Japanese Convertible Bonds (JCBs) - rates, eligibility, availability of relief etc.

09.02.2017

Withholding Tax

Standard rate of withholding tax:15.315%Holding requirements / restrictions:No

The standard rate of withholding tax on interest from Japanese Convertible Bonds (JCBs) is 15.315% in Clearstream Banking.

Important note:

Interest from JCBs received by Japanese corporations before 1 January 2016 is subject to 20.315% withholding tax (15.315% national tax + 5% local tax).

Interest from JCBs received by Japanese corporations on and after 1 January 2016 is subject to 15.315% withholding tax (as from 1 January 2016, the local tax of 5% on interest income paid to Japanese corporations has been abolished).

Interest from JCBs received by Japanese individuals is subject to 20.315% withholding tax (15.315% national tax + 5% local tax). Japanese individuals continue to be subject to the local tax of 5% even after 1 January 2016.

It is the responsibility of the customer to ensure that final beneficial owners are eligible for the tax rates applied for, including the Clearstream Banking default rate. Neither Clearstream Banking nor its local depository has any direct or indirect liability towards the Japanese Tax Authorities in this regard (please refer to documentation requirements below for Japanese residents).

Availability of relief

Beneficial owners that are residents of Double Taxation Treaty (DTT) countries can, provided that the appropriate documentation is submitted to Clearstream Banking, obtain relief at source or exemption from withholding tax on interest from JCBs.

Note: Residents of Double Taxation Treaty (DTT) countries includes tax-exempt eligible beneficial owners under a double tax treaty that has a limitation on benefits (LOB) clause as determined by the minister of finance. In order to be tax-exempt eligible under a double tax treaty that has a limitation on benefits (LOB) clause, the beneficial owner has to be qualified for Treaty Benefits when looking at the criteria specified in the limitation on benefits article. Clearstream Banking does not assist in this regard. Please consult your tax advisor for further information.

A standard refund of withholding tax on interest from JCBs is available through Clearstream Banking for eligible beneficial owners that did not obtain relief at source.

Relief at source

Relief at source or exemption from withholding tax on interest from JCBs is available through Clearstream Banking for eligible beneficial owners that are residents of DTT countries at the tax treaty rate or 15.315%, whichever is lower.

Documentation requirements

To obtain relief at source or exemption from withholding tax on interest from JCBs according to a DTT, the following documentation must be provided to Clearstream Banking before the respective interest payment date (see “Deadlines for receipt of documents” below):

  • Request to Clearstream Banking to Obtain Treaty Relief on Japanese Convertible Bonds, signed and completed by the customer;
  • Payment Breakdown (per payment), submitted via Clearstream Banking’s Upload Beneficial Owner List facility, giving details of the taxable beneficial owners and the respective DTT rates requested;

    Note: There is a Limitation On Benefits (LOB) Article in the DTTs with Australia,  France, Germany, the Netherlands, New Zealand, Sweden, Switzerland, the UK and the U.S.A. such that beneficial owners resident in these countries that would like to benefit from a full tax exemption or, in the case of the U.S.A., full or partial tax relief must provide additional information in the Payment Breakdown.
  • Certificate of Residence (in the original), issued by the beneficial owner’s local tax authorities:
    • U.S. individuals;
    • U.S. national and local authorities etc., U.S. publicly traded companies and their subsidiaries and U.S. public service organisations;
    • U.S. investment vehicles (such as mutual funds etc.);
    • Chilean eligible beneficial owners (financial institutions such as banks, insurance companies, etc. entitled to the lowest tax rate of 4%);
    • Qatari eligible beneficial owners (such as banks, insurance companies, pension funds, etc. entitled to the lowest tax rate of 0%);
    • Tax-exempt eligible beneficial owners (including individuals and pension funds, pension scheme) under DTT with Limitation On Benefits Article (Australia, France, Germany, the Netherlands, New Zealand, Sweden, Switzerland, the UK and the U.S.A.).

The Certificate of Residence is applicable if full tax exemption under any DTT is requested or if full or partial relief is requested for a U.S. beneficial owner.

The Certificate of Residence is valid for one year from the date of issuance, except for Chilean and Qatari eligible beneficial owners, the form is valid until revoked (unless there is a change in the beneficial owner’s details).

  • Power of Attorney to Clearstream Banking (in the original) executed by the final beneficial owner granting Clearstream Banking the right to request tax relief at source , valid until revoked (unless there is a change in the beneficial owner’s details);

    Note: In case of customer holding third party assets, the Power Of Attorney from the Beneficial Owner to Clearstream Banking should be supplemented with a Cover Letter signed by the Clearstream Banking customer (two authorised signatories) and confirming that the signatures on the Power Of Attorney are true and valid.

  • Form 17 Attachment Form for Limitation On Benefits Article should be provided by the following beneficial owners:
    • U.S. national and local authorities etc., U.S. publicly traded companies and their subsidiaries and U.S. public service organisations - Part A must be completed;
    • U.S. investment vehicles (such as mutual funds etc.) - Part B, C or D must be completed, as applicable;
    • Tax-exempt eligible beneficial owners (excluding individuals and pension funds, pension scheme) under DTT with Limitation On Benefits Article (Australia, France, Germany, the Netherlands, New Zealand, Sweden, Switzerland, the UK and the U.S.A.).

N.B.: Form 17 for tax-exempt beneficial owners under DTT with Limitation On Benefits Article that are individuals and pension funds, pension scheme will be filled in by our Depository and submitted to the Japanese Tax Office directly.

N.B.:Beneficial owners who should fill in Part B of Form 17 may opt to complete the “Declaration Letter” (see below) instead of completing Part B of the Form 17 but a Form 17 is, nevertheless, required.

