Template:Gmsla witholding rates

Witholding rates

Notwithstanding the starting point — the Borrower takes the risk of whatever withholding may be imposed on the taxes, in practice dealers may commit to general levels with WHT country-by-country — say 85% or something — and generally stick with these even though the specific rates applied for individual dividends may be marginally more or less. This is largely an operational convenience: no-one wants to be forensically tracing precise withholdings actually applied on every dividend, as that may vary on all kinds of factors (e.g. whether the dividend was paid out of capital reserves, whether it was a special dividend or a regular one and so on), and to commit to that is not only expensive and resource intensive, but opens the broker up to all kinds of remediation claims should the amount turn out to be even fractionally wrong — and here the dealer is short an option, as, commercially, it will never be able to recover from its customers after the fact where it has overpaid, but regulators will insist on dealers accounting to customers for any downside — treating customers fairly — even though the customers may have as little interest in receiving the extra money as the dealers do doing the work to calculate and pay it<ref>For exactly the same reasons: “I’ve cut my NAV! I’ve closed my book! I’ve suffered subscriptions and redemptions and I have no way to pass on the gain”.<ref>

So setting a fixed rate which is a good approximation, and which you can adjust flexibly from time to time, should withholding rates or circumstances differ, is basically sound business management. The broker takes some overs-and-unders risk, but it will be minimal in the context of their overall business, and would be drowned out by the cost of employing battallions of contractors in an offshore centre to do the work of reconciling to the penny in any case.