Unclaimed Tax Refunds Cost Brits Billions

By ExpatBriefing.com Editorial 25 May, 2011

UK investors are losing out to the tune of billions, as losses on un-reclaimed tax on foreign dividend withholding tax (DWT) mount, according to two new sets of findings.

According to the tax specialist website taxback.com, UK investors are failing to claim up to GBP1.1bn in foreign DWT each year. In an instance where the UK has a double taxation agreement with the country in question, investors are entitled to reclaim the difference between the rate normally applied, and the reduced rate specified in the relevant treaty.

However, according to Seamus Murphy, senior tax manager at taxback.com, only 7% of DWT is reclaimed globally, meaning that, "if you translate this to those in the UK with overseas assets in their portfolios, the loss could be upwards of GBP1bn a year”. He added: “Many in the UK either don’t know they can reclaim or think it is too much hassle. But our system is straightforward and reclaims can go back at least three years and in some cases up to six years so will nearly always be worth doing.”

Murphy argues that, in particular, three groups of investors could be entitled to reclaims. They are: members of share plans where the parent company is a foreign entity; ISA investors whose plans are exempt from UK tax but not foreign DWT; and investors in UK companies that are subsequently taken over by foreign companies

Moreover, he said, "it is worth stressing that this is only the retail part of the market. There are many high-net-worth individuals out there, pension companies and life insurance companies who are also entitled to claim refunds, so the amount of DWT being left on the table could be enormous”.

Meanwhile, a new report from the tax reclamation services specialist GOAL Group shows similar findings. According to GOAL's figures, GBP10.72bn of global investors' returns from their cross-border shares and bonds are likely to be lost from last year’s earnings due to reclamation failures, representing a quarter of all reclaimable tax on cross-border securities.

GOAL's statistics are slightly lower than taxback.com's, showing that UK investors forfeit approximately GBP1.02bn in this way, coming second only to the US. Allegedly, an estimated 25% of reclaimable withholding tax remains unclaimed in foreign tax systems every year.

GOAL notes that, during 2001-09, the market capitalization of global equities rose 79%, whereas the value of cross-border equities investments rose 163% over the same period, meaning that cross-border shareholdings have risen at nearly double the market rate. GOAL argues that, in light of the increasing popularity of dividend payments and cross-border securities, unreclaimed tax will continue to rise unless reclamation levels improve.

GOAL's CEO, Stephen Everard, stressed: “Since savvy investors are increasingly adopting a global investment strategy to maximise their earnings from securities – both equities and bonds - a substantial proportion of their rightful returns will risk languishing in foreign tax regimes if the reclamation of withholding tax is not treated with the due attention it deserves."

He added: "All players in the fund management community should take the issue seriously and make every endeavour to enhance investors’ returns. Technology is widely available today to automatically perform the highly complex task of reclaiming withholding tax, a process which has to incorporate varying data, formats and procedures from a multiplicity of different legislatures around the globe. So there is really no pretext for fund management and custodians not to harness these technology-based services to the benefit of their investor clients.”

Tags: Individuals | Expatriates | Tax | Investment | Business | Pensions | Double Tax Agreement (DTA) | United Kingdom | Tax Planning | Withholding Tax | Dividends |


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