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

So setting a fixed rate which is a good approximation of the expected dividend, and which you can adjust flexibly from time to time should withholding rates change or particular circumstances differ, is basically sound business management. The dealer 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 battalions of contractors in an offshore centre to do the work of reconciling to the penny in any case.

Now the odd thing here is that these accommodations will typically not be set out in the legal agreement.