The Form 17 is valid until revoked (unless there is a change in the beneficial owner's details), as from the date of submission of the Form 17 to the Japanese Tax Office.

  • Declaration Letter - For beneficial owners for whom Part B of Form 17, normally applicable, has not been completed and for French (for example, SICAV and FCP) investment vehicles such as mutual funds. The form is valid until revoked (unless there is a change in the beneficial owner's details).
    Note: For French investment vehicles, no Form 17 is needed.

Note: Relief at source is not available to residents of Japan but customers holding JCBs on behalf of Japanese residents must provide a Payment Breakdown (via Clearstream Banking’s Upload Beneficial Owner List facility) per payment in order to have the correct tax rate of 20.315% (15.315% national tax + 5% local tax) applied to Japanese individuals and 15.315% applied to Japanese corporations.

When completing the Payment Breakdown for Japanese individuals, 15.315% should be specified (and not 20.315%, as the file refers to national tax only. The 5% local tax will, however, be deducted in addition to the 15.315% when processing the payment to a Japanese individual, resulting in an effective tax rate of 20.315%.

Deadlines for receipt of documents

Documentation for relief at source or exemption from withholding tax on interest from  JCBs must be received by Clearstream Banking at the latest 10 business days before the first income payment date, by 10:00 CET, and, for each per-payment Payment Breakdown only, at the latest 10 business days before each income payment date, by 10:00 CET.

Standard refund

Standard refund of withholding tax on interest from JCBs is available through Clearstream Banking for eligible beneficial owners that are residents of DTT countries and have not obtained relief ant source.

Documentation requirements

To apply for a standard refund of withholding tax on interest from JCBs according to a DTT, the following documentation must be provided to Clearstream Banking before the respective deadline (see “Statutory deadline” below):

  • Letter of Request to Clearstream Banking for Reclaim of Withholding Tax on Japanese Securities, signed and completed by the customer and submitted per reclaim request;
  • Beneficial Owner Details List, submitted via Clearstream Banking’s Upload Beneficial Owner List facility, giving details of the beneficial owner and the respective treaty tax rate requested;
  • Certificate of Residence (in the original), to be submitted by all customers. The Certificate of Residence should be issued by the competent authority and is valid for one year following the date on which it was stamped by the local tax authorities.
    This period must cover the date on which the reclaim application is submitted to the Japanese Tax Authorities.

    And upon request, an additional Certificate of Residence issued by the competent authority covering the interest payment date (in the original), to be submitted by all customers.

  • Power of Attorney to Clearstream Banking (in the original and notarised), executed by the final beneficial owner granting Clearstream Banking the right to request a tax refund,  valid until revoked (unless there is a change in the beneficial owner’s details);

    Note: In case of customer holding third party assets, the Power Of Attorney from the Beneficial Owner to Clearstream Banking should be supplemented with a Cover Letter signed by the Clearstream Banking customer (two authorised signatories) and confirming that the signatures on the Power Of Attorney are true and valid.

  • Form 17 Attachment Form for Limitation On Benefits Article should be provided by the following beneficial owners:
    • U.S. national and local authorities etc., U.S. publicly traded companies and their subsidiaries and U.S. public service organisations - Part A must be completed;
    • U.S. investment vehicles (such as mutual funds etc.) - Part B, C or D must be completed, as applicable;
    • Tax-exempt eligible beneficial owners (excluding individuals and pension funds, pension scheme) under DTT with Limitation On Benefits Article (Australia, France, Germany, the Netherlands, New Zealand, Switzerland, Sweden, the UK and the U.S.A.).

N.B.: Form 17 for tax-exempt beneficial owners under DTT with Limitation On Benefits Article  (Australia, France, Germany, the Netherlands, New Zealand, Switzerland, Sweden, the UK and the U.S.A.) that are individuals and pension funds, pension scheme will be filled in by our Depository and submitted to the Japanese Tax Office directly.

The Form 17 must be submitted per reclaim request.

  • Declaration Letter - U.S. Investment Funds (for U.S. investment vehicles (such as mutual funds etc.)), to be submitted per reclaim request;
  • Declaration Letter - <national> Pension Fund (applicable country-specific form) should be provided by all exempt pension funds under DTT with Limitation On Benefits Article.

The form is valid until revoked (unless there is a change in the beneficial owner’s details).

  • Credit Advice of the payment to the final beneficial owner, to be submitted per reclaim request.
    If the income is not paid by us directly to the final beneficial owner, credit advices of the payment from all parties involved, from Clearstream banking up to the final beneficial owner, are required.
  • Further additional supporting documentation upon request from the Japanese Tax Authorities or Clearstream’s local depository.

Statutory deadline

The statutory deadline for reclaiming withholding tax using the standard refund procedure is five years after the date on which the income was distributed.

Clearstream deadline for standard refund applications

Documentation for a standard refund of withholding tax on interest from JCBs must be received by Clearstream Banking at the latest three months before the statutory deadline.

All standard refund applications received after this deadline will be processed by Clearstream Banking on a "best efforts" basis. However, in such cases, Clearstream Banking will apply an extra charge and accepts no responsibility for request that have not reached the Japanese authorities by the date considered as being the statute of limitations deadline.

With respect to tax reclaims in general, customers are reminded that Clearstream Banking accepts no responsibility for their acceptance or non-acceptance by the tax authorities of the respective country. It is the customer’s responsibility to determine any entitlement to a refund of tax withheld, to complete the required forms correctly and to calculate the amount due.

When are refunds received?

The estimated time for receiving a standard refund is approximately six months from the date of receipt of the refund request.