For example, in 2016, the Danish tax authorities published new tax directions, according to which the limitation period for reclaiming excess dividend withholding tax was reduced from five to three years.
Similarly, a Dutch lower court recently ruled that dividend payments from the Netherlands to South African corporate entities with 10 per cent or more ownership in the company are not subject to Dutch dividend withholding tax.
According to EY, many Dutch companies that have withheld 5 per cent dividend withholding tax under the NL-SA Treaty after 18 March 2012 were able to claim a refund based on this court case (the deadline for refund claims with respect to 2012 dividends was 31 December 2015).
Brexit considerations
There has also been debate as to the tax implications of Britain’s impending exit from the EU.
While the UK remains part of the EU, British companies’ subsidiaries that are based in EU nations are exempt from withholding taxes on any dividends they pay to their British parents.
Although the UK does have agreements with certain countries within the EU it does not hold agreements with every European nation. Moreover because the UK itself does not generally tax corporations on these dividends, this means companies would not be able to seek domestic tax relief in its stead.
Refund methods vary greatly according to country. For example, relief at source (granted upfront at the time of payment) is available for French source dividends but Germany and Switzerland do not offer tax relief at source.
US forms need to be re-filed every three years and the American reclamation process can be lengthy. Strict US requirements have often left investors continuing to pay 30 per cent withholding tax on dividends for simply filling out a form using the abbreviation ‘UK’ instead of writing down ‘United Kingdom’.
To reclaim tax in Italy, Spain or France, investors need to go through an agent – an extra cost that may make the exercise not worthwhile. French withholding tax on dividends is generally 25 per cent, while investors in the widely-held Spanish bank Santander can in theory reclaim four percentage points of Spain’s 19 per cent deduction.
All of these variations and changes need to be monitored and integrated into the tax reclamation platform.
It is therefore clear to see that keeping these tax reclamation systems up to date requires a commitment to sufficient resources, including expert staff and/or access to professional advisory services that many organisations overlook or underestimate.
Some have tried to reduce costs by moving their services to a country that offers cheaper operating costs and using junior - and therefore less expensive - staff.
