by Edward C. Kelleher
With the start of the foreign dividend season in April, DTCC has begun alerting participants to new tax-saving opportunities available via its TaxRelief® Service, as well as changes and updates that may affect tax reclaims in 2010.
The TaxRelief Service, offered by DTCC’s Global Tax Services through The Depository Trust Company (DTC), a DTCC subsidiary, enables participants and their clients to obtain tax relief on foreign-sourced income payments. This comes either up front when a non-U.S. income payment is made – called “relief at-source”– or post-payment through accelerated refunds. In 2009, the service delivered more than $1.7 billion worth of tax relief benefits to participants.
New TaxRelief countries
Two countries – Italy and New Zealand – have joined 15 other countries and territories that offer tax relief via DTC.
In Italy, DTC worked with the depositary banks and their agent, Globe Tax Services, to make all Italian securities eligible for TaxRelief for all qualified U.S. and non-U.S. beneficial owners. In New Zealand, selected American Depositary Receipts (ADRs) are now eligible for TaxRelief. ADRs are receipts for shares of a foreign-based company traded on a U.S. stock exchange and held in custody by a depositary bank in the U.S.
“Our TaxRelief Service is based on DTC’s individual negotiations with tax authorities and depositary banks in each country we serve,” said Nardeo Ganesh, director, DTCC Tax Services. “In New Zealand and elsewhere, we will continue to work to cover additional securities so that, going forward, we can provide greater tax relief for participants holding securities in these countries.”
Other countries where there have been new tax developments include:
- Ireland, where ordinary shares (common stock) are now eligible for relief-at-source for both U.S. and non-U.S. qualified beneficial owners. Non-U.S. beneficial owners, however, will be required to submit documentation to the Irish issuer’s agent in the U.S. ADRs in Ireland were already eligible for tax relief for U.S. beneficial owners.
- The Netherlands, where DTC liaised with the depositary banks and their agent, Globe Tax Services, to add all Dutch issues to DTC’s TaxRelief Service.
- Canada, where changes were implemented as a result of the signing of the Fifth Protocol of the U.S.-Canada Tax Treaty. Also, the requirement for a DTC participant to maintain a separate DTC sub-account when holding securities for indirect Canadian participants has been eliminated.
- Spain, where the statutory rate of withholding for non-Spanish residents increased from 18% to 19% as of January 1, 2010.
Updated tax information
“In response to changes in Canada and Spain, we’ve recently updated the TaxInfo® content for both countries,” said Ganesh. “We urge customers to review TaxInfo for all markets and to read all relevant Important Notices for each issue prior to making Elective Dividend Service [EDS] elections. This will help ensure they are aware of the latest information and applicable issue guidelines.”
Where to Go for TaxRelief
DTC’s TaxRelief provides at-source or accelerated tax relief for depository-eligible securities in the following 17 countries and territories:
- New Zealand
- Puerto Rico
TaxInfo is a service of DTC that provides succinct international tax withholding and relief information to help participants make the appropriate tax relief elections on income payments from foreign securities.
Each country has requirements that must be met to ensure that tax relief is granted. To claim benefits covered under U.S. tax treaties, proof of U.S. residency is generally a requirement. Proof of residency comes in a form from the U.S. Internal Revenue Service (IRS) – IRS Form 6166. Form 6166 has multiple uses when it comes to tax relief:
- Some countries require that a new Form 6166 be filed each year before a dividend is issued and tax relief is granted.
- Some countries ask that Form 6166 be issued within a certain time period from when the income payment was made.
- The form may also be required if a taxpayer is filing for a tax refund via the standard long-form reclaim process.
DTC TaxRelief Service is used by more than 400 participants, including many of the largest investment banks and broker/dealers, which obtain tax relief for themselves and their clients in 17 countries and territories (see box, page 13). The service applies to various depository-eligible international security types, including ordinary equities and fixed income securities, as well as American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs).
The TaxRelief Service is accessible via the Elective Dividend Service (EDS) function on DTC’s Participant Browser Services (PBS) and Participant Terminal System (PTS) networks.
To request a Form 6166, a taxpayer or an authorized representative must submit Form 8802 to the IRS. The form is available at www.irs.gov/pub/irs-pdf/f8802.pdf. @
[For more information on the TaxRelief® Service, contact Marta Alvarez at email@example.com or 212.855.2761.)