Where did the idea for TaxTec come from? What motivated you to start the business?
When I left Goal, I was consulting for various companies in financial services — both in class actions and in the world of tax reclaim. It was during the course of this, two or three of my consulting clients said to me, “Why are you consulting? Why don’t you set up your own business?”
The market needs a new player, a competitive player, and someone who is credible with new technologies. With all due deference to our competitors, their technology is not great — and I can say that based on lots of experience. Our technology is absolutely leading-edge and we’ve partnered with Deon Digital, who have taken on our whole technology assignment globally. They are very much a green technologies company which sits well with our ethos and our ethics.
That was the birth of TaxTec — someone planted the seed in my mind of ‘Why don’t you do this?’ I spoke to Daron [Pearce, co-founder of TaxTec], who I have been close to for longer than we both care to remember, probably the best part of 40 years, since we were at Bank of America together. We got talking and based on Daron’s experience of running BNY’s asset servicing business for EMEA for many years, and my experience in the tax recovery space, we concluded that we could and should do something together.
We started some tentative outreach to the market, just to confirm what I’d heard before, and that culminated in us forming the company in November 2023. We now have three companies: the parent holding company TaxTec Group Limited; we have a US entity, TaxTec Inc., and we have TaxTec UK Limited.
Since forming, we’ve attracted investors from a broad spectrum across our network. Those people have been kind enough to put their faith, trust and their money into TaxTec, which has enabled us to come to market fairly rapidly.
It’s not even a year and we’re at the point where we’ve got technology, which we’ve demonstrated to potential clients. It has been fabulously well received, quite rightly, because it is way ahead of anything else that’s out there.
We’ve now just launched the company, because previously we’ve been working very much in stealth mode. We didn’t see any benefit in being visible sooner, because there are only two or three leading competitors in this space — WTax and GlobeTax are the behemoths that we are targeting and we did not see any point letting them know that we were coming. We really have been in stealth mode until now.
Why should clients be excited about TaxTec? What sets you apart from the competition?
Our technology is vastly superior. The reporting you can achieve with our technology is all real-time, anytime. Our competitors, with all due respect to them, are not capable of doing that.
When we’ve been demoing this technology, we have had comments like “cool”, “awesome”, “slick”, “far better than anything we’ve seen”.
The real time reporting is great because at the end of a dividend programme on American depositary receipts (ADRs) for example, you can get a snapshot the minute the programme closes. You can see what the position is, bucket by bucket. From personal experience, I know that previously it would take at least two to three weeks to prepare those reports from other providers.
How the technology that you have built differentiates you?
Our technology uses a lot of AI. I know AI is very trendy and a lot of people are bandying it out there without really understanding what it is. But we use it to read a lot of documentation that comes in, because tax reclaims are still very much paper-based. Although there are a lot of initiatives to get away from a paper system, it is still very much one.
We use AI to read the forms because, on any given programme, we could get in between three and 15,000 documents that have to be completed correctly.
With AI, give it less than a minute and it is done. It will throw out the exceptions and even if you have five exceptions, someone has got to look at them but that only takes five minutes.
When you say ‘enhances investment returns’, what do you mean?
It means that our technology will ensure that you optimise the tax that you can get back. We’ve got all the correct tax matrices, and there are over 3,000 double taxation treaties in existence globally.
This obviously takes a fair bit of maintenance and research, but because our technology allows us to process the claims faster, and more accurately than anybody else, we will be able to get your money and potentially more of it back quicker. You are going to get use of funds way ahead of anybody else.
We will commit to starting to file reclaims within one business day of the reclaim information being sent to us. Other companies won’t have that aggressive timeframe. We will probably get the money back a couple of years ahead of a custodian, just because the nature of our business is very specialised and that’s what we focus on. Custodians have got to concentrate on 50 plus different services according to client demand.
They can’t invest in everything and historically, tax reclaim has been one of those areas where there’s not been much investment. We want to see ourselves, not as a competitor to custodians but we see ourselves as complementary if they need assistance with client deadlines or backlogs.
You have assembled an experienced team, tell me about what makes them so special?
