Investment fund withholding tax: no harmony yet
KPMG has just issued a brochure “Luxembourg investment funds: Withholding Tax Study 2010”. This study details the withholding tax rates levied in 68 jurisdictions on interest, dividends and capital gains paid to Luxembourg SICAVs and Luxembourg FCPs, and shows possible reductions of these rates.
We are still far from a single market in this area. The time limitation and reclaim process on withholding tax varies from country to country and there is no common rule.
“On a global basis, the withholding tax regimes applicable in the various jurisdisctions are highly complex and represent an additional cost factor for the funds with clear impact on the fund's profitability. Competition between different funds requires supervision of the various rules and application of mitigation strategies whenever possible. On a European level, the recent ECJ jurisprudence on discrimination matters tends to provide for a common basis to harmonise certain withholding tax rules in the mid-term.” Comments Michèle Kimmel of KPMG Luxembourg's tax division.
Not all double taxation treaties signed by Luxembourg are applicable to Luxembourg funds. A full list of the 32 treaties applicable to SICAV can be found in the brochure. For a fonds commun de placement, which is considered as a transparent entity, the beneficial owner may claim tax treaty benefits, if applicable, with regard to his/her indirect investment through an FCP.