Registered Investment Advisor Services

Transcription

1 Registered Investment Advisor Services Table of Contents About Us... Withholding Tax Relief and Recovery... Registered Investment Advisors... Beneficial Owners... Endowments/Foundations... Pension Funds... Depositary Receipt Programs... Statute of Limitations... Scale & Scope... Metrics of Performance... Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11

2 About Us Expertise Founded in 1992, GlobeTax is the world s pre-eminent provider of entitlement recovery services to the investment and financial services community. Our clients, who reside in over 40 countries, include major custodial banks, brokers and large institutional investors, as well as issuers of securities (publicly traded companies). Cross-border withholding tax recovery is a highly complex and often manual process with numerous factors affecting available entitlements and recovery speeds. We help maximize investment returns by ensuring that investors benefit from our extensive tax treaty research and receive all income to which they are legally entitled. In addition, we provide services for US withholding tax reporting compliance to financial intermediaries. GlobeTax is also the market infrastructure for tax reclaims on American Depositary Receipts (ADRs), as the appointed agent for all four US Depositaries issuing DRs (BNY Mellon, Citi, Deutsche Bank, and JPMorgan). Why GlobeTax? Clients include Prime Brokers, Broker Dealers, Hedge Funds, Asset Managers, Institutional Investors, High Net Worth Individuals, Custodians, CSDs, Depositaries, Issuers and Transfer Agents GlobeTax s close, long-standing relationships with foreign tax authorities mean that we are uniquely positioned to successfully file reclaims on our client s behalf in the shortest possible time frame. Over 5 million withholding tax reclaims processed a year. We maintain the most complete interactive database of withholding tax rate and treaty information in the world. Our data products cover 230+ markets. Our strategic long-term relationships with Custodians and Prime Brokers We maintain confidentiality by contracting directly with fund(s) Our Tax Reclaim Specialists possess unparalleled industry experience, and work directly with major financial institutions and foreign tax authorities. Fees are entirely contingent and payable only after money has been recovered 2

3 Withholding Tax Relief and Recovery What is Withholding Tax? When investors receive income (dividends/interest) from cross border investments, they are often taxed at a high, statutory withholding rate. Under Double Tax Treaties investors may be eligible to a lower treaty rate and may reclaim the difference. There are over $200 billion in taxes over-withheld on cross border dividend and interest payments each year. The process to file a reclaim can be onerous with distinct procedures, languages, requirements to file and cultural nuances in virtually every country. Foreign tax authorities hold your money for a set period, which varies by market, called the Statute of Limitations. If the investor doesn t reclaim their entitlement within that time frame, it is lost. Statutes of Limitations range from 2-7 years, so the initial recovery is often a windfall for the investor. Relief at Source Withholding Tax Recovery The relief at source process enables investors to get taxed on their cross border investment income at the correct rate on pay date. The need to receive accurate data and documentation often through several intermediaries) to the paying agent is highly time sensitive. Additionally, different paying agents can have different requirements, even in the same markets. GlobeTax works with subcustody networks as the agent of a financial institution to work within the established procedures of the local subcustodians. We also put in place data and document delivery mechanisms to allow the maximum number of a firm s customers to access tax relief at source. From a typical fund s perspective, recovering over-withheld taxes can improve portfolio performance by 25 basis points or more. Financial institutions are increasingly viewing investor tax services as a way to add real value in a competitive environment but find the complexity of understanding rates, documentation and procedures across all client and income types challenging. GlobeTax is the partner of choice for many institutions because we simplify the service delivery to a matter of data collection and documentation. 3