The people we’ve employed have all got great experience in this very specialist market. They’ve either worked as custodians, at insurance companies or fund managers. They know the marketplace and we have specifically targeted to hire the best around.
With our technology, we are very fortunate that we don’t need a huge team. By March, we will have a team of around 16 to 20 people, as the business grows. But we don’t need to expand significantly as we win new client mandates because the technology enables us to be comparatively volume insensitive.
Why is US$16 billion of tax left unrecovered every year? How will TaxTec change that?
There are a whole raft of factors when you look at the various markets. The US is the heavyweight when it comes to investing overseas and most of the reclaimed markets are in continental Europe and Scandinavia. That is where the focus is.
You also ask why [there is such a large sum of money unrecovered] and it could be that some of the underlying beneficiaries don’t want the level of visibility that comes with reclaiming withholding tax.
This could be because it makes them visible to another tax authority for another type of tax, which might far outweigh the benefit they’re going to get from reclaiming. There are a whole number of reasons which we will explain in a forthcoming series of research reports.
What client types does TaxTec serve and what is important to each of them about what you do?
The underlying ethos for all of them is to optimise getting back the tax as quickly as we can. There are seven or eight different client types, we are looking to service asset managers, hedge funds, pension funds, insurance funds, wealth managers, sovereign wealth funds, high-net-worth individuals, and we want to complement the custodians. The ethic for all of them is to try and get that money back as quickly as possible.
Where do you see TaxTec in three years time?
We have come a long way in 11 months and so three years in the future is a further three times the life cycle of the company. My ambitions are to have been appointed to manage at least 50 per cent market share of sponsored and unsponsored programs in the ADR tax relief agent space. Currently, GlobeTax has a 100 per cent monopoly of both the sponsored and unsponsored which, with absolutely no disrespect to GlobeTax, is not a good position for anyone but GlobeTax. There is too much market concentration and vendor risk, and although they’re seemingly a very robust company, we’ve seen big companies go under before. There are some severe market concentration risks that need resolving, and we are in a position to help reduce that risk. Obviously, there are financial benefits for us. But, we are reducing costs for our clients because our technology is vastly superior.
I want to make great inroads into the tax reclaim space. We will continue to innovate but I don’t really want to give away all of our plans and competitive advantage.
There are certain things we’re going to be looking to do with unsponsored programs — that’s a comparatively under-developed space at present compared to sponsored programs. We are starting to work with one of the larger depot banks on how we can re-define that process, making it easier for all parties involved. We’ve also signed or are in negotiations with several strategic partners all of whom are industry leading firms. These partnerships will be announced over the coming months.
What can clients expect from TaxTec? How are you going to do things differently?
I think our client service will be of the highest standard and we have award winning client service staff on board.
Our pricing will be very competitive, we’re not getting involved in a race to the bottom because that’s just pointless. We could afford to do it, others could not, but that is not the way. We just want to offer competitive, compelling pricing.
The underlying structure of the service will be different. For example, we might well offer a service whereby the refunds go directly to the client, as opposed to going to us or to an agent, which takes away financial exposure to the client and should give them more comfort.
We want to disrupt the market. It is quite a comfortable space for some participants who are simply turning over without really having to innovate or do very much to make money.
We want to disrupt the market, and show clients that there is another way and modernise our industry.
What are the key challenges facing the tax recovery sector and how will TaxTec address them?
The main challenges are the ongoing reliance on paper. There are lots of good initiatives out there; the Dutch authorities have good online processing capability and the German tax authority is trying to bring in their new system which has been delayed a couple of times. The intent is there and the Faster and Safer Tax Relief of Excess Withholding Taxes (FASTER) is going to hopefully make the documents a lot quicker and a lot more standardised across the EU.
I think a big challenge, which a lot of people aren’t focusing on, is the Digital Operational Resilience Act (DORA). We will be DORA compliant, but some providers may not be able to conform quickly with DORA given their reliance on legacy systems.
I think getting rid of paper, making things more secure and less open to fraud is the main thing. We have to make it easier, quicker, more transparent for everybody involved — clients and beneficiaries, from the fund managers, the custodians to the tax authorities — and make sure everyone knows this is a very transparent system, and you can all see what’s going on.
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