by Edward C. Kelleher
DTCC once again is gearing up for the start of the foreign dividend season in April and its TaxReliefSM service will be running at full tilt, alerting customers to tax-saving opportunities as well as to changes in tax laws in countries around the world.
TaxRelief, offered by DTCC's Global Tax Services through The Depository Trust Company (DTC), a DTCC subsidiary, enables customer firms and their clients to obtain tax relief on foreignsourced income payments. This comes either up front when a non-U.S. income payment is made – called "relief-at-source" – or post payment in the form of accelerated refunds. In 2010, the service delivered more than $2.4 billion worth of tax relief benefits to customers.
"The foreign dividend season generally runs from April through the end of June, and we encourage customers to make sure that their files are up to date in the event they need to verify that their customers are entitled to at-source or accelerated tax relief," said Nardeo Ganesh, DTCC director, Global Tax Services.
In 2010, DTCC expanded its services to provide tax benefits for holders of Spanish commercial paper, Italian bonds, certain American Depositary Receipts (ADRs) of Filipino, Dutch and Danish companies, as well as to non-U.S. investors in Finnish ADRs. ADRs, which allow investors to invest in securities from other countries, are receipts for the shares of a foreign-based company held in custody in the U.S.
The Global Tax Services also updated Frequently Asked Questions for Spain, Canada, Ireland, Italy and the Netherlands and TaxInfoSM content for Italy, Indonesia and Spain. TaxInfo is a service that provides succinct international tax withholding and relief information to help participants make the appropriate tax-relief elections on income payments from foreign securities.
Ganesh also noted that the Canadian Specified Investment Flow- Through (SIFT) rules went into full effect on January 1, 2011, for certain publicly traded trusts or partnerships that were created prior to October 31, 2006. He noted that Canadian Real Estate Investment Trusts (REITs) and other investment trusts will require special consideration this year when making tax elections.
Each country has requirements that must be met to ensure 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's TaxRelief Service is used by more than 400 firms, including many of the largest investment banks and broker/ dealers, which obtain tax relief for themselves and their clients in 20 countries and territories (see box below).
The service applies to various depository-eligible international security types, including ordinary equities and fixed income securities, as well as ADRs and Global Depositary Receipts (GDRs). @