Central securities depository Clearstream has teamed with Xceptor to redefine its capabilities for withholding-tax processing for its custodians and other financial intermediaries. The upgraded service is aimed at helping institutional investors address deal complex and cumbersome, often-manual processes for handling withholding tax across global markets and asset classes.With tax authorities globally elevating the level of scrutiny around withholding tax as they seek to plug the holes in their governments’ finances caused by the Covid-19 pandemic, financial intermediaries are struggling to deal with the complexity of different jurisdictions’ requirements, which can impede efficient and scalable handling of clients’ tax relief and reclaim requests. At the same time, investment firms are keen to address the historic lack of accuracy around tax withholding, which often leads to overcompensation, which in turn can reduce the amount of capital available for investment activities. And, unsurprisingly, the penalties for error can be significant.
The Clearstream-Xceptor joint service is aimed at helping clients boost customer service levels while handling these increasing volumes, complexity and regulation. According to Samuel Riley, Head of Investor Services and Financing at Luxembourg-based Clearstream, “Our clients rightly put their focus on asset servicing processes and delivery. A harmonised and streamlined withholding tax service is a key part of the solution and a cornerstone of efficient and transparent cross-border markets.”
The two companies will deliver a joint service based on the Xceptor Tax Solution that will provide Clearstream’s custodian customers with highly automated and scalable processing capabilities for operational withholding tax. Initial deployment involves the implementation of the Xceptor platform on-premises at Clearstream, with the plan ultimately to host the service in the cloud.
The new service’s standardised process allows for full automation of tax documentation workflows, accurate tax rate determination and an optimised withholding tax relief and reclaim process, and seeks to address the growing complexity and dynamic nature of withholding-tax processes.
“Withholding tax is governed by a host of treaties and bilateral agreements that make it incredibly complicated, with many different requirements,” says Trevor LaFleche, Product Director at Xceptor. These requirements differ by jurisdiction, which may or may not include the need for physical paper copies of tax filings, time limits on specific rules and details of payment chains, among others, all of which need to be taken into account by custodians and investment management firms, he says.
The process also requires up-to-date and accurate beneficial ownership data, which is sourced from the custodians and applied to Xceptor’s business rules in order to meet client requirements. With high volumes of ownership events occurring daily, the service needs to identify and deal with exceptions where the correct documentation is not in place.
LaFleche says the requirements of a depository like Clearstream are no different from those of the custodians Xceptor has traditionally serviced, but the volume of data involved is much higher. He believes the arrangement with Clearstream will allow Xceptor to meet the needs of both sides of the equation and ultimately spark conversations about how to improve processes overall.