U.S.A.: Tax impact on mergers of Real Estate Investment Trusts - correction

Note: This announcement, originally published on 6 November 2015, has been updated to correct the percentage of stock that a beneficial owner can hold in order for a merger to be considered as an ordinary dividend distribution. The change has been highlighted.

Clearstream Banking¹ has received confirmation that income distributions related to mergers of U.S. Real Estate Investment Trusts (REITs) are also subject to 35% withholding tax and reportable under income code 24.

Under the Foreign Investment in Real Property Tax Act of 1980, the merger can be considered as an ordinary dividend distribution and 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 is received.

Impact on customers

In the event that a REITs merger is subject to 35% withholding tax, Clearstream Banking will immediately advise its customers via SWIFT notification.

Clearstream Banking will consider that the above conditions are met by default for all non-resident beneficial owners. As a result, mergers of REITs will be reported by default as an ordinary dividend and taxed accordingly.

Customers of Clearstream Banking not eligible to benefit from this classification are required to notify Clearstream accordingly, within the prescribed deadlines. In such cases, the distribution will be subject to 35% withholding tax, and reported under income code 24.

Further information

Refer to Tax treatment of U.S. REITs and RICs for further information.

For further information, customers may contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or their Relationship Officer.

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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500, and 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.