U.S.A.: Changed withholding tax process for mergers of U.S. REITs
Clearstream Banking1 informs clients that effective
immediately
income distributions related to mergers of U.S. real estate investment trusts (REITs) are subject to withholding tax at the rate of 21% and reportable under income code 24.
Under the U.S. Foreign Investment in Real Property Tax Act of 1980, a merger can be considered as an ordinary dividend distribution and shall be reported under income code 06, provided that the following conditions are met:
- The beneficial owner is a foreign person (non-resident alien individual or foreign corporation); and
- The beneficial owner held 10% or less of the stock, continuously during the tax year in which the distribution was received.
Impact on clients
If a REITs merger is subject to withholding tax of 21%, Clearstream Banking will immediately advise its clients via Swift notification.
Contrary to previous procedure, clients will be taxed at 21% upon payment of the merger event. In order to be refunded, clients must now send a Swift instruction to Clearstream Banking before Clearstream Banking’s deadline (as advised in the Swift notification) confirming if they meet the above-mentioned conditions or not.
Clients who do not send an instruction will not be considered as fulfilling the above-mentioned conditions and no refund will be processed. The payment will be reported under income code 24.
Mergers of REITs where Clearstream Banking clients meet the above conditions and instruct accordingly will be refunded the withholding tax of 21%. The payment will then be reported as an ordinary dividend and taxed according to the client’s certification.
Further information
For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.
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1. This Announcement is published by Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.