The amount of cross border portfolio investment exceeds US$35 trillion. To encourage growth and cross-border investment more than 3000 tax treaties around the world based on the Organisation for Economic Co-operation and Development Model reduce source taxation on a reciprocal basis.
In practice, however, claiming withholding tax relief under treaties and domestic law is often cumbersome, time and resource intensive for the bulk of foreign portfolio investors and thus often does not happen.
After several years of work with governments and businesses around the world and in close co-operation with the EU, 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.
The Treaty Relief and Compliance Enhancement (TRACE) is a major step in streamlining processes, reducing costs, and giving investors their rights while improving tax compliance, says the OECD.