4 Registered Investment Advisors The Issue For RIAs and their clients, withholding tax is a cross border issue and it should be viewed as an inhibitor to performance and returns. Benefitting from strategic long-term relationships with virtually all major Custodians and Prime Brokerage firms, GlobeTax provides a specialized service to recover over-withheld tax for RIAs and their many different types of investing clients. We act on their behalf to identify potential entitlements, file reclaims, and ultimately credit their account directly with all funds recovered. For RIAs this results in improved performance, greater client satisfaction and further solidifies you are looking out for their best interest. In short, Foreign Investment Tax Reclamation results in additional benefit to you and your clients rather than an unintended benefit to an external government. Accounts Serviced* Taxable Tax Exempt Individual Traditional IRAs, Roth IRAs Joint Tenant and Corporate Pensions, 401(b), 401(k) Endowment/Foundations *Not an exhaustive list FAQs But IRAs and similar accounts are supposed to be Tax-Exempt... Qualified Accounts are often tax exempt in their country of residence. However, because of the way banks and brokers hold securities, it is often not clear to a foreign government or to a paying agent precisely who owns the assets and subsequently what the tax status should be. Of the clients I advise, which ones would benefit from GlobeTax s services? Any investor with meaningful foreign holdings can benefit from tax reclamation. Generally speaking, it will be the larger clients who will see the most meaningful benefit. The increase in returns can range from basis points for a portfolio with an international component (including ADRs). What steps are required of me to work with GlobeTax? Sign-up is an easy, one-time procedure, and involves execution of simple documents authorizing us to obtain Certifications of Tax Residency which we need as evidence to overseas tax authorities of domicile for tax filing status in order to file reclaims on our clients behalf. We then act as a back-stop, monitoring income (dividend and interest) and filing as recovery events arise. 4

5 Beneficial Owners The Product Who Can Use the Service? Beneficial owners of securities and recipients of cross border investment income are often entitled to withholding tax refunds or tax relief at source, depending on several factors including tax residency, legal status and the existence of double taxation treaties. GlobeTax can be engaged directly by beneficial owners to identify entitlements and recover over-withheld taxes. We service all beneficial owner types* Asset Mgrs. SICAVs Sovereigns Individuals Corporations Hedge Funds Foundations Proprietary Trading Partnerships Nominees Mutual Funds Pensions Family Offices Trusts Omnibus *Please note that this is not an exhaustive list. Contact us for more information Metrics Volume 5 million+ reclaims filed annually Instrument types Depositary Receipts (ADR, GDR, IDR) Foreign Ordinary Shares (ORDs) Fixed Income (Bond, Bank Debt) Service Elements Portfolio Analysis Historic Reclaims Current Reclaims Relief at Source Free analysis of portfolio positions to identify Scale & Scope of any refund entitlement. Statutes of Limitations offer potential recovery of over-paid tax on income received in previous years, often resulting in a windfall payment. Monthly analysis of investment income and automatic filing of reclaims. Applications for payment of income based on treaty rate entitlements in applicable circumstances. Data and Documentation Requirements Data Protection GlobeTax receives beneficial owner s income data from custodians on a monthly basis. Fiscally transparent entities, e.g. partnerships may also need to provide periodic breakdowns of underlying beneficial owners. GlobeTax requires personal data regarding beneficial owners of securities income. Information about beneficial owners is held securely in the USA. GlobeTax is a certified signatory to the Safe Harbor Act approved by the EU Commission on Data Protection. Please visit to see our privacy policies and rules. 5

6 Endowments / Foundations The Issue But we re supposed to be Tax-Exempt?... Endowments and foundations are often tax exempt in their country of residence. However, because of the way banks and brokers hold securities, it is often not clear to a foreign government or to a paying agent precisely who owns the assets and, subsequently, what the tax status should be. In many markets the treaty rate for endowments and foundations is 0%. As the beneficial owner of the securities, funds are entitled to reclaim the difference between the statutory rate and the treaty rate. The Process What to do and why... To receive an entitlement, reclaims for foreign ordinary shares as well as Depositary Receipts (e.g. ADRs, GDRs) must be filed with foreign tax authorities. For endowments and foundations investing in hedge funds, tax reclamation should be a consideration in the manager selection process. Since many endowments and foundations are entitled to recover 100% of the tax withheld, tax recovery can significantly impact investment returns. Statutes of Limitations vary by jurisdiction but are generally multiple years, so the initial recovery including historical reclaims is often a windfall for the fund. The Solution GlobeTax: Has strategic long-term relationships with virtually all major Custodians and Prime Brokerage firms Maintains Beneficial Owner confidentiality by contracting directly with the fund(s) 6

