Investors globally lost £13.2bn (US$22.4bn) in rightful returns from foreign shares and bonds over the latest financial year because global withholding tax (WHT) on dividends and income was not reclaimed, according to Goal Group.
The UK-based international class action and tax reclamation services specialist says the total represents an increase of nearly 30% in the annual amount lost since 2011. UK investors chalked up the second highest losses, at £680m (US$1.15bn), with US investors forfeiting US$2.77bn.
Goal confirms that reclamation rates on WHT have marginally improved since the group last examined the situation in 2011, with just under 24% now being left unclaimed. However, major increases in market capitalisation and dividend distribution since the previous study has meant that worldwide unclaimed WHT has seen a substantial net increase.
“Cross-border investing and equities are on the rise,” the group reports. “According to the statistics from the International Monetary Fund [IMF] and from global stock exchanges, the market capitalisation of global equities investments rose 81% between 2003 and 2012 and the value of cross border equities investments rose 141%, over the same period.
Goal adds that this rising proportion of portfolio investment devoted to foreign securities means that the lack of tax recovery needs urgent attention from fund managers and custodians.
“Investors are becoming increasingly rigorous in their scrutiny of investments and are putting pressure on fund managers to provide greater transparency,” it reports. “In fact, some fund managers are even making this fiduciary duty to maximise returns compulsory clauses within the contracts they hold with investors.”
Vicky Dean, sales and relationship manager for Europe, the Middle East and Africa (EMEA), tax reclamation, Goal Group, comments: “As the global economy continues to recover, investors are increasingly adopting an international investment strategy to maximise their earnings from securities.
“In all events, these cross-border shares are subject to a tax on returns that is deducted at the source. Although a proportion of this is available to be recovered, a substantial amount is still being languished in foreign tax regimes as the reclamation of WHT is not treated with the due attention it deserves.”
“All those in the fund management community should take the issue seriously and make every endeavour to enhance investors’ returns. A number of leading custodians have already recognised the market opening and effectively utilised tax recovery services, both for their clients and as an interbank services opportunity.
“However with 24% of recoverable WHT lying unclaimed in foreign tax systems every year, there is still a clear opportunity for custodians to increase the scope and efficiency of reclamation services.”
Source: Goal Group
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