Monday, April 20, 2015

Update on Svenska Handelsbanken (SVNLY) Dividend Withholding Tax

I updating here with Fidelity's response to my inquiry about why a 30% dividend withholding tax was applied to the recent  Svenska Handelsbanken AB ADS (SVNLY) dividend payment. 

Fidelity insists that the correct rate is 30%. If I only looked at the ADR prospectus, which was not linked of course, I could confirm that rate. 

My citations to the Article 10 of Sweden's tax treaty with the U.S., which clearly shows that the rate is 15%, and to large accounting firms saying the same, had no impact whatsoever. 

Scroll to Article 10 

I visited the ADR custodian's page for SVNLY. 

I did find a notice that identified the withholding rate for this payment was 15%, but did mention some other rates at the bottom: 

There is no prospectus for the ADR filed with the SEC.  

There is a Form F-6 filing which is an ADR registration statement. SEC 

After reviewing those documents, I could not locate a single statement asserting that a 30% tax will be applied to the dividend. 

The 30% rate is generally reserved for countries with no tax treaty with Sweden. That does not include the U.S. 

I may be the first person to challenge what has probably been happening for awhile.  This was my first SVNLY dividend. 

The Nordea Bank dividend had 15% withheld, and that is the appropriate rate for a Swedish company. 

I expect them to come back telling me that I am wrong. The problem may simply be a failure to do something like filing a document with the Depository Trust Company showing accounts held by U.S. citizens. Rather than admit to being wrong, and possibly having to redo what has already been done, the broker will simply dig in their heels and continue doing what has been done in the past. I am not saying this is being done by Fidelity for the Svenska dividend, but this is a common problem and may explain the response so far.  

I also referenced the issue in response to a reader who was told by a Fidelity representative that it would withhold Canada's 15% tax for a Toronto Dominion dividend paid into a U.S. citizens IRA, which is unquestionably wrong. 

Comment Trail with Bingy77:

For example, in the first year when the cost basis for dividends had to reported, I downloaded the information into TurboTax. The data identifying what was and was not reported to the IRS was incorrect, and I had to manually enter the information correctly. Fidelity blamed TurboTax and TurboTax blamed Fidelity. The problem did not occur thereafter, so someone fixed it. 

Fidelity and TurboTax Problems-Form 8949 (4/12/2012 Post)

It is really hopeless many times to contact a customer representative about even a clear cut mistake made by the broker. Why? Brokers do not make mistakes.  

I could describe my experiences over the years, but that would be too frightening. My favorite one happened with another broker, lets give them a hypothetical name like, just off the top of my head, TD Ameritrade. 

I will drag and drop a blog discussion here. I still have the documents to prove every word: 

"Several years ago, I noticed that over five thousand had been transferred out of my brokerage account to an account that did not belong to me. I called to complain and the firm then gave me my money back. Then, when I looked at the account the next day, the money had been transferred back out of my account to the same unknown account. I complained again. The money was put back into my account. Then, the same thing happened again before I become more insistent that I did not appreciate Ameritrade giving my money away. Apparently, a husband was attempting to transfer money from his account to his wife's account, and someone made a an error in entering his correct account information. Instead, my account number was entered as the source of funds for the transfer. I did not receive an apology for the inconvenience and was just told that mistakes happen. This highlights the importance of checking every line item in your statements. "

Stocks, Bonds & Politics (6/13/2011 Post)

I did receive three free trades for my trouble and no apology and nothing remotely resembling one other than what I called, when discussing it with another investor, making feel guilty about asking them give my money back to me.

UPDATE APRIL 22, 2014: 

As expected I received a curt reply from Fidelity who repeated a claim that SVNLY will withhold 30%, which would be a violation of the tax treaty between Sweden and the U.S.

Of course, it goes without saying that Fidelity's is not responsible for SVNLY's ALLEGED treaty violation. No suggestion is even made that Fidelity may be responsible in some way, including the possibility that the broker has failed to do something such as making an e-filing with the ADR custodian of their customers'  citizenship or that data with some other agency like the Swedish tax authority that would then result in the treaty rate of 15% rather than 30%.

The 30% rate is the one routinely used for citizens of non-tax treaty countries like maybe Sweden and the Ivory Coast.

The representative specifically stated that Fidelity is "unable to make comments on information that is provided by third party" (sic) She apologized that this would not be done.

The correct word would be third parties like Article 10 of  the Sweden-U.S. tax treaty available at the IRS which specifically shows that I am entitled to the 15% rate and numerous references to big 8 accounting firms saying the same. Yes, best to ignore that material altogether.

This gets back to an age old issue. When a broker is wrong, and can be proven wrong, getting them to make a change that will require them to undue what they have been doing which is contrary to the interests of their customer will not happen. It will only happen when it can be proven, as in the TD case mentioned earlier, that severe repercussions are likely to occur without that change. By severe, I do not mean moving a seven figure account to another broker. I told TD that one more transfer of over $5000 in my account to someone that I did not know would result in a call to the Williamson County District Attorney rather than to them.

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