7 Pension Funds The Issue But we re supposed to be Tax-Exempt?... Pension funds are often tax exempt in their country of residence. However, because of the way banks and brokers hold securities, it is often not clear to a foreign government or to a paying agent precisely who owns the assets and, subsequently, what the tax status should be. In many markets the treaty rate for pension funds is 0%. As the beneficial owner of the securities, funds are entitled to reclaim the difference between the statutory rate and the treaty rate. The Entitlement Protecting Your Interests Due to the relative size of their portfolios, pension funds are often able to recover very large sums of money by filing reclaims. Pension funds are a leading force among institutional investors urging alternative investment vehicles, such as hedge funds, to recover entitlements. Due to the complexities involved many brokers, particularly custodians and prime brokers, do not offer a tax reclaim service. As a result, clients may be missing out on significant entitlements. Due to their tax status, pension funds are often allowed to reclaim the entire withholding amount (dependent on the market and applicable treaties). The Solution GlobeTax: Provides tax reclaim services to thousands of pension funds, helping to recoup billions of dollars in excess withholdings. 7

8 Depositary Receipt (DR) Programs Glossary of Terms Depositary Receipt (DR): negotiable certificate issued by a bank of one country (depositary) representing a specific number of shares of a stock traded on an exchange in another country. American Depositary Receipts (ADRs): publicly available to investors in the US. DR Benefits Global Depositary Receipts (GDRs): offered to investors in two or more markets outside the issuer s home country. For DR Holders: Elimination of global custody safekeeping charges. Facilitate cross-border investment without hindrance of local regulatory barriers. Eliminate the need to purchase shares overseas in foreign currency. For Issuers: Increase in market capitalization through broadening of the investor base. Elevation of the issuer s market profile and its appeal to overseas investors. The Process GlobeTax s Roles Metrics GlobeTax supports the tax processing requirements of DRs and equivalent instruments as the appointed processing agent of the four US Depositary banks (BNY Mellon, Citi, Deutsche Bank, and JPMorgan). Because DRs are synthetic instruments, claims on DRs may generally not be filed to tax authorities or agent banks. Instead they must be processed through the issuing depositary. DR Holder Depositary Issuer GlobeTax Creating Important (market) Notices of tax-related corporate actions processing information and requirements through custodian intermediaries in favor of those holding positions on record date Interfacing with CSDs to corroborate position held by the CSD s participants to ensure valid claim filings Developing special relief and reclaim processes with tax authorities as the Depositary s agent Receiving tax relief and reclaim applications from the marketplace; processing those claims; submitting same for payment; refunding participants; and providing extensive reporting to the market and depositaries to ensure effective control. Issues supported by GlobeTax: 300+ sponsored issues All available unsponsored issues Percentage of Depositary banks outsourcing tax recovery operations to GlobeTax: 100% Percentage of DR reclaims filed through GlobeTax: 99+% 8

