Dr Pepper Shares - Computershare Nightmare

EdSwippet

oaksnorton wrote: »

There are 30 treaty articles, each with many paragraphs and sub paragraphs so finding and choosing the relevant Article, paragraph and sub paragraph for this situation is baffling and open to interpretation by the particular withholding agent, although they will not tell you what it is they need.

Indeed. Tax treaties are written in a special form of impenetrable English.

Digging around a little, though, the IRS has a page here that tables treaty 'limitation of benefits' articles. How about you pick the one closest to your situation and see what Computershare do with it? I would suggest Article 23 paragraph (2)(g) of the US/UK treaty pretty well covers you, so tick "Company that meets the ownership and base erosion test" as indicated by the IRS's table. If Computershare wants to refute that they would I think need to say why, and from the sound of things it doesn't appear that they understand this any better than the rest of us. Probably worse.

As for plans B and C... If there are only a few beneficiaries, can you have Computershare break up this holding into separate accounts, one for each? That way each person would file a plain W-8BEN which gets around all the 'limitation of benefits' nonsense. Or can you arrange for all the shares to be placed into an individual account for you alone, where you could then sell and distribute the cash to the other beneficiaries as appropriate? Again, a W-8BEN only.

One last thing. What exact withholding are Computershare talking about here? Surely they can tell you that? There are several ways the US makes brokers apply withholding for non-treaty countries (or for folk in treaty countries that cannot fathom the IRS's appalling forms!).

The usual one is 'chapter 3', which is 30% on dividends and 0% on capital gains, interest, and cash payments. If this is what they intend, the damage should be minimal even if they apply it. The other is 'chapter 4', courtesy of our old friend FATCA. This is a flat 30% on everything, including gross sale proceeds of stock. This is the one you definitely want to avoid, and from what you say so far, and the insistence on a W-8BEN-E, the one it sounds like they now have in mind.

Again then, it would simpler all round if you can get this Computershare account into individual rather than estate ownership. I have no idea if that is practical at this stage, but something to perhaps consider.

Sigh.

EdSwippet

bostonerimus wrote: »

14.b check first box and the "other" box and claim "Article 13 paragraph 5, 0% withholding and capital gains tax for NRA UK resident" if you want to avoid withholding and US capital gains.

Computershare's insistence on a W-8BEN-E and suggestion of 30% withholding on everything is indicative of chapter 4 FATCA withholding for entities here, rather than the more normal chapter 3 for individuals.

In addition, a W-8BEN-E has to run the gauntlet of 'limitation of benefits' clauses, meaning that something in Article 23 has to permit Article 13 (or whatever) to be applied. And it is this Article 23 item that line 14 requires. Limitations of benefit don't apply to individuals, but an estate is not an individual. Which is where this whole saga starts.

IanManc

bostonerimus wrote: »

HMRC cannot help you with US taxation, but you must obviously pay any UK capital gains tax due on the sale of these US shares.
As for W8-BEN-E

14.a "United Kingdom"
14.b check first box and the "other" box and claim "Article 13 paragraph 5, 0% withholding and capital gains tax for NRA UK resident" if you want to avoid withholding and US capital gains.

15. Fill in with Article 13 paragraph 5, claim 0% tax as you are a NRA resident in the UK and not subject to withholding of US capital gains in the shares.

No, you don't have to pay CGT on the sale of the shares as Capital Gains Tax does not apply on a disposal or distribution of assets after a death, but the value of assets of the estate at the date of death is taken into account in calculating if any Inheritance Tax is due on the estate.

oaksnorton

Thanks all,

bostonerimus has said the same Article and Paragraph that someone else informed me elsewhere, which is regarding gains, however, that particular source advised me not to complete Line.15?!?

But it feels like I might be getting somewhere at long last and hopefully the next form or two will do the trick.

Watch this space...

robatwork

EdSwippet wrote: »

If "a good few years" is less than three and if you have proof of withholding you could still reclaim the money from the IRS. I suspect that ship has long since sailed, though.

Interesting - but it was 1994 just as OJ Simpson was making his getaway.....

bowlhead99

bostonerimus wrote: »

HMRC cannot help you with US taxation, but you must obviously pay any UK capital gains tax due on the sale of these US shares.
As for W8-BEN-E

14.a "United Kingdom"
14.b check first box and the "other" box and claim "Article 13 paragraph 5, 0% withholding and capital gains tax for NRA UK resident" if you want to avoid withholding and US capital gains.

