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The Depository Trust & Clearing Corporation’s (DTCC) TaxReliefSM service is provided to DTCC clients looking to maximize their returns when investing in foreign countries.  The service enables them to obtain tax relief “at-source” or via a quick refund on income events as a result of tax relief arrangements set up with issuers, agents or the tax authorities of various countries.


Ian DeSacia is a Director within DTCC’s Settlement and Asset Services area with responsibility for DTCC’s Global Tax Services. He sat down recently with @dtcc to discuss the value of Global Tax Services as well as changes and challenges facing the market.

Why is this service important to clients?

TaxReliefSM is a good example of a value added product DTCC provides for clients. Without this service, dividend and interest payments would be made with a higher amount of tax withholding up-front. DTCC clients or their customers would then have to deal directly with the foreign tax authority in countries such as Canada or Japan or with custodians and agents in the local market in which the tax was withheld. This long and tedious process is cut out when they utilize DTCC’s TaxReliefSM Services. In fact, because the cost of obtaining a refund can be higher than the amount of tax withheld, many retail investors would never get  the benefit of reduced tax withholding.

What’s the overall value that TaxReliefSM provides to clients?

In 2013, the TaxReliefSM service provided by DTCC contributed to $2.8 billion in savings to our clients. This is calculated as the difference between the statutory withholding rate less the amount that is actually withheld when our service is utilized. Last year clients received hundreds of millions in tax relief benefits on Canadian income payments alone. Canada is our largest market and is attractive to clients as many Canadian securities pay consistently high yields.

Are clients required to use tax relief services and are there alternatives?

It is not a requirement to use this service. As an example, in Canada the statutory withholding rate is 25%. So if a client does nothing for each dividend payment they will receive the income less 25% withholding tax. Most U.S. investors are entitled to a 15% withholding rate, so the investor would need to go directly to Revenue Canada and file a tax refund claim to get their refund, which can be is a time consuming process that is prone to error. Additionally, if a beneficial owner is a U.S. not-for-profit organization, an IRA account or a pension fund then they are generally entitled to full exemption from Canadian withholding tax. There are also usually costs associated with dealing directly with tax authorities, as third-party experts have to be consulted to assist with the process.

Talk to us about the countries added last year and where volume has been increasing?

In 2013 we added South Africa to our TaxReliefSM services. In the last few years we have also seen major volume increases in Ireland. Many corporations are re-incorporating to Ireland because of the favorable tax treatment there.  These corporations usually maintain a large U.S. shareholder base and dividends to those shareholders flow through DTCC.  We provided tens of millions of dollars of tax relief services to those shareholders during 2013.

Does bringing tax relief services to clients present challenges to DTCC? If so, what are some of those challenges?

Managing risk, keeping up with tax changes, and trying to provide an efficient process to our clients are all challenges faced by DTCC related to this service. There are lots of parties in the tax withholding process, each country has its own tax regime with different requirements for making tax elections, and different treaties between countries allowing for different withholding amounts. The Product Management department works closely with Corporate Tax ensuring that any process that we put in place is in compliance with tax laws in the relevant markets. We also work very closely with the Operations’ department to ensure that we are providing the most efficient process for our clients.

What market presents the most challenges from an operational perspective?

Canada is our biggest challenge particularly around determining the type of income that is being distributed; for example, is it being distributed from a real estate investment trust (REIT), is it non-arm’s length interest, is there a U.S. sourced component to it?  All of these situations require special processing, and when there is an exception to the standard process, we need to identify these issues and provide clear guidance to our clients in a timely manner. With the large volume of transactions that we process, it is a real testament to the Operations department that they are able to identify these unique events and provide processing solutions for our clients.

 Are there any important tax changes in 2014 clients should be aware of?

There are significant changes with tax withholding on Japanese and Russian ADRs starting in 2014 particularly with regard to documentation Japan’s statutory withholding rate increased to 15.315% at the beginning of the year so that it is now higher than most treaty rates. Prior to this increase the rate was 7.147% which was lower than most treaty rates, so many investors received the most favorable rate that they were entitled to by default. Clients need to be aware that they need to make tax elections to ensure that their clients receive the most favorable rate that they are entitled to.

The Russians are following the trend of governments requiring beneficial owner disclosure. Russia imposed a 15% punitive tax in addition to their 15% statutory withholding rate for an effective rate of 30% withholding on investors who do not disclose themselves (name, tax id, address, etc.). We continue to work with the industry to implement the most efficient process for investors to get tax relief at source. As of this time we are working with the industry in getting clearer guidance from the Russian authorities regarding requirements for obtaining treaty benefits.

Anything else you feel is important about tax relief services at DTCC?

Tax relief is really a collaborative effort within the industry which requires the cooperation of various parties such as issuers and agents, depositary banks, foreign tax authorities, and finally, the support of DTCC’s clients.  We work hard at implementing the most effective process for taking foreign tax authorities requirements into consideration while also providing our clients with precise foreign tax information as timely as possible.