U.S.A.: New instruction format for events subject to Section 302 of the IRC
Clearstream Banking1 would like to inform customers that as of
1 September 2022
the form “Withholding Statement for Tender Offers/Mergers” will not be accepted anymore and will be replaced by either a SWIFT instruction or Xact Web Portal/CreationOnline message (for customers acting as Qualified Intermediary (QI)) or a “Withholding Statement for events subject to IRC Section 302” (for customers acting as Nonqualified Intermediary (NQI)), as specified below.
Background
When a cash distribution is subject to Section 302 of the Internal Revenue Code (IRC), it is treated by default as a dividend payment and it is taxed at source with the default tax rate of 30%. Subsequently, customers have the possibility to instruct and certify to Clearstream Banking within a defined deadline whether:
- The cash distribution should be treated as a dividend payment (reportable under income code 06 on IRS Form 1042-S or on IRS form 1099-DIV, as applicable) and whether a reduced tax rate may be granted; or
- The cash distribution should be treated as a payment in exchange of stock (capital gains reportable under income code 09 on IRS Form 1042-S or on IRS form 1099-B, as applicable), that is exempt of withholding tax.
While such instruction was previously only accepted via the sending of the paper form “Withholding Statement for Tender Offers/Mergers”, Clearstream Banking now favours the use of paperless instructions and will therefore mandatorily request the use of SWIFT messages or Xact Web Portal/CreationOnline messages if the Clearstream Banking customer acts as a QI. In addition, when the Clearstream Banking customer acts as a NQI, a new template of document, the “Withholding Statement for events subject to IRC Section 302”, will mandatorily have to be used and will be available under the relevant “Tax forms to use” section of the website.
Impact on customers
As of 1 September 2022, Clearstream Banking customers wishing to instruct for a distribution subject to Section 302 of the IRC should provide Clearstream Banking with the below documentation, depending on their status and within the deadline that will be mentioned in the applicable notification sent by Clearstream Banking to customers. Any instruction received via the former “Withholding Statement for Tender Offers/Mergers” will be rejected by Clearstream Banking.
For QI customers:
- An instruction per event, per account and per tax rate applied to a specific quantity of positions in the targeted event.
How to instruct?
- The instruction should be sent via Xact Web Portal/CreationOnline or via SWIFT free-format tax instructions (MT568 or MT599).
- Each instruction should specify all the following data:
- Function: New or Cancel. If Cancel, please specify the reference of the previous instruction message to cancel;
- Country of taxation: U.S.;
- Customer account number at Clearstream Banking;
- Corporate Action Reference ID;
- Security code: ISIN or common code (the common code is recommended if the security is not deposited in the home market);
- Payment date (optional);
- Clearstream Banking customer’s Chapter 3 status: QI;
- Quantity instructed to be treated as dividends or quantity instructed to be treated as a payment in exchange of stock (capital gains). If the latter, the following wording should mandatorily be included: “we certify that for shares eligible to be treated as capital gain, we have received a Section 302 certification from each underlying beneficial owner or another Qualified Intermediary to support this Section 302 instruction”;
- Tax rate to apply to the quantity instructed. If 30% tax rate: Chapter 3 or Chapter 4;
- For Clearstream Banking customers that do not assume Form 1099 reporting and back-up withholding responsibility: Breakdown of quantity instructed per U.S. non-exempt person for which a 1099 reporting will be required.
For NQI customers:
- A Withholding Statement for events subject to IRC Section 302, in the name of Clearstream Banking customer.
- A Certification of treatment of Tender Payment or Certification of treatment of Merger Payment in the name of the final beneficial owner(s).
How to instruct?
Original documents duly completed and signed should be sent to the below address and received by Clearstream Services S.A. before the stated deadline:
Clearstream Services S.A.
Attn: OTL – Tax Services
42, avenue John F. Kennedy
L-1855 Luxembourg
Luxembourg
For own assets customers, the processes are not impacted by the above-mentioned changes and the below remains applicable:
- A Certification of treatment of Tender Payment or Certification of treatment of Merger Payment in the name of Clearstream Banking customer.
How to instruct?
Original document duly completed and signed should be sent to the below address and received by Clearstream Services S.A. before the stated deadline:
Clearstream Services S.A.
Attn: OTL – Tax Services
42, avenue John F. Kennedy
L-1855 Luxembourg
Luxembourg
Further information
For further information, please contact the Clearstream Banking Tax Help Desk or Clearstream Banking Client Services or your Relationship Officer.
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1. Clearstream Banking refers 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.