15. Fill in with Article 13 paragraph 5, claim 0% tax as you are a NRA resident in the UK and not subject to withholding of US capital gains in the shares.

EdSwippet wrote: »

, a W-8BEN-E has to run the gauntlet of 'limitation of benefits' clauses, meaning that something in Article 23 has to permit Article 13 (or whatever) to be applied. And it is this Article 23 item that line 14 requires. Limitations of benefit don't apply to individuals, but an estate is not an individual. Which is where this whole saga starts.

I agree with EdS rather than Bostoner here.

The tax treaty in general has various clauses which talk about what types of activities are covered by the treaty, e.g. article 10 covers dividends, 11 covers interest, 12 Royalties, 13 Gains, article 14 is employment income etc. However, Part III of the form at line 14 is not asking for those details

The Part III of the form asks you where you (the estate) are tax resident at line 14a (i.e. what country's treaty are we talking about) and then at line 14b it asks you to confirm that:

- firstly you (the estate) derive the income as your own (ie not as an intermediary for some other person -the entity making the claim isn't just a nominee for someone else and isn't a transparent pass-through partnership where the underlying partners are the real beneficial owners);

- secondly you meet the terms of any "limitation on benefits" provisions which have been put in place to stop people abusing the treaty or "treaty shopping". And you have to say which of the provisions (tests) you meet.

In the UK the LoB provisions are set out in Article 23. Basically the LoB provisions exist to make sure you are a real legitimate qualifying UK person. So for example if you are a UK limited company but it's not a public listed company or government owned or tax exempt and you don't have any active UK trade or business and all your owners are resident in Timbuktu, you probably won't be able to pass any of the "limitation on benefits" tests and you won't get the benefits of the treaty. The purpose is to avoid "treaty shopping" where someone with no legitimate UK presence sets up a UK shell company because he likes the idea of using the UK treaty to invest into the US.

So, at 14b you have to check the box to say you derive the income and meet the terms of any LoB tests (set out in Article 23) which allow someone that isn't a UK individual to take the benefits. If you were an individual you could have filled out the far simpler W8BEN form, but as you are using W8BEN-E for 'entity', it's presumed you need to say how you qualify as the type of 'person' that can use the treaty as a qualified resident. So, they list the main types of Limitation on Benefits tests that commonly appear in major international tax treaties and you have to select a box to say what test you passed to prove you qualify under the treaty without having your benefits limited.

Bostoner above suggests you pick the Other box and quote Article 15 para 5. But that article 15 is nothing to do with passing a limitation on benefits test. That is just the standard article that says that people who are qualified UK residents can pay capital gains tax in their home country rather than in USA. It is nothing to do with actually confirming how you are a qualified UK resident - which is what they are asking you to confirm.

So, in order to confirm what LoB test you pass to show you're a qualifying person, you have to pick one off the list (or reference another one if the UK treaty has a useful one within its LoB Article 23 which isn't explicitly listed on the IRS's generic form). The answer won't be "Other- Article 15" because Article 15 is talking about a specific type of income or gain or payment, rather than the specific type of qualifying person that you are...

Of the ones on the provided list at 14b on the form, the most close sounding one is "company that meets the ownership and base erosion test", so let's look at that:

The UK treaty Art23 Para 2(f) is the one which typically maps to that category. It covers the situation where 'a person other than an individual' is over 50% beneficially owned by proper UK residents and less than 50% of the gross income of entity is going to be paid out (tax deductible) to non-UK residents.

When agreeing the tax treaty the UK also asked for a similar clause to be put in in relation to trusts because it was unclear how each country might apply the above 'ownership/ base erosion' test to trusts where legally the "trustee" is the person that pays the tax rather than the trust itself. So there is Art23 Para 2(g) which is same concept as 2(f) but for trusts and their trustees rather than corporations and organisations. The concept being, basically, it's a UK person with UK beneficiaries and once the trustees pay the UK income tax as necessary, they won't give half the money out to non UK people and claim a tax deduction once they've done it.

What you have for an 'estate of a dead UK resident' is effectively the executors /personal representatives being taxed like an interest in possession trust. That is, they pay standard UK income tax on the income while they're administering it but then the individual legatees get assigned the income when the estate is finalised and pay their own tax on it at their own rates taking into account what already got paid on their behalf during the administration.

