Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Hi all,

I have European shares of the Spanish company Telefonica, which recently issued a scrip dividend on Nov 14th: http://www.telefonica.com/en/shareholders-investors/pdf/hr_2...

Each shareholder gets 1 allotment right per Telefonica share and has the following options:

1. Not to transfer his free allotment rights and receive the new shares. In this case, new shares corresponding to the number of rights held by him at the end of the trading period will be allocated free of charge to the shareholder. The allocation of shares is not subject to withholding tax. [Note: the ratio is 35 allotment rights for 1 new Telefonica share].

2. To transfer all or part of the shareholder’s free allotment rights to Telefónica under the irrevocable Undertaking to purchase free allotment rights assumed by the Company at a fixed price, which entails electing to receive the compensation in cash.
This option will have the same tax treatment as a dividend, and the amount to be received by the
shareholders will therefore be subject to withholding.
[Note: I am assuming that "same tax treatment" only refers to the fact that there there are subject to Spanish tax withholding and doesn't say anything about US tax treatment.]

3. To transfer all or part of their free allotment rights on the market. Since the rights may be traded in Spain, shareholders may decide to sell them on the market during the trading period.
The amount from the sale of the rights on the market is not subject to withholding.


I checked IRS publication 550 and found the following ( http://www.irs.gov/publications/p550/ch01.html#en_US_2013_pu... ):

Scrip dividends. A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. The certificate is generally nontaxable when you receive it. If you choose to have the corporation sell the certificate for you and give you the proceeds, your gain or loss is the difference between the proceeds and the part of your basis in the corporation's stock allocated to the certificate.

However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate is taxable when you receive it. You must include its fair market value in income on the date you receive it.



After reading this I am assuming that - since I have an option to receive cash - that the dividend will be taxable, no matter which of the options above I choose. Is that correct?

If I choose to sell the rights in the open market, would the sales price (minus commisions) be the value of the dividend? (Normally my bank would determine this on their 1099 form, but this is a German bank and their handling of 1099 forms is not quite up to par, so I'd like to know how it is supposed to be).

Thank you very much in advance for your help,
Bernhard
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.