OECD Aims to Ease Access to Tax Treaty Benefits

OECD Aims to Ease Access to Tax Treaty Benefits

The OECD’s Committee on Fiscal Affairs has approved the Treaty Relief and Compliance Enhancement (TRACE) Implementation Package introducing a simplified process for foreign portfolio investors to obtain the tax benefits of bilateral double taxation agreements.

Various nations have signed and enacted more than 3,000 double tax treaties to facilitate cross border portfolio investment. These tax treaties entitle investors to reduced rates of withholding tax on dividend, interest or royalty income. However, obtaining withholding tax relief is often burdensome and many foreign investors often do not avail themselves of the tax breaks.

The OECD has developed TRACE, a standardized "Authorised Intermediary" system, to streamlime the process of obtaining tax relief, reduce costs and enable investors to benefit from their right to reduced withholding tax rates. This system, which countries would adopt, will mitigate the adminstrative barriers that currently affect the ability of investors to claim reduced rates of withholding tax.

The new regime will allow "authorized intermediaries" to claim exemptions or reduced rates of withholding tax in accordance with tax treaties or domestic law on a pooled basis on behalf of their customers.  Investors would be able to confirm their entitlement to exemptions or reduced rates of withholding tax by providing a standardized investor self-declaration to the intermediary with which they have a customer relationship, without procuring a certificate of residence.

 

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