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Global cross-border investment losses hit USD 10.5 billion

Some USD 10.5 billion  (EUR 8.5bn) of global investors' rightful returns from foreign shares and bonds were wasted in the latest financial year because withholding tax on dividends and income is not being properly reclaimed.

That's according to a new report from GOAL Group published this week. The total represents around a quarter of all withheld tax on foreign securities.

The UK cross-border investment community chalked up the second highest losses behind the US, with investors missing out on USD 1.19bn. On average, lost returns through unreclaimed tax have escalated by over 80% since 2003. 

Furthermore, it is now estimated that the global market for withholding tax reclamation services by custodian banks is worth around USD 860 million.

Many leading custodians have already recognised the market opening represented by effective tax reclamation services, both for their FM clients, and as an interbank services opportunity. But with around 25% of reclaimable withholding tax still unreclaimed every year, there is a clear opportunity for custodians to increase the scope and efficiency of reclamation services. 

Automated reclaim facilities have made the provision of such services highly profitable, particularly when other revenue streams are declining. 
Income earned on foreign securities attracts a withholding tax in the country of origin, but a portion of that tax may be reclaimed by custodians on behalf of their clients. Losses have increased substantially since GOAL's last market analysis in 2003 because foreign shares holdings are becoming more popular with fund managers.

According to the statistics from the International Monetary Fund and from global stock exchanges, the market capitalisation of global equities rose 39% between 2001 and 2004, whereas the value of cross-border equities investments rose 67% over the same period. Cross-border shareholdings have therefore risen at nearly double the market rate.  

In parallel, dividend yields have become a highly scrutinised element of investors' portfolios, with consequent pressure on fund managers to maximise this element of return.

'Back in 2003, we predicted that the increasing popularity of both dividend payments and cross-border securities would lead to a serious escalation in the losses incurred by unreclaimed withholding tax,' says Stephen Everard, Managing Director, GOAL Group. 'Our new report illustrates the real impact of non-reclamation in today's investment environment, which results in investors' rightful returns languishing in foreign tax systems.

'Increasingly savvy investors, in markets where high yield investments are harder to come by, are putting the fund management community under growing pressure to maximise their investment returns. But fund managers and their service providers - often custodians --still have a long way to go to close the tax gap.  

'Today, technology is widely available to automatically perform the highly complex task of reclaiming withholding tax, a process which has to incorporate varying data, formats and procedures from a multiplicity of different legislatures around the globe. Our report also highlights the reclaim revenue opportunity for custodian banks, most of whom already offer some level of reclamation services but could easily harness better technology and procedures to scale up their offerings.' 

Background notes: GOAL Group combined its own proprietary information on withholding tax reclamation rates with a wide range of global sources on foreign portfolio investment and dividend payments in different markets around the world. This information was then used, along with up-to-date information on the complex picture of withholding/reclaimable rates by country, to calculate actual sums left unreclaimed, both globally, and for individual countries with the larger investor communities.

GOAL Group proprietary data
Global Stock Exchanges
The International Monetary Fund
The Bond Market Association
Global top 50 banks
The Federal Reserve
The European Central Bank
The Bank of England
The Investment Management Association
The World Bank
Standard and Poors
International Financial Services Association
Institute of International Finance

Established in 1989, GOAL is a privately owned software and outsource service company and widely-acknowledged as the industry leader in providing creative products, services and solutions to automate and optimise the reclamation of withholding tax on cross-border securities dividend income and royalties. GOAL's clients cover the entire spectrum of financial institutions ranging from custodians, fund managers, private banks, hedge funds and high net-worth individuals. For more information, please visit

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