In 2025, global investors and asset managers must prepare for significant changes in how tax authorities assess claims under tax treaties. The Organisation for Economic Co-operation and Development (OECD) has updated its rules to target treaty abuse more aggressively. These changes will have a major impact on withholding tax (WHT) recovery, particularly for dividend tax reclaims. Understanding the updates is essential for anyone navigating international tax relief. This article explains the key elements of the 2025 OECD guidance and outlines how investors can stay compliant while preserving access to WHT refunds.
What Are the OECD Treaty Abuse Rules?
The OECD designed its treaty abuse rules to stop entities from misusing double taxation agreements (DTAs). One major issue is “treaty shopping”, where companies route income through countries with more favourable treaty terms. To counter this, the OECD introduced the Principal Purpose Test (PPT) under its BEPS Action 6 framework. If one of the main purposes of a structure is to gain tax benefits, then the tax authority may deny treaty relief.
In 2025, the OECD strengthened the PPT and recommended more rigorous enforcement. Tax authorities now focus more on the actual economic activity behind a structure rather than its legal form. Investors will need to prove that their arrangements serve a genuine business purpose and not just a tax advantage.
What Has Changed in the 2025 OECD Guidance?
The 2025 updates urge countries to apply the PPT more consistently and to also consider the Limitation on Benefits (LOB) clause. The OECD now views the LOB as a useful addition rather than an optional extra. It requires claimants to meet clear ownership and activity thresholds before accessing treaty benefits.
The new rules also call for better transparency. Countries should share information about treaty claims through automatic exchange systems. This collaboration will make it harder for investors to file misleading or inconsistent WHT claims across multiple jurisdictions. The updates aim to stop abuse without affecting honest investors, but they do increase the burden of proof.
How These Updates Affect Withholding Tax Recovery
The updated guidance will make WHT recovery more demanding. Investors who rely on treaty benefits to reclaim dividend withholding tax must provide stronger evidence. They need to show economic substance, active management, and clear tax residency. Entities that exist only to gain treaty benefits may lose their eligibility under the PPT.
Tax offices in many countries are now requesting more documentation. They also take longer to process WHT refund claims. If an investor cannot demonstrate a legitimate business reason for using an intermediary, the claim may be rejected. For example, if an SPV holds shares only to access lower WHT rates, tax authorities may deny the refund.
Asset managers and institutional investors should reassess their structures. The new standards mean that even a treaty-compliant structure can fail if it lacks commercial justification. These developments raise both the cost and complexity of reclaiming dividend tax.
How Countries Are Responding to OECD Rules
Some countries have already aligned with the OECD’s stricter interpretation. France, Germany and Italy now follow more demanding local rules based on the new guidance. They require additional forms, declarations and supporting documents for WHT claims.
Other countries like Switzerland and the Netherlands are updating their refund processes, but at a slower pace. Not every country will implement the changes at the same speed. Some may delay adoption due to administrative challenges or domestic tax policy. This creates a patchy international environment, where the success of a withholding tax claim depends on the local tax authority’s approach.
Increased transparency will also lead to more coordination between tax offices. If one country suspects a fraudulent claim, it can share that information with others. This increases the chance of multi-jurisdictional audits and makes consistency across claims even more important.
What Investors Should Do Now
Investors must prepare for tougher scrutiny. They should review all structures used to access treaty benefits and confirm whether those arrangements meet the OECD’s updated expectations. It is no longer enough to have legal entitlement. Claimants must also demonstrate genuine operational substance. Investors should also be ready to explain the commercial purpose behind any SPV or holding entity used in the investment chain.
It is crucial to stay informed about how each country applies the OECD rules. The same WHT claim may succeed in one jurisdiction but fail in another. Working with tax recovery specialists can improve both compliance and recovery outcomes.
Why Tax Recovery Experts Are Essential
Firms like Global Tax Recovery play a key role in helping clients meet these new standards. They assist with structure reviews, documentation preparation, and claim submissions. Their understanding of local practices ensures that claims meet both treaty requirements and national enforcement expectations.
Tax agents now act as more than just service providers. They help investors reduce risk, avoid treaty abuse allegations, and maintain eligibility for refunds. In this evolving regulatory environment, expert support offers both protection and efficiency.
Additional Considerations for 2025 and Beyond
While the OECD’s 2025 updates are not retroactive, some tax authorities might re-examine ongoing or previously submitted claims under the new standards, especially where abuse is suspected. To meet the economic substance requirement, documentation such as detailed organisational charts, board meeting minutes, contracts showing active management, and evidence of commercial operations in the entity’s jurisdiction can significantly strengthen a claim. It is also important to note that not all countries may adopt the guidance at the same pace. Some jurisdictions, particularly those with weaker enforcement capacity or divergent tax policies, may delay or partially apply the recommendations, leading to uneven application across markets.
Conclusion
The OECD’s 2025 treaty abuse rules represent a turning point in global tax governance. The focus on intent, transparency and substance makes WHT recovery more demanding. Investors must respond by aligning their structures with these new expectations and ensuring their claims can withstand scrutiny.
Those who act early and partner with experienced advisors will be better positioned to secure withholding tax refunds. They will also reduce the risk of rejection and delay. As dividend tax enforcement tightens worldwide, strong compliance will become essential—not optional.
For tailored support in recovering withholding tax and complying with the OECD’s 2025 updates, reach out to Global Tax Recovery.
