A depositary receipt is a negotiable certificate issued by a U.S.
bank (a depositary) representing a specific number of shares of a stock traded on an exchange of another country. These instruments are designed to make it easier for investors to buy shares in foreign companies, due to the widespread availability of price information, lower transaction costs, and timely dividend distributions. AmericanDepositaryReceipts (ADRs),GlobalDepositaryReceipts (GDRs)
and New York Registry Shares (NYRSs)
are three examples of this type of security. However, just as with ordinary shares directly held cross border, the foreign tax authority often withholds a portion of the dividend at a statutory rate.
A corporate issuer's ability to attract investment capital is closely linked not just to their performance as a business, but increasingly to their performance towards their shareholders. As a result, they have a vested interest in making the investment
process as easy as possible for their investors and in turn, encouraging more investment.
GlobeTax's Depositary Services department works to maximize the receipt and recovery of entitlements for shareholders on issues it supports. We work directly with corporate issuers in conjunction with our depositary clients to assist in recovering entitlements for shareholders.
Obligations of a Corporate Issuer:
Issuer is responsible for maximizing share value and is fundamentally interested in attracting and maintaining investment.
Ensuring that shareholders receive their full
entitlements serves to increase the capitalization of the issuer's shares. This benefits all shareholders, not just those holding the security cross border.
Corporate Boards of Directors are obligated to know the effects of withholding tax,
as it pertains to their non-resident shareholder base and to provide access to solutions which mitigate any reduction in return on investment that would otherwise occur.
Due to over-taxation at the point of distribution, the shareholder may receive up to 35% less value from a corporate dividend than they are entitled to and which the board of directors intended that they receive. This has created a need by those in the investment chain to deal with this issue effectively on behalf of clients and shareholders.
It is reasonable for a shareholder to expect that the company's board of directors will deliver value in equal measure to all shareholders to the best of their ability, irrespective of shareholder status and residence.
Best Practice, as supported by Sarbanes-Oxley in the USA, Higgs in the UK and other governance frameworks in development across Europe, requires transparency and facilitation of education to their shareholders about the effects of their decision to invest in the company.
Education - to provide greater awareness of the impact of cross border investment strategies for shareholders;
Facilitation - to
provide access to shareholder solutions for provision of relief at source of recovery of over-withheld tax.
For more information about Depositary Services, please contact us.
