Foreign shares in collective safe custody: Relief at source and quick refund on Russian DRs in 2019 - update
Note: This announcement, originally published on 7 January 2019 has been updated further to add new deadlines for ISINs US80585Y3080 and US55315J1025. Changes have been highlighted.
This announcement reflects the Russian Depository Receipt (DR) dividend events taking place in 2019 and includes the Clearstream Banking1 procedure and deadlines for obtaining relief at source and quick refund for ISINs US8766292051, US7785291078, US73181P1021 and US80585Y3080 and US55315J1025.
The original Depository Trust Company (DTC) notice with full requirements is available from DTC’s website (CUSIP or security name can be used to retrieve the notice) and customers are strongly encouraged to obtain this notice to ensure they are aware and comply with the full requirements for these events.
Tax procedure for relief at source or quick refund
The Federal Law #366-FZ, dated 24 November 2014, “on changes to the part two of the Tax Code of Russian Federation and some other federal laws of Russian Federation” and Federal Law #376-FZ, dated 24 November 2014,“on changes to the Tax Code of Russian Federation” introduced, inter alia, the abolition of the 30% “punitive” tax rate for the non-disclosed positions. As from 1 January 2015, with respect to non-disclosed securities, withholding agents apply the standard tax rate of 15% by default.
However, the disclosure requirements stated by the Russian securities markets legislation are still in force (as such requirements have not been abolished). Consequently, the DR agents continue to request the aggregate disclosure of the positions to be taxed at 15% statutory tax rate. Customers applying for 15% statutory rate are strongly encouraged to disclose the country and status of the final beneficial owners.
In order to benefit from relief at source or quick refund on income from Russian DRs, customers will need to ensure that the following documents are provided to Clearstream Banking before the respective deadline of the ISIN listed in the table below.
One-Time Certificate for DRs with Russian underlying securities
The One-Time Certificate (see version attached below) must be submitted by all customers, regardless of the residency and status of the beneficial owners. It must further be signed and completed by the customer and remains valid until revoked.
Breakdown of Holdings
If Box 3 was ticked in the One-Time Certificate, a Breakdown of Holdings must be provided, before each impacted income event, via SWIFT MT599 or CreationOnline free-format message (please refer to Announcement D18075 for full instruction formatting requirements) indicating the following:
- Payment date;
- Corporate action ID;
- Customer’s Clearstream Banking account number;
- Customer’s total holding;
- Per country of residence and legal status of beneficial owner:
- Fiscal country of residence;
- Double Taxation Treaty (DTT), reference to exemption in tax code, Russian law details (article, paragraph, sub-paragraph);
- Legal status (individual/legal entity);
- Total holding;
- Tax rate to apply;
- Total holding that remains undisclosed.
The following information must in addition be provided for:
- Beneficial owners claiming full tax exemption (0%), conditional rate (for example, French and Spanish residents), preferential treaty rate and transparent entities:
- Name of the beneficial owner;
- ISO code of fiscal country of residence;
- Tax identification number (if applicable).
- Russian residents:
Customers instructing for Russian beneficiaries are requested to include in the ADTX field or in the additional text of the instruction a confirmation that the Russian beneficial owner has not been caught by any EU or US sanctions regarding Ukraine/Russia.
All these declared positions must be accurate on the relevant record date indicated in below table at 19:00 CET, meaning that no further transactions are allowed after the submission of the Breakdown of Holdings. If there is a discrepancy between the declared positions and the customer’s total holding visible in Clearstream Banking's books, the application for tax exemption will be rejected and, consequently, the maximum tax rate of 15% will be applied.
Furthermore, if Box 3 of the One-Time Certificate is ticked and we receive no Breakdown of Holdings by the prescribed deadline, the customer’s total holding will be considered as being undisclosed and, as a consequence, the maximum standard tax rate will be applied.
The Russian authorities may audit disclosed shares for up to three years after a dividend payment.
Requests for further information may be expected to be made for supporting documentation, including but not limited to an original certificate of residency (COR) containing specific language regarding a DTT (if applicable) between the country of residence and Russia. These forms may also need to be apostilled. There is a 90-day period to provide audit documentation to the authorities with the possibility for 90-day extension. The Russian authorities reserve the right to request additional information/forms as they deem necessary.
Deadlines and fees
In order to benefit from a relief at source/quick refund from Russian DRs, customers must ensure that Clearstream Banking receives the above-described documents for the below-mentioned ISIN by the indicated deadlines:
Relief at source deadline
Quick refund deadline
ADR PJSC TATNEFT
|US7785291078||ADR PJSC ROSTELECOM REG||11.01.2019||14.01.2019|
|US73181P1021||ADR PJSC POLYUS REG||16.05.2019||17.05.2019|
|US80585Y3080||ADR SBERBANK ROSSII REG (1DR/4SHS)||13.06.2019||14.06.2019|
|US55315J1025||ADR PJSC MMC NORILSK N REG (1ADR/0.1SHS)||21.06.2019||24.06.2019|
A depository service charge of USD 0.005 per ADR will apply for relief at source and for quick refund and potentially an external minimum service charge per beneficial owner of USD 25.00 may apply.
Relief at source / Quick refund tax rates
Standard rate (15%) for non-disclosed holders or for any disclosed holders of a non-DTT country or of a DTT country granting a 15% DTT rate.
Russian 13% for Russian residents.
DTT for residents of a DTT country.
Exempt 0%2 for Russian Unit Investment trusts, certain pension funds, supranational organisations recognised by the Russian legislation and sovereign/government entities.
Note: The standard refund process with the Russian Tax Authorities is extremely complex and time-consuming and this procedure will not be offered or supported by Clearstream Banking. As a consequence, we strongly suggest that customers apply for a relief at source/quick refund in order to obtain the reduced tax rates.
Customer's legal liabilities
By using the relief at source or quick refund service, the customer has obligations and liabilities as follows:
- The customer will indemnify and hold Clearstream Banking harmless to any loss, liability or expense sustained by Clearstream Banking as a result of any act done in reliance upon the customer's certification or as a result of the inaccuracy of the information contained in the certification. The customer's liability under this indemnity includes, but is not limited to, reimbursement to the relevant tax authorities, issuer, paying agent, ADR depositary, or any other person or entity for under-withheld tax, or for the erroneous payment of a treaty benefit at source, for foreign exchange fees, for interest on under-withheld funds, and for administrative costs.
- The customer will be obligated to supply to the source country's tax authority and the beneficial owner's home country tax authority which may be the U.S. Internal Revenue Service (IRS), or another appropriate authority, the supporting documentation.
- Clearstream Banking will debit the customer's cash account for any debit of Clearstream Banking accounts made at DTC in response to the request of the relevant tax authorities, the paying agent, or ADR depositary for the amount of the tax relief received at source and related costs.
- At the request of the relevant tax authorities, any customer that uses the tax relief or quick refund service but fails to comply with the procedures may be prohibited from using EDS service to obtain favourable rate for future distributions.
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.
2. Subject to DR agent confirmation.