European withholding tax: Claim now or risk missing out

Some of these withholding taxes can be recovered by way of a double tax treaty claim but those relatively well-established processes are being tested due to increased challenges by tax authorities trying to establish eligibility for the investor and validity of the claim. Furthermore, the issue of cross-border withholding tax (WHT) discrimination has been a long-standing concern in European courts. For years, investment funds, pension funds and life insurance companies have argued that they're being unfairly taxed on dividends from European equities (at higher rates than those applied to domestic investors). 

However, the landscape is beginning to shift. The EU’s FASTER directive will change the whole approach to withholding tax recovery and compliance will evolve quite significantly. In addition, Germany will introduce new domestic withholding tax processes in 2027. With the development of these new initiatives across Europe, the approach to WHT recovery is evolving, and opportunities remain for UK funds and life insurers in the post-Brexit environment. Despite the UK’s departure from the European Union, one key legal principle remains highly relevant: the EU Treaty’s protection of the free movement of capital. This principle continues to apply not only to EU member states but also to third countries, including the UK. 

As a result, UK-domiciled funds, pension schemes, and insurance companies still have a strong legal basis to reclaim overpaid withholding tax from multiple European jurisdictions. The door remains open for UK investors to challenge discriminatory tax treatment and seek refunds, just as other non-EU investors, such as those from the US and Canada, have successfully done. 

Where are refunds happening? 

Several jurisdictions have already issued refunds to foreign investors, including many situated outside the EU. Case law outcomes vary by country and fund type, and the table below outlines where refund activity has occurred for both EU and non-EU funds. 

The table outlines refund activity across key European jurisdictions, distinguishing between EU and non-EU investors. For UK-based funds, pension schemes, and life insurers, this is particularly relevant in the post-Brexit environment. In jurisdictions where refunds have already been granted to non-EU investors (such as the US and Canada), UK entities have a strong legal basis to pursue similar claims. 

These variations highlight the importance of a tailored, jurisdiction-by-jurisdiction approach, as each country has its own rules, timelines, and documentation requirements. Underpinning this is the quality of the data, which is critical to assessing the relative benefit of pursuing actions to recover tax. Missing a statutory deadline could mean permanently losing the right to recover significant sums. In countries where discriminatory tax treatment has been acknowledged, UK investors should act promptly to submit new claims before statutory deadlines expire. For previously-submitted claims that haven't been actioned, renewed legal avenues may now be available, including domestic litigation, appeals through local tax tribunals, or escalation via EU-level mechanisms. 

Life insurance companies face a slightly different position as compared to investment funds. Case law is generally less developed than for investment funds, but favourable decisions have already emerged in France, Germany, the Netherlands, and Spain, with further cases progressing through the courts.

The EU’s forthcoming FASTER Directive will significantly reshape the withholding tax recovery process. Designed to streamline and harmonise procedures across member states, it introduces two key mechanisms:

1. Relief at source – where the correct tax rate is applied right away 
2. Quick refund – where overpaid tax is returned within 60 days

A new digital tax residency certificate will also simplify verification. Although implementation is expected from 2030, these reforms signal a shift toward a more efficient and equitable system — one that may benefit non-EU investors, including UK-based institutions. 

Why this matters for the UK 

Even though the UK is considered a third country under EU law (similar to the US or Canada) UK-based investors are well-positioned to challenge discriminatory tax treatment. Encouragingly, as noted above, US investment funds have already secured refunds from EU jurisdictions, setting a strong precedent for further success by UK claimants. UK investors can rely on the same legal arguments, particularly around breaches of the EU’s free movement of capital principle, to support their claims and potentially recover substantial amounts of overpaid tax. 

The cost of inaction may be significant. With other third-country investors successfully reclaiming taxes under EU law, UK institutions shouldn't overlook the opportunity to reclaim taxes on behalf of their investors. As the regulatory landscape evolves (particularly with the EU’s FASTER directive and Germany’s upcoming reforms) UK investors must remain proactive and on the front foot of these developments. The opportunity to recover overpaid tax is real, but so is the risk of missing out through delay or inaction. 

Strategic opportunities for UK investors

As the legal and regulatory environment continues to evolve, UK investors have two clear paths forward:

• Submit new claims in jurisdictions where discriminatory treatment has been recognised and excess withholding tax continues to apply 
• Revisit unresolved claims, including those submitted prior to Brexit, which may now benefit from renewed legal momentum

In both cases, a tailored, jurisdiction-by-jurisdiction approach is essential, as each country has its own rules, timelines, and documentation requirements. Missing a statutory deadline could mean permanently losing the right to recover significant sums. 

Failing to pursue legitimate withholding tax claims could have financial and fiduciary consequences. With other third-country funds successfully reclaiming taxes, UK institutional investors (particularly pension funds, life insurers, and UCITS-equivalent vehicles) may be viewed as not acting in the best interests of their investors. 

Navigating forward

As the European WHT environment continues to evolve, in particular the introduction of the EU FASTER directive, UK investors must remain proactive. Legal precedent, regulatory reform, and growing momentum towards standardising the reclaim approach all point to a favourable climate for recovery. However, success depends on timely action, obtaining and reviewing data promptly, robust documentation, and expert navigation of local tax systems. 

With billions potentially at stake across Europe, now is the time for UK funds and life insurers to revisit their WHT recovery strategies. The opportunity is real but so is the risk of waiting too long.

To find out more ways you can support your withholding tax recovery strategies, contact Martin Killer.