Stock split tax implications for non-US shareholders

[avoigt]

Based on this document (page 47, number 111), I assume that it should not be a taxable event in Germany.

"Werden Aktien von einer Aktiengesellschaft oder einem Dritten ohne zusätzliches Entgelt an die Aktionäre ausgegeben und stammen sie nicht aus einer Kapitalerhöhung aus Gesellschaftsmitteln (Bonusaktien oder Freianteile), sind gemäß § 20 Absatz 4a Satz 5 EStG die Einkünfte aus ihrem Bezug und die Anschaffungskosten mit 0 € anzusetzen, wenn die Ermittlung der Höhe des Kapitalertrags nicht möglich ist. Davon ist bei ausländischen Sachverhalten auszugehen, es sei denn, dem Anleger steht nach ausländischem Recht (z. B. Niederlande) ein Wahlrecht zwischen Dividende und Freianteilen zu oder dem Anleger wurden mit ausländischer Quellensteuer belastete Anteile eingebucht."

That's a good data point to have and confirms if that § applies them possibly not to tax the new shares.

 

[avoigt]

Thank you for your quick reply.
I would appreciate, if you could explain why you think that "not selling" does not put you in a better position.
It is not that I don't believe you I just want to understand the reason for this.

If it is a taxable event and we don't sell, what does then happen?
I don't have enough cash around to pay the tax. The only possibilty to pay the tax for me is to sell a bunch of shares...

I would not sell now as it may turn into a not taxable event. We don't know but we can't exclude it.

To wait is IMO the better choice as you have at least the chance not to be taxed. If they do its bad and many of us would need to sell shares to compensate which is another negative. That shares sold have been to 4/5th before considered to be a dividend you paid tax for already. It would not be legal IMO if they tax it again. It gets complex from that point ...

In short, the available information we have today does IMO not justify to trigger a selling event and with it a tax.

 

[StealthP3D]

OK, I read the posts in this thread and it was painful for me. Even if a tax authority decides to treat it like a dividend instead of the split that it is, it's a zero value dividend. How do you tax that? At worst they could claim the par value of the shares which is $0.001. So if you have 1000 shares and they split into 5000 shares they will have a par value of only $5.00!

It seems to me there are a few people who are being cautious to the point of absurdity. How is any tax authority going to tax you when you haven't got anything of value? It would be worse than taxing you because you decided to volunteer for the Red Cross. Because when you volunteer for the Red Cross it could be argued you are getting something of value (personal satisfaction). But in this case you are getting absolutely nothing! Your stock does not go up in value because it split and you still own exactly the same percentage of the company.

And that's all shares of stock are - a fractional ownership of a company. Your ownership in the company is not increasing.

 

[st_lopes]

OK, I read the posts in this thread and it was painful for me. Even if a tax authority decides to treat it like a dividend instead of the split that it is, it's a zero value dividend. How do you tax that? At worst they could claim the par value of the shares which is $0.001. So if you have 1000 shares and they split into 5000 shares they will have a par value of only $5.00!

It seems to me there are a few people who are being cautious to the point of absurdity. How is any tax authority going to tax you when you haven't got anything of value? It would be worse than taxing you because you decided to volunteer for the Red Cross. Because when you volunteer for the Red Cross it could be argued you are getting something of value (personal satisfaction). But in this case you are getting absolutely nothing! Your stock does not go up in value because it split and you still own exactly the same percentage of the company.

And that's all shares of stock are - a fractional ownership of a company. Your ownership in the company is not increasing.

Your core assumption that the value is par value isn’t how tax codes typically work. You are typically deemed to receive the fair market value of the shares as a dividend. Given the shares will have a trading value, you can’t argue that their real value is only 0.01. I’m not saying that that makes sense, just commenting that that is how tax legislation is typically worded.

Also, treating a stock dividend as a non taxable event would be a purely administrative position taken by a tax authority. The legislation in most European countries would not have an exception for a stock split. That would be up to the tax authority publishing administrative guidance.

We are fortunate in Canada that such administrative positions exist (and they only exist because people have taken the issue to court multiple times). Absent that interpretation, the letter of the law would make this a taxable event.

EDIT: Tax codes are terrible pieces of legislation, but their inherent flaws, archaic principles that NEED modernizing, and cumbersome complexity keep me employed...

 

[avoigt]

OK, I read the posts in this thread and it was painful for me. Even if a tax authority decides to treat it like a dividend instead of the split that it is, it's a zero value dividend. How do you tax that? At worst they could claim the par value of the shares which is $0.001. So if you have 1000 shares and they split into 5000 shares they will have a par value of only $5.00!

