Standardized tax recovery processes often miss non-routine events, such as spin-offs. The Vivendi case highlights why fund managers should actively review all forms of cross-border withholding tax exposure.
Corporate actions often carry tax implications that are not immediately obvious. The Vivendi spin-off in December 2024 is one such case. While it appeared relatively straightforward in form, the associated withholding tax implications are more nuanced and warrant closer attention from cross-border investors.
In this transaction, shareholders received newly issued shares in three companies (Canal+, Havas NV and Louis Hachette Group) for each Vivendi share held. Although part of the value was treated as a return of capital, 4.27 euro of the approximate 6.49 euro per share was classified as a ‘dividend in kind’ under French tax law. This portion was taxed at 25 percent for non-resident investors. The result is more than 1 euro withheld per share, applied across over 3.27 billion distributed shares.
This scale of tax leakage can materially affect portfolio-level outcomes, particularly where exposure to Vivendi was significant. Yet the opportunity to recover this tax may not have been recognized or acted upon through standard processes.
Why it may be overlooked
Taxable distributions that take the form of shares, such as the Vivendi spin-off, frequently fall outside the scope of standardized withholding tax recovery mechanisms. These processes are generally designed to identify and recover withholding tax on cash dividends or coupons. When income is delivered ‘in kind’, particularly through corporate actions, it often requires different treatment and may not be automatically flagged for recovery.
In my experience, unless teams are actively monitoring these less routine events, the associated withholding tax can remain unclaimed. The same is true for other non-standard reclaim opportunities, such as jurisdictions with atypical administrative procedures or relief mechanisms that require specialized processing. These areas often sit outside default processes, despite offering material recovery potential.
Reclaimable but time-sensitive
The good news is that the Vivendi distribution is eligible for recovery in many cases, either through reduced treaty rates or, in some circumstances, via full exemption mechanisms, depending on investor structure and jurisdiction. However, the timeline to act is limited. French law imposes a two-year statute of limitations from the end of the calendar year in which the income was received. For this event, claims must be filed by 31 December 2026.
Given the per-share impact and scale of the event, fund managers should consider taking action now to avoid missing this deadline.
Looking beyond the routine
It’s easy to assume that withholding tax is fully covered, until a closer look reveals gaps. I’ve seen seasoned fund managers surprised by missed claims tied to niche events or jurisdictions with unique rules.
This is where a proactive mindset pays off. By asking the right questions and expanding the scope of oversight, investors can uncover hidden recovery potential. Sometimes, the biggest gains don’t come from doing more but from noticing what others may have missed.
As the Vivendi case illustrates, the cost of inattention can be substantial. With deadlines looming and recovery windows closing fast, now is the time to reassess what your current process might be leaving on the table.
Reuben John is managing director, DACH, UK & IE, at WTax. The firm is a member of Investment Officer’s panel of experts.
