USA Shares managed by USA Investment company

leafy211

I have had some USA shares for decades and they have always been managed by the same share-dealing company in USA that arranged the original purchase (through a company share-scheme).  I have for a couple of years, had my dividends from my USA shares paid in to my US$ account with Transferwise, and alongside completing my W-8BEN form and declaring the shares in my self assessment, everything has run smoothly - until today!  Ive just been informed by the USA investment company that they cant approve my W-8BEN, recently sent, as I have a USA bank account (they will be referring to my Transferwise US$ account). 
 1.  Is that correct I wonder, in which case have they been wrong for the last 3 years and only just realised it? 
They are frustratingly slow to ever respond to a query, and even then usually send a stock response which doesnt remotely apply to the question posed - which antagonises even more! :-). 
2. Would i have the option of moving from this USA dealing company, to another USA dealing company (rather than move the shares to the UK investment company  I use, where I will be paying for the exchange rate every time a dividend issued, even though I dont need the ££ yet)?
Any guidance on these two points would be hugely appreciated.
Many thanks in advance

EdSwippet

leafy211 said:

... Ive just been informed by the USA investment company that they cant approve my W-8BEN, recently sent, as I have a USA bank account (they will be referring to my Transferwise US$ account). 
 1.  Is that correct I wonder, in which case have they been wrong for the last 3 years and only just realised it? 
...

It's not really correct, but there's nothing stopping a US broker from going 'above and beyond' requirements.

Their instructions are here: https://www.irs.gov/instructions/iw8

If you are a financial institution ... or broker or dealer in securities maintaining an account for a direct account holder that is the beneficial owner of the payment, and you make a payment of U.S. source FDAP income to the direct account holder, you have reason to know that a Form W-8 that is a beneficial owner withholding certificate ... is unreliable or incorrect for establishing foreign status ... only if one or more of the following circumstances exist.
...
The direct account holder has standing instructions for you to pay amounts from the account to an address or account outside the treaty country unless the account holder provides a reasonable explanation, in writing, establishing the account holder's residence in the applicable treaty country or you have in your possession or obtain documentary evidence ... establishing the account holder’s residence in the applicable treaty country.

The US financial and tax system is antiquated, backwards, and xenophobic. This is how these attributes manifest.

As for ways round, assuming your broker won't accept "documentary evidence" or a "reasonable explanation" for why you are not actually a US citizen or US resident, you could I suppose always try removing TransferWise from your linked accounts, getting the W-8BEN through and validated without it, and then promptly reinstating it. Ridiculous, but that's the US for you.

It's unlikely you could move to another US broker, but you might be able to move to an alternative UK broker and have the shares transferred there. Or, sell and repurchase. (Or just sell.)

If this broker withholds 30% tax on dividends rather than the UK 15% rate, which is what they'll do without a valid W-8BEN, you then have to file a 1040NR tax return with the IRS to get the overwithholding back. That's a hassle and expense you could probably live without.

leafy211

Thanks Ed - thats really informative and Ill give it some serious attention over coffee in the morning :-).  Selling is tempting as simply dealing with these guys is torture .. but timing isnt good unfortunately! :-).  They were talking of deducting 24%, so im not sure where that figure comes from. Maybe once i have a look at the link you included, all will become clear.  So annoying as they have been holding my shares for me for like 30 years.  Ridiculous!!! :-)
Thanks once again for your very useful advice.
take care

EdSwippet

24% is the US's 'backup withholding' rate, and distinct from the 30% or lower with treaty withholding rate (of course -- why make things simple?). So that's the key phrase to look for. It's an option for some types of income, but dividends is not one of them.

The bottom line is that your broker is not interpreting the rules correctly. Persuading them to do so might however not work. The US regulations around all of this are a complete nightmare to deal with, to the extent that many US banks and financial institutions will now tend to adopt CYA policies that push the responsibility for getting things 'right' onto their customers, who then have to interact with the IRS. Extra work for two or more other parties, but less for the bank or broker.

leafy211

Oh blimey, remind me never to bother with US shares again!  Feels like Im stuck between a rock and a hard place, somewhat.   I fear I have some banging my head against a brick wall coming up, for the foreseeable :-). Thank you though for so much for this fantastic information, you have been enormously helpful and have taught me a huge amount.  

EdSwippet

With US banks and brokers, when it comes to handling non-US residents, it's often hard to distinguish CYA from plain incompetence. So I suppose this could be either.

In my own case, I've been battling with a US financial provider for four months now over multiple W-8BEN forms. They insist on one per account, and I have different types of retirement account with them. Of course, since I am the same person at the same address for all of them, they are completely identical. Yet I see a mix of 'Valid' and 'Pending' statuses. Despite multiple messages and phone calls, they appear entirely unable to resolve this.

And this is Vanguard US, $6.2 trillion AUM and 17,600 employees, so hardly a small or fly-by-night operation. Astonishing really that something so simple should turn into such a project. I've lost a lot of confidence in them recently over this.

Just letting you know that you are not alone in this sort of hassle, then.

leafy211

Oh gosh, I feel for you.  Thank you for sharing .. i was starting to wonder what bad Id done in life to attract such negative karma in the form of all this hassle! :-)