occurs in territories presenting unique challenges, such as emerging markets where reclaims are notably complex. Moreover, complexities within specific treaties, such as the Luxembourg-Belgium agreement, can pose obstacles that require deep technical and operational expertise to address. Trends indicate that Luxembourg SICAV funds also tend to underutilise reclaims based on legal precedents set in cases heard by the Court of Justice of the European Union.

Without a specialised approach that can handle these complexities, valuable opportunities for recovery may be foregone. Customised recovery strategies are essential for Luxembourg SICAV funds to fully capitalise on all available opportunities.

Below, we delve into the reasons why these additional opportunities are often missed.

1. Value Left Unrecovered From Taiwan and South Korea

Navigating reclaims within emerging markets can be particularly challenging, often presenting hurdles not commonly encountered in established fiscal jurisdictions. Despite the complexities, seizing opportunities in markets like Taiwan and South Korea can yield substantial benefits.

• Reclaims from emerging markets tend to be more onerous and may not be covered by all withholding tax reclamation providers.

• Based on the relevant double taxation treaties, Luxembourg SICAVs can claim back 7% of the taxes withheld on dividends distributed by South Korean financial issuers and 6% of dividend withholding taxes applied to Taiwanese stock.

• In these cases, we have encountered an average refund value of over £150,000 per claim – money that would have been otherwise forfeited by the SICAV.

2. Value Left Unrecovered From Belgium

Due to the complexities when claiming benefits in terms of the Belgium-Luxembourg treaty, providers within the custody chain may not always be able to facilitate Belgian double taxation treaty reclaims for Luxembourg SICAVs. These funds often leave unclaimed value from Belgian income as a result.

• The double taxation treaty between Belgium and Luxembourg, and the relevant explanatory Circular issued by Luxembourg’s tax authority, do not clearly stipulate that Luxembourg SICAVs may enjoy treaty benefits. However, there is well-established Belgian case law supporting the argument that treaty benefits should be afforded to Luxembourg SICAV funds.

• For Luxembourg SICAVs to claim treaty benefits from Belgium, they must supplement their applications with well-defended justifications to support their reclaim requests. This requires a thorough understanding of the case law.

• As the process for these applications is not straightforward, they are often left out of the scope of a Luxembourg SICAV’s withholding tax reclamation plans.

• If treaty benefits are pursued, Luxembourg SICAVs may claim back 15% of the withholding tax levied on Belgian dividend payments.

3. Value Left Unrecovered Based on CJEU Precedent

Judgements issued by the Court of Justice of the European Union (CJEU) and local administrative and judicial decisions provide a solid basis for Luxembourg SICAVs to reclaim withholding tax in various EU Member States.

This plays out in one of two ways:

1. Some states have active tax laws that discriminate between foreign and domestic investment vehicles. Based on CJEU rulings condemning such discrimination, applicants can argue for favourable tax treatment.

• These types of reclaims are assessed by tax authorities on a case-by-case basis.

• They require a fund-specific technical analysis detailing how the Luxembourg SICAV is comparable to the local collective investment scheme receiving preferential withholding tax treatment in the source country.

2. Other states have amended previously discriminatory legislation in line with CJEU rulings. They now afford preferential tax treatment via domestic legislation, which may be applicable to Luxembourg SICAVs.

• To ensure that this preferential treatment is granted, a customised processing and monitoring plan may be necessary.

Successful reclaims require detailed technical arguments as well as customised processing and supporting documentation, that is specific to the applicable reclaim market and mechanism. As a result, both reclaim opportunities often fall outside the scope of standard withholding tax reclamation plans.

WTax’s Expertise at Targeting all Available Opportunities

By offering the full spectrum of available reclaim opportunities, our expertise ensures that all reclaimable value is being pursued. We have empowered our Luxembourg SICAV clients to discover and recover tens of millions of pounds in unclaimed revenue from over 20 investment jurisdictions.

Our tailored service goes beyond the basics, encompassing all standard reclaim options, as well as the often overlooked opportunities in:

South Korea & Taiwan:

• WTax is at the forefront of providing reclaims from emerging markets, like South Korea and Taiwan

• We process a substantial number of claims from these markets for our Luxembourg SICAV clients. Indeed, two thirds (66%) of WTax’s treaty reclaims for these funds are specific to these markets.

Belgium:

• Despite the uncertainty in the treaty , there is well-established Belgian case law to justify that treaty benefits be afforded to Luxembourg SICAVs.

• WTax specialises in submitting reclaims using legal precedent as a basis and can pursue Belgian treaty claims on behalf of our Luxembourg SICAV clients.

• In these cases, we request reclaims of 15% of the withholding tax levied on Belgian dividend payments.

Other EU states based on CJEU precedent:

• WTax has vetted experience in facilitating reclaims based on CJEU precedent in various EU states.

• In fact, these reclaims account for almost 50% of those we have submitted on behalf of our Luxembourg SICAV clients, showing the extent to which such specialised reclaims fall within our established expertise.

How to Capitalise on Unexplored Recoveries

The path to recovering all possible withholding tax value is quick in many cases. By way of example, we work with Luxembourg SICAVs who recently became clients of WTax in 2023 and have already started to receive refunds for claims WTax has facilitated. More than half of the claims we have submitted on behalf of Luxembourg SICAVs have an average refund timing of 12 months or less.

Here’s what you need to do:

1. Request a free data analysis with us to identify reclaim value you may be missing. WTax will help you source all the necessary data to do so.

2. Once value has been identified, we submit reclaims to the foreign tax authorities using our innovative, cutting-edge client portal, allowing you to easily provide any required documents to us in an agile manner.

3. Monitor the progress of your reclaims in real time using our client portal, which offers reporting and transparency of all reclaim submissions.

4. Boost your fund’s performance when value is refunded.

WTax will help you implement a fully comprehensive withholding tax recovery plan. We specialise in identifying and capitalising on reclaims beyond the scope of mainstream providers in South Korea, Taiwan, Belgium, the EU and across the globe. Partner with us to unlock all opportunities for withholding tax reclamation for your Luxembourg SICAV funds.

Request your free data analysis here.