U.S.A.: Distribution of U.S. contract fees
Effective
immediately
the procedure applicable to contract fees distribution from both equities and debt securities for U.S. tax purposes is as described below.
Background
More and more income distribution from U.S. equities and debt securities is seen to qualify as contract fees, which can potentially be distributed during the life of the security, exclusively or in addition to dividend or interest distributions.
The qualification of distributed income as contract fees is advised to Clearstream Banking1 by its depository after the payment of income.
U.S. taxability and reporting of contract fees
Contract fees are subject to 30% withholding tax and are reported under income code 50 (other income). Exemption of tax is available for a beneficial owner that is resident in a country that has a Double Taxation Treaty (DTT) with the U.S.A. that includes such provision in the “other income” Article, provided that a valid W-8BEN containing a U.S. tax identification number (TIN) is in place.
N.B.: According to IRS Publications, the U.S. tax identification number (TIN) is mandatory on the W-8BEN when the beneficial owner is claiming tax treaty benefits on any income, with an exception for interest and dividend income.
Impact on customers
On payment date, income is paid as a dividend or as interest and withholding tax is applied according to the account certification.
If and as soon as Clearstream Banking is advised of a contract fee payment, the Tax department will send out a notification to advise the customer accordingly, providing the detailed payment breakdown (full original income reclassified under “other income” or split between “other income” and “dividend” or “interest”).
To receive the payment of the fees at the appropriate rate, customers will be invited to provide us with the appropriate documentation depending on their status as described hereafter:
- Qualified Intermediary (QI) customers that assume primary NRA withholding responsibility receive payment of consent fees without deduction of tax: no action is required.
- QI customers that do not assume primary NRA withholding responsibility must, at the latest by 10:00 CET five business days after receipt of the notification, provide Clearstream Banking with an allocation breakdown indicating the holdings and the applicable respective tax rates (0% or 30% “other income”).
- Non-QI customers that hold on behalf of non-U.S. beneficial owners for which a valid W-8BEN including a U.S. TIN has been provided must, at the latest by 10:00 CET five business days after receipt of the notification, provide Clearstream Banking with an allocation breakdown indicating the name of the beneficial owner, its country of residence, its holding and the tax rate to apply (0% or 30% “other income”).
- Customers that are acting on their own behalf and for whom a valid W-8BEN including a U.S. TIN has been provided receive payment of consent fees net or gross depending on their country of residence: no action is required as Clearstream Banking will rely on the information provided in the W-8BEN.
After the deadline, tax adjustments will be processed based on the tax originally withheld on the income distributed and the tax due on the contract fee income portion according to the certification of the account. Income will be reported accordingly under the proper income code.
Identified securities that can potentially distribute contract fees
The following is a list of the securities that have been identified as potentially distributing contract fees.
| ISIN | Name of the security |
| US05518UAA51 | USD FL.R BAC CAPITAL TRUST XIII 07-XXXX |
| US05518VAA35 | USD FL.R BAC CAPITAL TRUST XIV 07-XXXX |
| US381427AA15 | USD FL.R GOLDMAN SACHS CAPITAL II 07-XXXX |
| US38144QAA76 | USD FL.R GOLDMAN SACHS CAPITAL MARKETS, L.P. (III-F) 07-2999 |
| US58551TAA51 | USD FL.R MELLON CAPITAL IV 07-2043 |
| US59156R1169 | UNT METLIFE INC. 301259 |
| US635421AA85 | USD 12,00 NATIONAL CITY PREFERRED CAPITAL TRUST I (FXR TO FLR) 08-XXXX |
| US65339F5070 | SHS NEXTERA ENERGY INC |
| US69351T1144 | SHS PPL CORP. PREF/CONV REG |
| US69351T6010 | SHS PPL CORP. PREF REG |
| US8545023090 | SHS STANLEY BLACK AND DECKER INC PREF REG |
| US9026416464 | UNT UBS AG JE 020440 |
| US91731KAA88 | USD 6,189 USB CAPITAL IX 06-XX |
| US92978AAA07 | USD FL.R WACHOVIA CAPITAL TRUST III 06-XXXX |
Note: This list is for information purposes only and should not be considered as exhaustive. Customers are also reminded that such securities may distribute contract fees during their lifetime but not systematically; also, such securities may pay another type of income (interest or dividend) combined or not with contract fees.
Further information
For further information, customers may contact the Clearstream Banking Tax Help Desk on:
| Luxembourg | Frankfurt | |
| Email: | tax@clearstream.com | tax@clearstream.com |
| Telephone: | +352-243-32835 | +49-(0) 69-2 11-1 3821 |
| Fax: | +352-243-632835 | +49-(0) 69-2 11-61 3821 |
or Clearstream Banking Customer Service or their Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
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