So, this "trust with qualifying owners" is the route I think you would go down - 23(2)(g) rather than 23(2)(f) because the death estate is basically a trust arrangement rather than a company/organisation with shareholders.

So, then we look back at the W8BEN-E form line 14b and the generic descriptions of the tests... but we see that the one about ownership and base erosion talks about a "Company meeting the ownership and base erosion test" but it doesn't mention trusts or other organisations. So you have to consider whether you will go and check that box as it's "close enough" ,or you will check the box "Other" and manually write in the reference Article 23 Paragraph 2(g) in the empty space.

On the document "Tax_Treaty_Table_4" which Ed linked in post 12, both the UK treaty's 23(2)f and 23(2)g are indicated on the big matrix as mapping to the "limitation on benefits tests (safe harbors)" under the category "Ownership and Base Erosion Test" so you should be pretty safe simply checking the general box on W8BEN-E 14b that says "Company meeting the ownership and..." But you may prefer to manually reference 23(2)(g) to achieve the same effect of identifying your estate as a qualifying resident but without something that sounds inappropriate (the word 'company'), in the hope that Computershare frontline staff are more accepting of it. They may not care either way.

At the end of the day we are not giving you professional tax advice here. But if the estate has tens or perhaps hundreds of thousands of pounds of assets it is free to go and pay for such advice at £300ph or whatever.

oaksnorton wrote: »

Thanks all,

bostonerimus has said the same Article and Paragraph that someone else informed me elsewhere, which is regarding gains,

Unfortunately both of those people sound wrong because the list of options and Other box in the Part III Claim of Tax Treaty benefits for Chapter 3, at line 14b, is explicitly about how you as the beneficiary derive the relevant income and qualify under the treaty as a bona fide qualifying UK resident. It is *not* to do with what type of US-source income or gains or cashflow you are receiving (salary, interest, dividends, royalties etc).

that particular source advised me not to complete Line.15?!?

Your 'particular source' is right on that bit . That line is for whether you personally qualify for any "special" rates under the treaty which are not available as standard to other qualifying UK residents.

For example, for most UK residents the treaty means that the USA can only withhold 15% for itself on their dividend income. But in the very special case of a UK parent company that owned over 10% of the entire share capital of the US company paying the dividend, the US tax rate drops from 15% to a special 5%. That company filling out their form for Computershare would write in line 15 that it wanted that special rate and explain the clause and how it was eligible for it. However you do not own over 10% of Dr Pepper Snapple Group Inc so you are not going to be filling out the extra line on the form to say you demand a special rate that most UK residents don't get. You have nothing to say on line 15 so leave it blank.

But it feels like I might be getting somewhere at long last and hopefully the next form or two will do the trick.

Watch this space...

If you have already taken the recommendation to complete line 4 with "estate", line 5 with "Passive NFFE" and you amend what you are saying at line 14, 14b, you are probably close to resolving it.

The proper completion of Part III should ensure any withholding tax on dividend income is knocked down to only 15% (as low as you can get, the same as what your mum would have got herself if she had completed an individual's form) instead of the standard 30% on dividend income. Then the line 5 (and associated Part XXVI line 40/40a) should eliminate any unnecessary additional FATCA withholding on dividend income, and also eliminate any FATCA withholding on gross sales proceeds.

oaksnorton

Thanks bowlhead. That seems to make a whole lot of sense now.

With the snail mail it will take a few weeks though before I can hopefully taste the pudding.

I would have gladly paid a 'professional' for advice but I haven't been able to find one who is willing or able to help, on ones own admission;

[FONT=&quot]"we do not have the knowledge on the correct approach with the W-8BEN-E – these forms are always hard to complete and we find that most asset companies do not themselves even appear to know the correct information to include, and therefore it really depends on who you are dealing with as to how they may want the information to be recorded. Sometimes you have try to couple of times to get the form accepted"
[/FONT]
Go figure...

oaksnorton

Bowlhead, ED'sW,


As per your guidance above I have received a letter today advising that all the backup witholding tax is being refunded and we will hopefully receive the cheque in the next 10-15 days. I really can't thank you enough for the advice, having closure on this matter is a huge relief.


Have a Great Christmas and all the very best for 2018, I will put an extra couple of quid in the Sally Army box as a token of my appreciation! :-)

MallyGirl

Great to see a good result here - well done to all involved in helping the OP

oaksnorton

:j:beer: Cheque for 28% witholding tax received today.