The European Securities and Markets Authority (ESMA) has published the findings of its preliminary study of multiple withholding tax (WHT) reclaim schemes. ESMA conducted this preliminary study at the request European Parliament (EP) and has launched another more formal inquiry to gather further evidence from national competent authorities (NCAs) on the supervisory practices and experience regarding those schemes.
The study published on July 2, 2019 assesses how widespread WHT reclaim schemes are across the EU and any potential methods for preventing and detecting them. While WHT schemes are not strictly illegal and "do not necessarily imply breaches of the market abuse or short selling regimes, they may affect the integrity of securities markets and individual firms." ESMA found that WHT reclaim transactions are being investigated in Germany, Denmark, and Austria.
In the report, ESMA identified best practices that could be used by NCAs to detect and investigate multiple WHT reclaim schemes. These include:
- setting up calibrated alerts in surveillance systems to detect cases where the percentage of traded shares of an issuer reaches a significant level, or perform selective analysis around the dividend distribution dates for possibly relevant issuers;
- using central securities registers data on settlement, transactions and short selling data on short positions to check matching transactions;
- liaising with central securities registers and tax authorities to understand the totality of available data; and
- conducting further firm-specific investigations if need be.
As a follow on, ESMA has launched a formal inquiry intended to gather "additional information on the nature of the entities involved and assess the potential involvement of other vehicles or funds set up through shells in other jurisdictions." This follow-up report will focus on
- potential threats to the integrity of European financial markets;
- the nature and magnitude of actors in these schemes;
- whether cases were found of breaches of either national or EU law;
- the actions taken by financial supervisors in Member States, and
- potential recommendations for action and reform to the competent authorities concerned.
ESMA will submit the results of the formal inquiry to the European Parliament.