Stock split tax implications for non-US shareholders

[junas]

Tesla performs a stock split 1:5 in the form of stock dividend. We already know stock dividend doesn't create a taxable event for US-based shareholders.

Unfortunately in several European countries stock dividends are taxed in the same way as cash dividends. So far we've very limited confirmed information. All EU-countries have their own tax laws.

Please share here if you have any country-specific information. In addition, any answers given by popular EU brokers (Degiro, Lynx, IB, Saxo, Nordnet, etc.) are highly valuable.

 

[avoigt]

Thanks, Junas for setting this up.

 

[amolina]

*sugar* I am in germany too. I hope what you say aint true. I havent filed my taxes this year due to all the gains. Arrgh

 

[Ipe]

Well in the Netherlands there’s a dividend tax but it’s a “pre-tax” which means that you can deduct it from your income tax. So even if it will be taxable (which I doubt) implications might be not too bad for most.

 

[avoigt]

Well in the Netherlands there’s a dividend tax but it’s a “pre-tax” which means that you can deduct it from your income tax. So even if it will be taxable (which I doubt) implications might be not too bad for most.

Interesting and could be a similar approach for Germany if they really do something strange like outlined.

That would indeed reduce the overall tax rate and avoid a double tax. It would if they apply it like that however create a huge likely immediate tax burden too because we talk about 20% of the total invested € amount they deduct from your account which most unless you have additional capital would need to compensate with selling stock and at that point, you pay the incremental taxes.

To be clear if tax authorities do as outlined it would be really crazy and irrational but we cannot exclude it for now.

At the end, they would manage to get the total German capital tax of about 26% earlier and that's what they did in many similar cases in the past too.

 

[Christine69420]

One issue here is that rules and regulations vary across countries and types of accounts.

As a Norwegian using Nordnet with a Zero account I had to look up the rules:

You can sell securities, get interest income and dividends, without triggering taxes or deductions. It is only when you take the money out of the account that gains and losses are taxed. This means that you will have deferred tax on gains, but also deferred right to deduct in the event of loss.

I have no idea if Nordnet offers this type of account in other countries.

 

[cyclingthealps]

Thanks Alex, for your investigation!
I really hope it turns out to be a nontaxable event.
Otherwise, 2020 will be really bad for me.
I needed to change my portfolio due to the stock split so I did that in advance.
Invested 10000€ originally which is worth €50000 but due to the portfolio change, I will have to pay 26% on the €40000 in taxes.
Now the €50000 has been invested again and if we have to pay the dividend stock split taxes on that, that hurts.
Because then I invested €10000 and pay €10400 (portfolio change) + €13000 (stock split) on taxes. Meaning my €50000 is only worth €27000 and I will have to sell half of my shares to pay for the taxes.

 

[Kpls]

Kiitos/thanks Junas for taking this in a separate thread, easier to keep with this one.

I have no idea if Nordnet offers this type of account in other countries.

It seems in Finland the OST account is similar to this. Unfortunately I have 2/3 of my holdings in a normal account.

 

[Ipe]

Kiitos/thanks Junas for taking this in a separate thread, easier to keep with this one.


It seems in Finland the OST account is similar to this. Unfortunately I have 2/3 of my holdings in a normal account.

Brunost or regular cheese?

 

[jeewee3000]

Hi all, got out of bed this morning with the intention of setting up a seperate thread for us European TSLA stock owners, but (@Buckminster) [EDIT:] @junas beat me to it. Thanks!

Coming back to the issue at hand, yesterday a fellow Belgian @charlesgres posted:
"I live in Belgium, and went through a stock split before (AAPL 1:7).. I wasn't taxed..

From what I gather this will be a stock split just like AAPL's.."

@NicoV posted earlier in a similar fashion saying he's been through stock splits and no taxation occurs.

I of course hope that is the case, but my worries are not over since for example the AAPL stock split that was referred to mentioned in the SEC filing:

Effective on June 6, 2014, Apple Inc. (“Apple”) amended its Amended and Restated Articles of Incorporation to increase the number of shares of common stock, par value $0.00001 per share, that Apple is authorized to issue from 1,800,000,000 to 12,600,000,000 and to provide that as of 5 p.m., Pacific Daylight Time, on June 6, 2014, each share of common stock outstanding shall be automatically, and with no further action by the holder of such share, split into seven shares of common stock. The foregoing description is qualified in its entirety by reference to the full text of the Restated Articles of Incorporation, a copy of which is attached hereto as Exhibit 3.1 and is incorporated herein by reference.

The filing literally states:
1) that the new shares are valued at $0,00001 per share, therefore there is no value to be taxed
2) that each share shall be automatically split into seven shares.

