So why go through these complicated processes? The biggest benefit of the service is boosting portfolio performance.

When compared to an EAFE index of the 100 largest global companies, investors can add 22-55 basis points to annual portfolio performance, risk free. A visualization of these aggregate performance benefits can be found here.

Offering tax recovery services represents a major differentiator, as not all financial institutions do. To maximize the benefit, it is recommended that clients consolidate all of their holdings into their account at the financial institution to ensure all positions are benefiting from tax reclamation.

Recovering foreign withholding tax is a complex undertaking. The process is exacerbated by:

• Different and ever-changing requirements for each market
• Market-specific documentation
• Multiple stakeholders in the custody chain 

There is confusion surrounding withholding tax and IRS tax credits. Investors believe they can avoid reclaiming foreign withholding tax by opting for foreign tax credits. In almost all cases the IRS restricts this behavior, as stated on IRS Form 1116:

Taxes paid to a foreign country that you do not legally owe, including amounts eligible for refund by the foreign country. If you do not exercise your available remedies to reduce the amount of foreign tax you legally owe, a credit for the excess amount is not allowed.

Because of favorable treaty rates, you do not legally owe a foreign tax authority your tax. In turn, the best course of action to realize any benefit is to file a tax reclaim.

Please note this is not tax advice - please consult a tax professional.