Preparing Your 2024 Foreign Withholding Tax Recovery Process in 3 Guided Steps

The start of a new year marks an opportune time to critically assess your withholding tax recovery strategy and processing schedule, a step that could be key to bolstering investment performance throughout 2024.

Proactive tax management and horizon scanning are core elements of WTax’s end-to-end outsourced tax reclaim services. However, for investors without an outsourced solution, we strongly encourage staying informed about the significant events affecting withholding tax timelines to ensure that no withholding tax recovery opportunities are overlooked, thereby avoiding unintended or unidentified tax leakage.

To help in this regard, WTax has outlined a list of three key areas to be aware of as you plan your 2024 calendar, allowing you to maximise the efficacy of your foreign investment tax recovery process.

While this discussion primarily focuses on reclaiming withholding taxes, it is important to recognise that obtaining any applicable withholding tax relief at source is also deadline sensitive. This includes ensuring documents arrive at the relevant custodian or paying agents by specified dates to guarantee timely relief. Therefore, vigilance is equally necessary in pursuing relief at source.

1. Be Mindful of Statutes of Limitations

The statute of limitations (SOL), in the context of filing for excess withholding tax, refers to the deadline stipulated in local market legislation/double taxation treaties (DTTs) by which a taxpayer must submit a claim for a refund of withholding taxes applied to an income payment. This means that for any given reclaim opportunity the taxpayer must file a request for reimbursement before the expiry date, according to the SOL, to ensure that recovery opportunities are not lost.

Typically, requests for overpaid or excess withholding taxes must be submitted within two to five years from the end of the calendar year in which the dividend income was paid. For example, if dividends were paid on 1 July 2019, a five-year SOL would set the deadline to reclaim excess withholding tax before 31 December 2024. France, for instance, has a general SOL of two years, Finland offers three years, Germany and Ireland allow four years, while Austria and Poland generously allow for five years. There are some exceptions, such as Luxembourg which only provides a one-year SOL (though exceptions to all of these may apply based on other provisions).

It is important to note that for the example countries below, dividends paid in the below years are set to expire at the end of 2024:

Exceptions may apply and information is subject to change.

To complicate matters even further, in some countries the SOL is based on the payment date of the investment income rather than the end of the calendar year, requiring taxpayers to be extra vigilant in order not to forego any potential refunds. The Czech Republic, as one example, allows for reclaims to be filed for two years from the income payment date, while Iceland allows six years and Italy allows four years.

Preferential extended SOLs can be offered bilaterally as countries may agree to include unique SOLs in their double taxation treaties. As one example, the treaty between France and Germany doubles France’s standard two years to four for German investors.

Though not always an easy task given the wide spectrum of nuances, it is essential to a successful withholding tax reclaim strategy that taxpayers aiming to reclaim excess withholding tax comprehend and comply with the various SOLs in all jurisdictions where the tax has been suffered. It is therefore suggested that you begin reviewing claims that expire at the end of this year as a priority to avoid them becoming statute barred. Failure to meet the deadline could result in missed tax reclaim opportunities and the forfeiture of significant potential value, underscoring the importance of submitting claims in a timely and precise manner.

Regardless of whether there are longer SOL periods, WTax recommends all eligible reclaims should be filed proactively in the year immediately following the dividend event to avoid backlogs and delays, a practice consistently employed in our dealings with tax authorities on behalf of our clients.

2. Prepare for Changing Regulations, New & Terminating Treaties

Domestic legislation is often updated and amended in ways that either directly, or indirectly, impact withholding tax recovery.

For instance, recent changes to dividend attribution in Austria may impact whether a taxpayer is eligible to recover excess withholding tax on a dividend event. Following the Austrian Supreme Administrative Court’s decision on 28 June 2022, for a non-resident shareholder of an Austrian stock-listed corporation to be entitled to a withholding tax refund or an exemption at source, the acquired shares had to have been deposited and definitively settled in the claimant’s securities account one day prior to the AGM date, rather than on record date (as per established stock exchange practices). The Austrian Ministry of Finance then effectively reversed the change by adopting new legislation, as of 30 June 2023, again specifying record date as the date for determining dividend entitlement of Austrian shares. These new rules apply for dividend payments with a record day after 30 June 2023. However, if the record day falls before this date, the Supreme Court’s 2022 decision remains relevant. Investors should be aware of this change in regulation as failure to comply with these new regulations could result in the denial of withholding tax reclaims, leading to unexpected tax liabilities.

Other noteworthy changes include the anticipated implementation of the U.S. and Canada’s move to a T+1 trading cycle in May 2024. As several challenges within the trading and settlement lifecycle may be likely, should there be an increase in failed trades over the migration period and adaptation phase, this could potentially impact tax relief at source opportunities on U.S. and Canadian stock in the short-term. Thinking ahead and implementing a clear tax strategy is therefore critical to ensure a full end-to-end T+1 migration management plan.

Finally, staying abreast of new or terminating DTTs is essential to monitoring the tax liability of investments in individual countries.

Some selected new treaties coming into effect in 2024 are outlined below:

Also note the following treaty terminations, effective as of 1 January 2024, between the following states: Hungary-United States, Denmark-Russia and the DTTs between Norway and Barbados, Curaçao, Jamaica, Sierra Leone and Trinidad and Tobago.

3. Stay Abreast of Developments & Prepare for the Unexpected

The world of withholding tax changes quickly, being prepared to adapt to changes and developments as they occur is therefore vital. Follow WTax on LinkedIn and read our blog to stay ahead of all withholding tax advancements.

Additionally, be prepared to quickly attend to claims that are queried or rejected by foreign tax offices throughout the year, as deadlines for responses or appeals are often short and require immediate administrative attention. These queries can include requests for additional supporting documentation or justification of taxpayers’ entitlement to refunds. To illustrate, Spain can offer in some instances as little as 10-15 days (depending on case specifics) to respond to tax authority queries, otherwise impacted refund applications are forfeited. Belgium offers one month, the Netherlands allows six weeks and France avails 30-90 days for queries with four months to appeal for non-resident investors.

WTax can help respond to queried claims as they arise, even in cases where WTax did not submit the original reclaim.

WTax

WTax is a foreign tax recovery specialist that provides wholly outsourced withholding tax recovery solutions to all and any parties seeking to optimise their withholding tax recovery processes and capabilities, thereby maximising investment performance.

For more information on WTax’s services, speak to a local specialist in your region. 

Please note that this material has been prepared for informational purposes only. WTax does not provide or offer tax, legal or investment advice. While WTax may provide non-legally binding opinion on industry matters, systems and operational procedures based on its knowledge of regulatory frameworks and other general practices, these are not intended to, and within the context of the delivery of the Services, shall not be construed to be advice of any kind. You should consult your own tax, legal and accounting advisors before engaging in any transaction.