While the vast majority of publicly traded securities is now held through a complex network of domestic and foreign intermediaries, few countries have adapted their withholding tax collection and relief procedures to recognize this multi-tiered holding environment. It is therefore often difficult of impossible to make an effective claim for withholding tax relief.
The OECD Treaty Relief and Compliance Enhancement (TRACE) initiative therefore has developed the Authorised Intermediary (AI) system. This standardised system allows the claiming of withholding tax relief at source on portfolio investments. It removes the administrative barriers that 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.
In order to assist countries in implementing TRACE, the TRACE Implementation Package, which was approved by the Committee on Fiscal Affairs (CFA) in 2013, sets out the procedures, forms and agreements to be put in place to operationalise the TRACE AI system.
In addition, the TRACE XML Schema and User Guide, approved by the CFA in February 2020, provides the standardised electronic format for the information to be reported by financial institutions to tax administrations and for the exchange of information between tax administrations.