9 Statutes of Limitations Tax Reclamation Investors holding foreign securities are normally taxed on their investment income (dividends and interest) both in the country of investment, at a statutory withholding rate, and in the country of tax residency. Statutory rates can reach 25-35%, meaning investors only receive a fraction of the investment income to which they are entitled. Due to treaties allowing for more favorable tax rates between certain countries, many investors are eligible to recover some or even all of the tax withheld. However, it is the responsibility of the investor or their financial institution to reclaim over-withheld taxes. Foreign tax authorities will hold the excess funds for a set period (or Statute of Limitations). This varies by market, but is generally between 2-7 years. If the funds are not reclaimed within the Statute of Limitations, they are lost forever. Benefits Investors who are reclaiming excess withholding tax for the first time often receive a windfall payment, as they are likely entitled to multiple prior years of recovery. For the average cross-border portfolio, the benefits of withholding tax recovery can represent a gain of 50 basis points or more annually. Therefore, because of the Statute of Limitations period, the initial recovery amount can add 250 basis points or more to investment returns, depending on levels of leverage. Statute of Limitation Periods In some markets, the allowable recovery period is fixed. Others may vary according to the country of residence and entity type. Statutes of Limitation for some common markets are: Canada 24 Switzerland France Germany 48 Finland 60 Netherlands

10 Scale & Scope Enhancing Returns Double Taxation Treaties can often give rise to an entitlement to recover tax that has been over-withheld by foreign governments. Use this model to calculate the potential recoverables in a portfolio, fund or custody department: Global Typical Investor Your Calculation AUM Assets under management, or the value of assets in the portfolio or fund Cross Border The proportion of the assets held cross border i.e. where the income is received from an investment in a country which is different from the country of residence of the ultimate recipient. $104 trillion $10 million 32% 35% $33.3 trillion $3.5 million Yield The dividend or interest received annually from an investment. Recoverable The average difference between the statutory tax that will be deducted from investment income, and the treaty tax rate the investor may be entitled to have been taxed at. The recoverable varies by market and entity type, but is generally between 10-35% 4.0% 3.5% $1.33 trillion $122,500 15% 15% Total $199.7 billion $18,375 Statutes 5 years 5 years 5 years The average time one can go back and still recover tax on previous income. This multiplies the potential available recovery. Total $1.04 trillion $91,875 This model uses global averages researched by GlobeTax. Cross border investments are increasing at over 16% a year so these numbers will change. Whether any particular investor has an entitlement to recover tax depends on a number of factors. For a more accurate assessment, GlobeTax offers a free analysis based on actual investment income and tax position. 10

11 Metrics of Performance Glossary of Terms As cross border investment continues to grow, the need to manage international tax consequences is increasingly important in order to maximize investment returns. The impact generally ranges basis points. Certification: Before a foreign tax authority will accept a claim for entitlement to a cross border income taxation treaty rate, a claim must be supported by evidence of the claimant s legal form and residency for tax purposes. Process: While GlobeTax can act on behalf of the beneficial owner in many cases, in some instances jurisdictions require the beneficial owner to obtain certification of residency and legal form prior to GlobeTax pursuing a claim. Statutes: The average time you can go back and still recover tax on previous income yield. This multiplies your potential available recovery. Recovery Time: The market average time you can expect to wait AFTER a reclaim is filed before being paid. In most cases GlobeTax obtains refunds in shorter time periods. Notes: There are many other factors, not listed here, that can affect overall time between recognizing an entitlement and realizing an entitlement. There are four types of Statute calculations. The paydate of the income and calculation type may affect the actual date on which any claim entitlement expires. Certification Time (weeks) Certification Process Statute of Limitations Average Recovery Time Australia 2-4 GlobeTax 7 years 9 months Austria 4-6 GlobeTax 5 years 6 months Canada 4-8 GlobeTax 2 years 6 months Denmark 2-4 GlobeTax 5 years 4 months Finland 3-4 GlobeTax 5 years 12 months France Ben. Owner 2 years 6 months Germany Unknown Ben. Owner 4 years 12 months Ireland 1-4 GlobeTax 4 years 6 months Italy 8-12 Ben. Owner 4 years 84 months Netherlands 4-8 GlobeTax 5 years 3 months Spain 4-8 Ben. Owner 4 years 24 months Sweden 4-6 GlobeTax 5 years 3 months Switzerland 3-4 GlobeTax 3 years 6 months U.S GlobeTax 2/3 years 2 months 11