Daniel Ginsburg, co-founder and CEO at WTax, discusses the challenges investors face in the current withholding tax space
WTax, established in 2012 and part of the VAT IT group, is a global tax service provider. The business offers services under three umbrellas. The first is WTax Institutions, tailored to asset managers and asset owners seeking withholding (WHT) solutions.
The second is WTax Private Wealth, designed for high net-worth individuals seeking WHT services solutions, and the third is WTax Custodians, which provides tax relief solutions for custodian banks, brokers and international central securities depositories.
Though its capabilities are far reaching, Daniel Ginsburg, CEO of WTax, takes this particular opportunity with Asset Servicing Times to outline the complex field of WHT recovery. He also explains how WTax fulfils the needs of those invested in cross-border securities.
“Navigating the WHT recovery process is a complex task, necessitating a deep understanding of tax regulations across various jurisdictions and knowledge of the investment chain,” he affirms.
Even regulative figures such as the European Commission agree it’s a complex task, given that last year it indicated that existing mechanisms for managing WHT relief are “slow, resource-intensive and costly for both investors and tax authorities’’.
It added that this is the result of “complex and divergent WHT procedures that prevail across EU Member States.”
Yet WTax navigates the space confidently, in Europe and beyond, by providing “comprehensive guidance on tax reclaim opportunities, as well as handling all associated administrative tasks for end investors,” says Ginsburg.
There to help
Ginsburg co-founded the VAT IT group in 2000 and became CEO of WTax upon its launch more than a decade ago. As well as simplifying the tax recovery process, WTax follows the precedent set in cases heard by the European Court of Justice (ECJ) to recover WHT.
“ECJ claims may involve providing tax advice and as such, some entities in the traditional tax recovery ecosystem may not be able to pursue them,” Ginsburg explains. “This limitation paves the way for WTax to step in for its clients to secure the largest possible tax refund.”
He adds: “This combination of efficient process management and technology, in conjunction with expert market knowledge and local presence, emphasises WTax’s commitment to advancing the WHT recovery process — enabling clients to recover their maximum entitlements, unburdened by administrative difficulties.
“One such administrative difficulty arises when tax authorities request supplementary information or paperwork to verify the investor’s refund eligibility. This usually manifests as a tax office rejection or query notice,” Ginsburg outlines. To meet the challenge, WTax houses a dedicated, specialist queries team that offers solutions to handle rejections and queries on its clients’ behalf.
“Managing rejections and queries in tax reclaims, which demands technical understanding and strict adherence to timelines, often poses significant difficulties for investors, hindering successful refunds,” Ginsburg affirms.
“Maintaining efficiency, even in the face of these administrative hurdles, is essential, as WHT leakage has the potential to considerably erode investment returns. In the world of cross-border investing, every basis point matters.”
Change is the one constant
In an ever-changing landscape, managing the continuous changes to treaties, forms and specific market requirements also matters. WTax’s tax technical team is responsible for monitoring and analysing changes in treaties and regulations across jurisdictions.
“This ensures WTax’s market knowledge remains comprehensive, accurate and current,” comments Ginsburg. “By utilising horizon scanning to identify and anticipate tax changes, our speed-to-market and response to these changes provide competitive and sophisticated tax products.”
The tax technical team is also entrusted with the role of examining WHT-related cases adjudicated by the ECJ, “thereby staying informed of precedents set,” Ginsburg highlights. “Such meticulous monitoring is crucial in strengthening the effectiveness and successful outcome of reclaims presented to the ECJ.”
In addition, systematically integrated information, gathered by the tax technical team into WTax’s processing technology, allows for a fully-automated reclaim generation process which Ginsburg affirms “ensures the most favourable and accurate WHT rates are pursued.”
Technology and people
The phrase ‘technology is key’ has undoubtedly become overused in asset servicing in recent years. However, in the WHT space specifically, technology and people are both deemed as keys to success.
“Historically, within a fully manual, paper-based process, people were imperative to manage the WHT reclaim process end-to-end,” says Ginsburg. “Today, as the industry undergoes digital transformation, the integration of technology within tax processes has become an integral asset.”
Ginsburg uses German tax authorities as a key example, as they have recently digitised their WHT reclaim process. “From July 2023 the new portal will become mandatory, replacing paper-based submissions,” says Ginsburg.
However, despite this innovation, some creases are still being ironed out. “Challenges arise from individual registration, the inability to submit multiple reclaims simultaneously, and the portal being only available in German,” he highlights. “This poses difficulties for non-German speakers and requires additional manual work.”
“These challenges demonstrate that while technology plays an increasingly important role in the WHT space, the significance of people with expertise cannot be overlooked. People are instrumental in facilitating the integration of technology, addressing challenges in implementing new systems, providing guidance and training on its usage, conducting software demonstrations, and providing valuable feedback to industry consultations for continuous improvements. The combination of technological innovation and the expertise of skilled professionals is pivotal to achieve the best results and enhance efficiency across the global WHT industry.”
Digital assets
Arguably, the least regulated technological innovation in recent years has been digital assets. With this in mind, what will the ever-growing presence of digital assets mean for the WHT space? Giving his view, Ginsburg affirms: “The dynamic nature of the crypto asset market, coupled with the increasing regulatory attention and calls for enhanced tax compliance, suggests that the future may hold further developments in the realm of WHT for crypto assets.
“However, the precise nature and scope of these potential regulations remain uncertain at present. Continued monitoring of regulatory developments, and proactive adaptation to new tax frameworks, will be crucial for market participants and authorities alike.”
He adds: “With the ongoing efforts to strengthen and digitise WHT relief processes and combat tax fraud, it becomes intriguing to observe whether the European Union Commission will extend its attention to establish defined and harmonised WHT collection processes to the crypto asset world, or if the taxation on crypto assets will remain fragmented per jurisdiction.”
What’s ahead?
“Across jurisdictions, authorities and regulatory bodies are placing increased emphasis on identifying the true owners of assets and investments, aiming to ensure accurate and fair taxation,” deems Ginsburg, when asked how the WHT space is set to change. This is because one prominent aspect of WHT will be a greater focus on beneficial ownership — “driven by the need to ensure transparency and combat tax evasion,” he states.
Ginsburg goes on to say that as there will be a growing demand for sophisticated tax reporting support as local tax authorities evolve, the European Union Commission’s proposal for a common EU-wide tax relief system will only progress.
“Market participants will need to adapt to evolving regulations and comply with the changing expectations of tax authorities globally,” he warns. “The combined effects of the EU proposal for a common EU-wide system, the heightened focus on beneficial ownership, and the evolving demands of local tax authorities will contribute to a more intricate and demanding WHT environment.”
Ginsburg concludes: “To thrive in this changing landscape, market participants will need to remain well informed about these developments and invest in sophisticated tax technology and expertise.”