It seems to me there are a few people who are being cautious to the point of absurdity. How is any tax authority going to tax you when you haven't got anything of value? It would be worse than taxing you because you decided to volunteer for the Red Cross. Because when you volunteer for the Red Cross it could be argued you are getting something of value (personal satisfaction). But in this case you are getting absolutely nothing! Your stock does not go up in value because it split and you still own exactly the same percentage of the company.

And that's all shares of stock are - a fractional ownership of a company. Your ownership in the company is not increasing.

In the outlines scenario, the German tax authorities do NOT consider the 4 dividend shares a $0.001 value!

If they call them 4 shares Dividend shares base on German regulation they are considered a gain valued 4/5 th the first day average trading value after the split and a loss will not be calculated against them. With existing regulation, they could do that if they intend to. This is what the representative of the Bavarian tax authority confirmed to a tax lawyer. If that's implemented is not clear since the federal authorities will decide but it can happen if worse comes to worse. He even said he believes it will be done like that. I did not talk to him directly and take it with a grain of salt.

What you outline may be the case in other countries but not necessarily in Germany.

It does not make sense and they themselves call it not fair but there is a chance them to do it by using the in-place regulations.

Of course, if you don't gain really something how can they possibly tax you but that's how they could defined the 4 dividend share. Having experience with them I can confirm that they do not in all cases act with a common sense of what is logic or fair for the taxpayer.

Not long ago I paid taxed for options without having any gain neither nor the ability to trade them. Its been a similar situation where they only looked at a potential gain and not calculated losses against it. Not fair at all but that's how they use regulation sometimes.

I am still positive that we have a good chance that the German tax authorities don't do something stupid but its absolutely fair with the information available to understand you cannot exclude it.

 

[jeewee3000]

OK, I read the posts in this thread and it was painful for me. Even if a tax authority decides to treat it like a dividend instead of the split that it is, it's a zero value dividend. How do you tax that? At worst they could claim the par value of the shares which is $0.001. So if you have 1000 shares and they split into 5000 shares they will have a par value of only $5.00!

It seems to me there are a few people who are being cautious to the point of absurdity. How is any tax authority going to tax you when you haven't got anything of value? It would be worse than taxing you because you decided to volunteer for the Red Cross. Because when you volunteer for the Red Cross it could be argued you are getting something of value (personal satisfaction). But in this case you are getting absolutely nothing! Your stock does not go up in value because it split and you still own exactly the same percentage of the company.

And that's all shares of stock are - a fractional ownership of a company. Your ownership in the company is not increasing.

The spokesperson of the Belgian tax authorities has literally said they have not decided the event to be taxable or not and that they will decide only after the Q3 10Q. It is not as simple as you put it. If they want to regard the four 'given' shares as being valued at $300 a piece, they can and the populace can s*ck it. Probably not taxable, but we'll only know for sure after the tax authority deems it not taxable.

 

[StealthP3D]

The spokesperson of the Belgian tax authorities has literally said they have not decided the event to be taxable or not and that they will decide only after the Q3 10Q. It is not as simple as you put it. If they want to regard the four 'given' shares as being valued at $300 a piece, they can and the populace can s*ck it. Probably not taxable, but we'll only know for sure after the tax authority deems it not taxable.

I'll bet you dollars to donuts it's declared a non-taxable event and the only reason they are waffling now is because they are government bureaucrats and it's easier not to give a definitive answer.

I know taxing authorities often do non-sensical things but taxing a stock split would be taking it to a new level of absurdity.

 

[st_lopes]

I'll bet you dollars to donuts it's declared a non-taxable event and the only reason they are waffling now is because they are government bureaucrats and it's easier not to give a definitive answer.

I know taxing authorities often do non-sensical things but taxing a stock split would be taking it to a new level of absurdity.

Yet Google’s stock split was a taxable event. People will argue that it was because the split resulted in a new class of shares, but the substance was all the same. Same overall value, now split over two classes of shares. Some could argue that common shareholders were actually worse off since they lost voting rights. Even with that, it was a taxable event in many jurisdictions. A senseless outcome, but one that has clearly left a lot of investors far more sensitive to stock dividends.

EDIT: I wouldn’t take your bet. I think it’ll also be non taxable in most, if not all jurisdictions. Germany is a hold out though...

 

[avoigt]

I'll bet you dollars to donuts it's declared a non-taxable event and the only reason they are waffling now is because they are government bureaucrats and it's easier not to give a definitive answer.

