The Impact of Queries on Your Withholding Tax Operations

Enhancing your withholding tax recovery with WTax’s query management solution

When investors are entitled to lower withholding tax rates than the statutory rates withheld on dividend payments, the opportunity exists to reclaim excess taxes from foreign tax authorities. However, these reclaim applications are subject to potential queries and requests for further information to allow tax authorities to fully determine the eligibility for a refund of over-withheld taxes. Navigating the complexities of queried reclaim applications is crucial for ensuring the efficient processing of withholding tax refunds.

Indeed, effective query management stands as one of our five essential steps for enhancing withholding tax efficiency. At WTax, we are acutely aware of the challenges that queries present to investors and tax professionals. Therefore, we endeavour to empower you with the knowledge and tools necessary to overcome these challenges and maximise your after-tax returns on investments.

In this article, we delve deeper into understanding the impact of queries on withholding tax reclamation and explore how WTax can help address these challenges. WTax, as a withholding tax recovery specialist, offers a query management solution that is comprehensive and proactive. We conduct thorough analyses, request documents on behalf of our clients, draft technical arguments when needed, and provide extensive guidance throughout the process.

The Dynamics of Queried Withholding Tax Reclaims

Tax authority queries typically arise from various factors such as discrepancies or inconsistencies in tax documentation. They may also stem from the need for further clarity regarding the claimant and its reclaim entitlement or requests for additional supporting documentation on trading activity around the dividend entitlement dates. Investors must be prepared to provide comprehensive and accurate documentation to support their claims and address any concerns raised by the tax authorities.

Queries are deadline-sensitive, emphasising the critical need for timely responses. Failing to address queries promptly may result in the expiration of reclaim requests, jeopardising the chances of securing refunds. Therefore, it is imperative for investors and tax professionals to adopt efficient query management practices to maximise the likelihood of success in reclaiming excess tax.

The Rise of Queried Applications

The prevalence of tax authority queries and requests for further information have been on the rise for some time. Tax authorities are increasingly seeking assurance regarding entitlement to withholding tax refunds. This is spurred by the growing caution globally surrounding withholding tax fraud, which include unjustified claims for tax reimbursements.

The sixth OECD Forum on Tax and Crime was recently held in Rome at the end of 2023, focussing in part on dividend and withholding tax fraudulent schemes. The OECD’s report published following said forum, notes how “dividend stripping in its many forms poses a great challenge to the tax bases of numerous jurisdictions”.

Tax authorities have accordingly becoming more stringent in their requirements when assessing withholding tax refunds. Investors should be ready to navigate higher volumes of queried reclaim applications and meeting stricter burdens of proof for eligibility. This trend underscores the importance of thorough preparation and proactive engagement in withholding tax recovery.

The Far-Reaching Implications of Unresolved Queries

Unanswered queries, or even queries that are responded to inaccurately or incompletely,  can have significant consequences for investors. When queried applications remain unresolved, investors will risk forfeiting their entitlement to lower withholding tax rates on foreign investments. This may lead to diminished returns and potential financial losses, impacting cash flows and the overall efficiency of withholding tax processes.

The Significance of Effective Query Management: A Case Study from Switzerland

In several jurisdictions, adeptly managing queried applications is becoming increasingly critical. For instance, the standard reclaim process in Switzerland, where queries can significantly impact refund outcomes:

• To claim tax relief in Switzerland, applicants must submit the necessary reclaim application forms. Investment funds, from certain jurisdictions, are also required to declare the percentage of unit holder’s residing in the same country as the fund.

• The Swiss Federal Tax Administration (SFTA) individually evaluates these claims and generally issues requests for further information. This will typically require investor base information to substantiate the unit holder percentage entered on the reclaim form. It may also require substantiating arguments for the reasons for investment and supporting evidence for holding of stocks over a period of time.

• Practical difficulties in obtaining the required information often result in limited or no responses, potentially leading to claim rejections or partial refunds.

Due to the SFTA’s view on the treaty entitlement of collective investment funds and the resulting level of evidence that often needs to be provided, most will struggle to successfully reclaim excess Swiss withholding tax.

WTax encounters a notably higher rate of queries from Switzerland compared to other EU jurisdictions, illustrating the importance of ensuring tax authority queries are effectively and timely managed in complex markets.

Investors who fail to adequately respond to such queries risk forfeiting excess Swiss withholding tax. This can have a significant impact given Switzerland’s notably high withholding tax rate of 35%. In many cases, the double taxation treaty rate stands at 15%, enabling applicants to reclaim 20% of the withholding tax applied to a Swiss dividend payment. Qualifying pension funds may even be entitled to a refund of the full 35% depending on double taxation treaty provisions.

WTax’s Comprehensive Approach to Query Management

Through our tailored query management solutions, we aim to streamline the refund process and maximise value for our clients.  It may arise in some cases in the traditional landscape, that clients must determine their responses to tax authority queries without much available guidance. To address these challenges, WTax offers a comprehensive suite of query management services designed to address the unique needs of our clients:

• Expertise: Our dedicated queries team possesses in-depth knowledge of international tax laws and regulations, allowing us to analyse rejection reasoning and provide tailored responses that comply with relevant legal frameworks. We also understand the jurisdiction and organisation of each tax authority to determine the level of the tax authority dealing with a query, when escalations can be made and when appeals are required.

• Timely Intervention: WTax assumes responsibility for all correspondence with tax authorities, ensuring adherence to deadlines and minimising the risk of value loss due to missed timelines.

• Document Coordination: We streamline the collection and submission of required documents, alleviating administrative burdens for our clients and ensuring that all necessary information is provided to tax authorities.

• Proactive Resolution: In the event of rejections, we navigate tax office procedures and appeals processes, advocating for our clients’ interests and maximising their chances of securing successful refunds.

Despite the growing volume of queried refund applications, WTax continues to secure substantial withholding tax refunds for its clients by employing a strategic approach, including:

• Methodical filing and proactive responses to queries.

• Thorough evaluation of data and meticulous presentation to optimise recovery opportunities.

• Diligent monitoring of Statute of Limitations (SoL) nuances, ensuring timely action to safeguard refunds. This is particularly relevant in Switzerland, where the standard three-year SoL may be extended to five years under certain circumstances. With enhanced and timely monitoring, applicants have a greater chance of responding to queried claims before they become statute barred.

Take Action Today: Partner with WTax for Seamless Query Management

If withholding tax queries are impeding your operational efficiency, it’s crucial to seek professional assistance. Contact WTax today to explore how our query management solutions can streamline your refund process and maximise value for your organisation.

For further inquiries or to initiate the process of reclaiming your full refund entitlements, speak to an expert today.