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Here, we turn our attention to the future. Starting with an overview of the regulatory impact of WHT on emerging crypto assets, we then look at what the future might look like for WHT reclaims and how firms can flex to meet the demands of a modern WHT landscape.
In the first instalment of our two-part on the world of withholding tax (WHT), we looked at some of the key issues for WHT reclaims. We covered the challenges with managing constant alterations to forms, international treaties, and market demands, and whether people or technology is the biggest asset in the broader WHT space.
WHT and the regulatory impact on Crypto assets
Most developed countries and markets have already issued guidelines for the tax treatment of crypto assets. Published regulations tend to treat revenue generated from crypto assets like capital gains with similar reporting requirements.
Custodial services for crypto assets have gradually emerged, with certain traditional custodian banks expressing interest in providing them. However, it is yet to be determined how this trend will develop in the coming years, both in terms of the services offered and from a regulatory perspective.
Our view is that we will likely see more demand for an expansion of existing tax functionality around transaction taxes, capital gains, and tax reporting for modern asset types such as crypto.
From a technical standpoint, this would require that data be processed from new crypto data sources. Still, the act of computing a capital gain or declaring a specific transaction is expected to be consistent with other traditional investments in stocks or debt products.
What does the future hold for WHT reclaims?
Four key areas of WHT reclaims are ripe for transformation.
Regulatory and standardization
The use of single tax platforms dedicated to end-to-end customer onboarding, relief at source optimization, and reclaim processing will become more prevalent - especially as the industry pushes for higher volumes of more readily available data around beneficial owners and relief entitlement.
As a result of the uptake of single tax platforms, a range of functions will become automated, reducing dependency on manual, retroactive processes. These will include the automation of position calculation, transaction processing, beneficial owner entitlement to treaty benefits, and the upfront production of supporting documentation.
Tax services for all customer types through omnibus structures and complex fund vehicles
With the ability to automate data flows, produce Relief at Source, and instantly process reclaim documentation, intermediaries are empowered to offer a broader tax service.
As part of that service, beneficial owners could then be accessed within omnibus accounts and fund structures, thus reducing underlying customer dependency on expensive and time-consuming filing services.
Transform Tax Operation into a revenue-generating service
Facilitating a broader, more automated tax service commands greater returns in processing fees while simultaneously reducing legacy support and costs for processing historical documentation and vouchers.
Use of Distributed Ledger Technology (DLT) in WHT processes
Emerging legislation indicates that DLT could transform the tax documentation process. Though still early days, some guidelines have recommended that verifiable credentials and electronic seals be used to validate digital tax certificates.
Indeed, DLT will likely be used in the new European Commission initiative to harmonize WHT in the Eurozone, though this is still to be confirmed.
Still in its emerging stage, there is also potential for DLT to be used to enhance transparency at a macro-level through common tax reporting.
Scaling with a modern WHT landscape
As discussed, the world of WHT never sits still for long but, with a growing reliance on technological innovation, it’s in the midst of a fast-paced transformation.
We stand at the forefront of flexible tax processing, allowing you to serve your customers with profoundly more efficient services. A market leader in tax data automation, we are trusted by some of the largest global financial institutions, including BNY Mellon, Deutsche Bank and Northern Trust.
Contact us today and learn how your business can become a leader in withholding tax management.
