Analysis

Recovering withholding paid to foreign shareholders of RICs

Guidance

The American Taxpayer Relief Act of 2012 extends the temporary exemption from withholding on interest-related and short-term capital gain dividends paid by a Regulated Investment Company (“RIC”) to foreign shareholders.

President Obama signed into law the American Taxpayer Relief Act of 2012 (the "Act") on January 2, 2013. Under the Act, the temporary exemption from withholding on interest-related and short-term capital gain dividends paid by a Regulated Investment Company ("RIC") to foreign shareholders (which had expired for dividends paid with respect to RIC taxable years beginning after December 31, 2011) is retroactively extended to dividends paid with respect to RIC taxable years beginning before January 1, 2014.

If a RIC withheld tax from such interest-related or short-term capital gain dividends during 2012, it may refund any overwithheld amounts to shareholders, provided that the reimbursements are paid by March 15, 2013. A "receipt" noting the date and amount of the refund must be retained by the RIC and provided to the shareholder. The RIC may then recover the excess withholding that was deposited with the Internal Revenue Service by reducing any subsequent deposits of tax made before December 31, 2013, or by claiming a refund on the 2012 Form 1042, which is due March 15, 2013.

If the reimbursement is not made in a timely manner, the shareholder will have to file a U.S. income tax return (Form 1040NR, Form 1040NR-EZ, or Form 1120-F) or, if a tax return has already been filed, file a claim for a refund (Form 1040X or amended Form 1120-F).

For additional information or questions, please contact:

Paul Murphy
Tax Director
Deloitte Tax LLP
+1 617 437 2083

Eric Byrnes
Tax Director
Deloitte Tax LLP
+1 973 602 6710

Robert Schlock
Tax Senior Manager
Deloitte Tax LLP
+1 212 436 3541

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