Interest-related dividends of US-domiciled ETFs are exempt of withholding tax

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daviddem
Posts: 262
Joined: Wed Jul 06, 2016 12:53 pm

Interest-related dividends of US-domiciled ETFs are exempt of withholding tax

Post by daviddem »

Dividends of US-domiciled ETFs and mutual funds which are directly derived from the coupons of US bonds held by the fund (Treasurys and corporate alike) qualify as interest-related dividends and are therefore exempt of WHT:

Permanent U.S. Withholding Tax Relief for Non-U.S. Investors in U.S. Mutual Funds

The way this is supposed to work in practice is that your broker will still charge 30% (or treaty rate) WHT over the full dividend when you receive it, but once a year in Jan-Mar they will refund the part of the WHT that was charged on interest-related dividends and backdate it to the date you received the dividends. This is because the broker has to wait for the information from the fund provider to know what percentage of its dividends qualified as interest-related dividends, and the funds provide this information only once a year in their annual report.

IBKR does this properly. See attached pdf file showing the dividends, WHT and WHT refunds of TLT (US-domiciled long term Treasurys ETF) in my IBKR account for year 2022 and 2023. Most of the 2022 WHT for TLT was refunded, but not yet the 2023 ones. IBKR support explained that the 2023 refund will happen soon (see attached IBKR ticket with their reply).

See also screenshot below of my 2022 IBKR dividend report, where most of the dividends of TLT are classified as interest-related dividends with 0 WHT (last column). My 2023 dividend report is not available yet.

Now this begs the question: do other brokers process this correctly too? Swissquote? Saxo? If not, it means that your broker's lack of diligence causes you to overpay WHT. And the conspiracy-minded among us could even imagine more nefarious scenarios...

I am looking for people with Saxo or Swissquote accounts who hold US-domiciled bond ETFs and would be willing to dig in their 2022 statements to figure out whether they have received their WHT refunds.

TLT WHT 2022-2023.pdf
IBKR ticket
IBKR 2022 dividend report
DoctorE
Posts: 172
Joined: Thu Feb 13, 2014 2:11 am

Re: Interest-related dividends of US-domiciled ETFs are exempt of withholding tax

Post by DoctorE »

I've also noticed this with IB! They refund the WHT on US bond ETFs in the following calendar year.
Topic Author
daviddem
Posts: 262
Joined: Wed Jul 06, 2016 12:53 pm

Re: Interest-related dividends of US-domiciled ETFs are exempt of withholding tax

Post by daviddem »

DoctorE wrote: Sun Feb 11, 2024 5:33 pm I've also noticed this with IB! They refund the WHT on US bond ETFs in the following calendar year.
Indeed. I am pretty sure Alpaca does it too: see here, "What is an income reallocation?" section.

The question is whether European brokers like Saxo and Swissquote also do it. I sent inquiries, but no reply so far.
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