U.S.A : Implementation of Section 305(c) of the Internal Revenue Code


Further to our Tax Announcements, A16059 of 19 April 2016 and A16037 of 9 March 2016, Clearstream Banking1 informs customers that it will start withholding and reporting 305(c) deemed dividends for the fiscal year 2016, in order to remain aligned with both of its depositories, Citibank and DTC.


Internal Revenue Code (IRC) Section 305(c) imposes taxation rules applicable to convertible debt instruments with a Convertible Rate Adjustment (CRA). Should the CRA increase during the lifecycle of the security, Section 305(c) would assimilate it to a potentially taxable dividend to the convertible debt holder. Since there is no cash being received by the holder of the security at the time of the CRA, this is considered as a taxable deemed distribution to the convertible debt holder.

Impact on customers

Information gathering

Information about the deemed distributions and the CRA will be sourced both by our depository Citibank (for Clearstream Banking Luxembourg customers) and by DTC (for Clearstream Banking Frankfurt customers). As a result, Clearstream Banking will not be able to assist customers regarding the methodology used in order to determine the CRA.

Withholding tax adjustments

Clearstream will inform customers of any taxable deemed dividends for 2016 via a SWIFT notification. The notification will also include a deadline for Clearstream Banking customers to send their tax instructions (whenever applicable) in order to benefit from a reduced tax rate and to provision their accounts whenever tax should be applied.

1042s Reporting

Any taxes withheld on 305(c) deemed dividends will be reported in the 1042s issued by Clearstream in 2017.

Further information

Customers may contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or their Relationship Officer.

1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking Frankfurt (CBF) customers using CreationOnline), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.