How Can Hedge Funds Recoup Overwithholding of Tax on Non-U.S. Source Interest and Dividends?

Many hedge fund managers may be surprised to learn that their funds and investors are overpaying on taxes levied in relation to cross-border investment income earned by their funds.  Foreign governments often withhold taxes on income earned from such investments at higher rates than are delineated in tax treaties because they cannot ascertain the ultimate beneficial owners of such investments.  Nonetheless, the process to recoup such overpayments – dubbed tax reclamation – is complex and varies widely from jurisdiction to jurisdiction.  To help our subscribers understand the benefits, process and intricacies of tax reclamation, the Hedge Fund Law Report recently conducted an interview with Len Lipton, Managing Director at GlobeTax, a tax reclamation services provider.  Specifically, our interview with Lipton covered, among other topics: what tax reclamation is; general steps in the tax reclamation process; statutes of limitations for filing reclaims; the feasibility of self-filing; operational, legal and other challenges fund managers face in the tax reclamation process; the decision whether to self-file or to outsource tax reclamation to a third-party service provider; conducting due diligence on third-party tax reclamation service providers; whether certain fund structures increase tax reclamation challenges; types of information to be disclosed to file a reclaim; whether the type of investor impacts the tax reclamation process and recovery; whether a fund must disclose its portfolio to file for a reclaim; and whether there are regulatory or other drawbacks facing managers pursuing tax reclamation.  This article contains the full transcript of our interview with Lipton.

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