Joint Letter on WHT Challenges and Examples

Mr. Pascal Saint-Amans
Director, Centre for Tax Policy & Administration
Organisation for Economic Co-operation and Development
2 rue André Pascal
75016 Paris
France

Mr. Gerassimos Thomas
Director-General
Directorate-General for Taxation and Customs Union
European Commission
Rue Joseph II 79
1000 Brussels
Belgium

Dear Mr Saint-Amans / Mr Gerassimos:

Further to our letter of 20 April 2020, the undersigned associations welcome the opportunity to share their experience on challenges financial institutions and portfolio investors are facing under the current COVID-19 health crisis, which affect the ability of the latter to access withholding tax relief they are entitled to.

We all welcome steps taken by regulators and tax authorities in several countries to implement alternatives to the acceptance of physical (paper) for the claiming of withholding tax relief, and agreeing to temporarily accept certain documentation in electronic format, provided physical originals are delivered in due course.

We also welcome the Commission’s commitment in the Tax Action Plan of mid July to put forward proposals to introduce in the EU a withholding tax relief at source along the lines of the OECD TRACE Implementation Package.

However, a number of regulators and tax authorities still require the provision of physical documents creating barriers to global investors in circumstances already challenging and non-standard circumstances. In response to these circumstances, investors and custodians have been obliged to review arrangements as part of their contingency plans in respect of the movement of physical paper.

Our members have provided us with concrete examples of the following key challenges / series of scenarios which are arising depending on the cross-border nature:

1. Tax authorities are not being able to issue original Certificates of Tax Residency (CORs) or to stamp the relevant tax relief forms;
2. Original physical tax forms and documents are not being moved by tax authorities;
3. Disruption of postal services is impacting market participants;
4. Re-sending applications due to lack of acknowledgement of receipt by tax authorities;
5. Inability to get signed documents where “wet” signature is required;
6. Inability to get tax documents notarized/apostilled/consularized.

These examples show that the tax documentation process involves receiving tax documentation, referencing and scanning that documentation, validating the documents, instructing the transferring of assets and movements of account market files, providing the documentation to the sub-custodians/tax authorities, and ensuring the documents are stored in systems for easy retrieval and use during the income and reclaims process.

When documentation is in place, it provides for tax relief to the clients/underlying beneficial owners. The main risk is that investors will not get the best or any relief that they are entitled to if this documentation is not in place. A particular risk is relief at source (RAS)-only markets.

Just as tax authorities globally have had to implement contingency plans, the financial services sector had to change (overnight) workflow to enable clients to send data templates via email in lieu of physical documentation. Some custodians turn this data into forms for onward sending, executing under POA, for example, acting on behalf of the client to print these documents out and sign them where ordinarily we would not do this. Notwithstanding dual signing, 4-eye control, chain of POAs, notarization, as described above, the custodian may not be able to act on behalf of its client (being an institutional investor or an individual) in all cases.4 As an illustration of the above, global custodians have had to:

1. Implement Nitro PDF Pro access across the entire operations teams (VDS, Laptop Deployment, or Desktop Deployment) for document stamping, reference numbers, and digital certification (if needed).
2. Distribute shipping and printing supplies to multiple team members’ homes in case of sudden physical location shutdown.
3. Ensure notaries have their stamp at home and, if they are still coming into the office, have them take their stamp home each night.
4. Ensure checks for signing authority of documents at home. If needed, and possible, grant signing authority to more employees.
5. Inventory at home printing capabilities. Distribute out printing hardware and supplies to home locations in case of sudden shutdown.
6. In the event of document re-routing, we are assuming that at least one document processing location will be opened at any given time – meaning they will not both close simultaneously or have an overlap of time while both locations are closed, increasing the chance of lost documents, etc.
7. Address the need to obtain risk and compliance approval to allow for print and ship from home capabilities – we assume this is something that the tax authorities had to address also.

It is however interesting to note that the COVID-19 global lockdown has not resulted in global investors foregoing tax relief on any income arising from sources in the United States. The withholding tax system in the United States has a number of common principles enabling investors to benefit from withholding tax relief, all of which remove the need for the heavy paper based process that exists when claiming treaty relief within other tax administrations:

1. Investors can provide to an upstream withholding agent a self-certification using either a Form W-9 for (US) residents or a Form W-8 for non-US persons.
2. The US W-8 forms have a life span of three years from the end of the year in which signed, unless the recipient can obtain a US domestic tax identification number (TIN).
3. The forms do not require certification by the investor’s home country tax authority
4. They can be delivered electronically and a “wet” signature is not required.

We appreciate your consideration of our examples and any efforts you can make to promote the adoption of the recommendations included in our letter of April 20, 2020 by as many tax administrations around the world as possible. Please do not hesitate to contact Roger Kaiser at the European Banking Federation ([email protected]) if you would like further discussion or clarification of these examples.

Please accept our best wishes for the good health and safety of you and your colleagues in this challenging period.

Yours sincerely,

Rob Nichols
President and CEO, ABA

Adam Farkas
Chief Executive, AFME

Mary C. Bennett
Counsel, AGC

Mark Austen
CEO, ASIFMA

Jonathan Lawford
Chair of International Custody Tax Liaison Working Group, UK Finance

Hervé Guider
General Manager, EACB

Wim Mijs
Chief Executive Officer, EBF

Tanguy van de Werve
Secretary General, EFAMA

Anshita Joshi
Head of Tax,
The IA

Chris De Noose
Managing Director, ESBG

Hedwige Nuyens
CEO, IBFed

Keith Lawson,
Deputy General Counsel, Tax Law, ICI Global

Eric de Montgolfier
Chief Executive Officer, Invest Europe

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