Withholding tax (WHT) is intended to protect the right of source countries to tax income arising within their jurisdiction, but undermines the principle of tax neutrality by placing additional cost on investors who use funds or collective investment schemes to invest. This tax ultimately falls on investors and whilst WHT can often in principle be reclaimed where relief is available to the fund or the investors, there may be time limits and reclaim processes which increase administrative and compliance costs and may render it uneconomic.
The ACC and AIMA support measures such as the OECD Treaty Relief and Compliance Enhancement (TRACE) initiative which developed the Authorised Intermediary (AI) system. This standardised system would allow the claiming of WHT relief at source on portfolio investments. It could remove the administrative barriers that affect the ability of portfolio investors to effectively claim the reduced rates of WHT to which they are entitled, pursuant to tax treaties or to domestic law of the country of investment. It would minimise administrative costs for all stakeholders and enhance the ability of both source and residence countries to ensure proper compliance with tax obligations. Progress on TRACE has stalled.
In Europe, the ACC and AIMA encourage the removal of WHT tax on interest and dividends for EU/EEA and other qualifying finance providers. Measures on this are included within the EU’s review of its Capital Markets Union regime.
(Last updated: 29 June 2021)