I know taxing authorities often do non-sensical things but taxing a stock split would be taking it to a new level of absurdity.

That's hope and speculation which is not a good position to be in talking about 20% of your TSLA investment.

As of now, we have no information in Germany as I hear its the same in Belgium that they won't do it.

 

[StealthP3D]

That's hope and speculation which is not a good position to be in talking about 20% of your TSLA investment.

As of now, we have no information in Germany as I hear its the same in Belgium that they won't do it.

To be clear, there is no element of hope in my analysis. My opinion is based upon my educated understanding that the essence of this event is a stock split that does not change the shareholders ownership of the company in any manner except for the percent ownership represented by each share and the fact that certain legal principles are embedded in both European laws and American laws. Namely, if it looks like a duck, walks like a duck and talks like a duck - it's a duck, regardless of what you call it. This is a stock split.

It has long been recognized that a stock split is simply an adjustment to the accounting of shares and doesn't change anything of significance.

 

[avoigt]

To be clear, there is no element of hope in my analysis. My opinion is based upon my educated understanding that the essence of this event is a stock split that does not change the shareholders ownership of the company in any manner except for the percent ownership represented by each share and the fact that certain legal principles are embedded in both European laws and American laws. Namely, if it looks like a duck, walks like a duck and talks like a duck - it's a duck, regardless of what you call it. This is a stock split.

It has long been recognized that a stock split is simply an adjustment to the accounting of shares and doesn't change anything of significance.

Once again, this is German tax law where it does Not matter what is called and looks like a duck in other countries.

 

[avoigt]

I received the same standard letter from the federal German Tax Authority in Berlin not giving any indication how they intend to handle that matter.

I hope for the best but we won’t know until after the fact.

 

[heltok]

I asked Avanza, one of the biggest Swedish online brokers. This was their reply:

Hej xxx,

Utav den informationen vi har fått från vår depåbank i dagsläget ska denna split betraktas som en vanlig split i dagsläget och således ska den inte ha någon skatteeffekt.

Återkom gärna vid fler frågor eller funderingar.

Allt gott!

Med vänliga hälsningar
kumar
Avanza

Translated:

Hi xxx,

Based on the information we have received from our custodian bank at present, this split should be considered a regular split at present and thus it should have no tax effect.

Feel free to come back for more questions or concerns.

All's Well!

Sincerely
Kumar
Avanza

 

[ThisStockGood]

Nordnet in Denmark refuses to answer... they say it’s a question to be asked to the tax authorities... hmmm...

 

[Kpls]

Nordnet in Denmark refuses to answer... they say it’s a question to be asked to the tax authorities... hmmm...

Strange, I received a straight answer on the phone by Nordnet in Finland.

In the investment roadtable thread a document came by with par value $ 0,001. Would that be of influence to the tax office's decision?

 

[Todesbuckler]

For Germany:

I had an appointment today with a lawyer for capital market laws.

He wasn't deeply involved with the situation and former developments (such as the Google split in the past), but confirms that it should not be a taxable event based on German laws (§ 20 Absatz 4a Satz 5 EStG). This is also visible in following information from the Federal Finance Ministry under Number 111.

Furthermore, he advised me to contact my local tax authority with a "Verbindliche Auskunft" (information request), which they have to answer. I am waiting on further information from the lawyer, but found this online.

Nevertheless, even so the law situation points into the direction of no taxes, some German based broker might deduct taxes as just in case it would be a taxable event, as explained by the Federal Finance Ministry in this recent "Referentenentwurf" on page 88.

Overall, I came to the conclusion that I won't sell any shares beforehand. If it would be a taxable event, I am planning to take legal steps.
Of course, this is no tax advise in any kind.

 

[elliott82]

Interesting, thank you very much for sharing your information @Todesbuckler! If you happen to have the letter ready (Verbindliche Auskunft) I would really appreciate you sharing it.

Cheers

 

[SebastianR]

Nordnet in Denmark refuses to answer... they say it’s a question to be asked to the tax authorities... hmmm...

Same exact answer I got today from Nordnet... BUT then he said, that normal splits (i.e. Share Code is the same, no new Share Code / Share Class issued) is not tax relevant. He also said since nothing is being sold, there is no ability to tax anything. So I'm not worried.

 

[aubreymcfato]

Fineco told me no tax in Italy.

 

[stef]

Postfinance in Switzerland told me they don’t know yet, but should publish an official answer before end of this week so people can react ahead of 21.08
Was quite sure would not be taxed in Switzerland... but not that sure anymore.