The Tesla stock split SEC filing has an entirely different wording:
On August 11, 2020, Tesla, Inc. issued a press release announcing that its board of directors has declared a five-for-one split of Tesla’s common stock in the form of a stock dividend. A copy of this press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

(... and from the statement...)
Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.

This filing states an investor will receive a dividend (=taxable in Belgium, and I gather Germany and Finland as well) of four additional shares. The value of these shares is not mentioned, therefore we cannot figure out this puzzle on our own.

With this post I just wanted to clarify that the whole issue is not so simple as most of the USA TMC-members seem to believe. They haven't met European Tax systems .

As mentioned I will report back here with official confirmation from my broker once I hear more about the Belgian situation. Thanks to all of you for keeping us posted as well.

Good luck to all.

 

[Buckminster]

Hi all, got out of bed this morning with the intention of setting up a seperate thread for us European TSLA stock owners, but @Buckminster beat me to it. Thanks!

Wasn't me this time. @junas started this thread.

I'm most interested in UK LEAPS if anyone can confirm that they won't be taxed.

 

[jeewee3000]

Wasn't me this time. @junas started this thread.

I'm most interested in UK LEAPS if anyone can confirm that they won't be taxed.

When I was on the phone with my broker yesterday I also asked about LEAPS.

Although they were still researching, they told me not to worry about those because:
- LEAPS are basically just options, which in turn are just derivatives;
- the TSLA stock "dividend" (ie current split) does not grant option holders a dividend of new options. More specifically TSLA has nothing to do with the option contracts regarding their stock.
- The options market consists of contracts/agreements between option sellers/writers and option buyers. To adapt to the stock split, these contracts are adjusted (strike price divided by 5, amount of contracts multiplied by 5) but in essence this boils down to the contract between option writer and buyer. No dividend is awarded to the LEAP/option buyer.

The brokers are keeping track of all these options (and providing a trading floor for them) and in practice they acquire the options for their clients and simply show a representation of this in your portfolio. It is therefore the brokers responsability of adjusting these option contracts (of which they are in theory no party of).

Given the above: the options should just magically change overnight in our portfolios, since the brokers have to adjust the options on their trading floor to the stock split happening. There is no dividend to speak of and therefore nothing should be taxed.

Of course I don't know about the UK, but in Belgium they basically said these 'newly acquired' US options (4 for every current contract) are not a dividend.

EDIT: great post in main thread solves this issue I believe.

 

[Todesbuckler]

For Germany:

I did some digging into the laws in Germany and want to share my findings so far.
I don't have a tax advisor myself to check if following points are correct and applicable.
A usual disclaimer: Please be aware that I am not giving any kind of advice on tax issues.

From my reading, the German tax code "Einkommensteuergesetz (EStG) § 20" is relevant.
More specifically, § 20 Absatz 4a Satz 5 EStG lays out rules for a stock split.

German text:
"Werden einem Steuerpflichtigen Anteile im Sinne des Absatzes 2 Satz 1 Nummer 1 zugeteilt, ohne dass dieser eine gesonderte Gegenleistung zu entrichten hat, werden der Ertrag und die Anschaffungskosten dieser Anteile mit 0 Euro angesetzt, wenn die Voraussetzungen der Sätze 3 und 4 nicht vorliegen und die Ermittlung der Höhe des Kapitalertrags nicht möglich ist"

Apparently, some brokers have issues in determining the taxes for stock splits of foreign entities and seem to collect taxes based on the share price after the split. (see discussion on the Referentenentwurf 2020 for the German tax code on pages 87-88, Version from July 2020). For the planned new version of the German tax code, they aim to automatically include a 0 Euro purchase price for new stocks in the case of foreign issuers.

In the case of the past and similar Google share split, one author argues that the issues were mainly due to the different kind of share (C-class shares) with another ISIN.

Overall, I tend to assume that legally no taxes should be collected in the end. However, some (or potentially all German) brokers might collect taxes anyway which have to be reclaimed.

I also found following interpretation for the specific paragraph § 20 Absatz 4a Satz 5 EStG:

 

[jeewee3000]

In the case of the past and similar Google share split, one author argues that the issues were mainly due to the different kind of share (C-class shares) with another ISIN.

Overall, I tend to assume that legally no taxes should be collected in the end. However, some (or potentially all German) brokers might collect taxes anyway which have to be reclaimed.
View attachment 575701

I found similar explanations for Belgian Tax Law, specifically regarding the Google split. (Dutch speakers: Fiscale strop dreigt voor Google-belegger)

Basically there is a huge difference between:
Situation A) a company gives out more of the exact same stock (Tesla)
Situation B) a company gives out stock of a different type. In the case of Google all holders were granted an A and C stock, C having no voting rights and being an entirely different type of stock. This was taxed as dividend.

