ACCORDING to the latest release by OECD the amount of cross-border portfolio investment exceeds USD 35 trillion. In order to encourage growth and cross-border investment more than 3000 tax treaties around the world based on the OECD Model reduce source taxation on a reciprocal basis. However, in practice claiming withholding tax relief under treaties and domestic law is often cumbersome, time and resource intensive for the bulk of foreign portfolio investors and regularly does not happen.

The OECD has developed and approved a standardised system of effective treaty and domestic relief including a complete implementation package for countries to move forward (“TRACE”) after several years of work with governments and businesses around the world and in close co-operation with the EU,. This is a major step in streamlining processes, reducing costs, and giving investors their rights while improving tax compliance.

The Committee on Fiscal Affairs last month approved the TRACE Implementation Package, a self-contained set of agreements and forms to be used by any country that wants to implement the so-called Authorised Intermediary ("AI") system which is a standardized system for claiming withholding tax relief at source on portfolio investments. It removes the administrative barriers that currently affect the ability of portfolio investors to effectively claim the reduced rates of withholding tax to which they are entitled pursuant to tax treaties or to domestic law of the country of investment. It minimises administrative costs for all stakeholders and enhances the ability of both source and residence countries to ensure proper compliance with tax obligations.