In situation A I read that there is usually a tax exemption, even in Belgium, but I want official confirmation before celebrating.

 

[Tslynk67]

Wasn't me this time. @junas started this thread.

I'm most interested in UK LEAPS if anyone can confirm that they won't be taxed.

I don't think there's any impact on options - there's no dividend there, just a 5x multiplication of contracts and division of the strike.

Just to re-iterate what I posted in the main thread, response on the question from Keytrade in Belgium:

"For the moment we don't have the info yet, we asked our services if they can provide us with the correct information regarding a possible taxation of the split (as dividend) ASAP."

And in case it will be taxed on the full value of the 4 extra shares, a reminder that capital gains aren't taxed on private trading accounts in Belgium (>€500k rule doesn't apply any more either), so selling prior to the split and rebuying after would be one solution. or if worried about potential loss of gains, sell and buy LEAPS.

Only downside there is the tax on the trade itself, which I believe is 0.35% with a maximum of €1600 - one share lost, effectively.

 

[Ecyrd]

Just called the Finnish taxation office. Yes, over here it appears to be taxable based on the average price of the "first available exercise date". Also there's a property transfer tax you have to pay (1.6%). 15% of the gains is non-taxable. Exact instructions here.

What I didn't get a clear answer for is whether the value of the new stock is based on the Friday average (you get the shares on Friday) or Monday average (you can't actually sell the shares until Monday). If the former, it's worth selling everything now and buying it back later; if latter, it's worth just paying the tax and keeping the shares. I may have to talk to my broker as well.

Of course it counts as regular capital gains, so you have the rest of the year to figure out how to pay for it (and you could just sell some bad stock and use those losses to offset the gains).

 

[NicoV]

I don't think there's any impact on options - there's no dividend there, just a 5x multiplication of contracts and division of the strike.

Just to re-iterate what I posted in the main thread, response on the question from Keytrade in Belgium:

"For the moment we don't have the info yet, we asked our services if they can provide us with the correct information regarding a possible taxation of the split (as dividend) ASAP."

And in case it will be taxed on the full value of the 4 extra shares, a reminder that capital gains aren't taxed on private trading accounts in Belgium (>€500k rule doesn't apply any more either), so selling prior to the split and rebuying after would be one solution. or if worried about potential loss of gains, sell and buy LEAPS.

Only downside there is the tax on the trade itself, which I believe is 0.35% with a maximum of €1600 - one share lost, effectively.

I got a similar answer from Keytrade, with the additional advice to sell of the old option contracts and buy a new position in the new contracts, because the transformed old contracts will have less volume and thus lower liquidity.

 

[Dario_75D]

selling prior to the split and rebuying after would be one solution. or if worried about potential loss of gains, sell and buy LEAPS.

I'm in the same boat, and I was also thinking about selling prior the split and then buying again after.
When would you do that? Since they are giving the 4 new shares on the 28th to whom held shares on the 21st, I'd sell on the 28th before closure and then buy again on the 31st. I assume that I won't get such dividend since I hold no more shares. Correct?

I have no idea how to trade LEAPS, so I'm not really keen in going down that road.

 

[Kpls]

I just called Nordnet Finland and pointed them to the Tesla press release. According to them it's standard 1:5 stock split, no action needed from my part nor any taxation impact. I have asked Nordnet to publish this statement on their FAQ/investors page and they would take it into consideration.

No taxation advice. I'll be fully relaxed after the stocksplit has gone through, but a bit more relaxed now.

 

[Tslynk67]

I got a similar answer from Keytrade, with the additional advice to sell of the old option contracts and buy a new position in the new contracts, because the transformed old contracts will have less volume and thus lower liquidity.

I don't understand the point about selling and rebuying options, Nico, given that they'll be adapted accordingly, what's the benefit? My 4x June 2022 $1250's will become 20x $250, still ITM, so what's their point? My $3500's become $700's - if anything they'll be far MORE liquid after the split.

I'm in the same boat, and I was also thinking about selling prior the split and then buying again after.
When would you do that? Since they are giving the 4 new shares on the 28th to whom held shares on the 21st, I'd sell on the 28th before closure and then buy again on the 31st. I assume that I won't get such dividend since I hold no more shares. Correct?

I have no idea how to trade LEAPS, so I'm not really keen in going down that road.

I don't know the potential timing yet - as late as possible, even in after-market on the final possible day, then pre-market the next. Don't know, lots of confusion around what happens between 21st and 28th August IMO.

Hopefully we'll get the clarification that it's a non-event and such scenarios won't be necessary.