What is "income collection and tax reclaim" mean, in regards to investment banking?
Thursday, July 29th, 2010 at
2:11 pm
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Filed under: Retirement Planning
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When an investment bank participates in the issuance of equity or debt securities, arrangements are typically made for an agent of the issuer to handle the payment of interest or dividends to the investors in the newly issued security and throughout the life of the security. This agent is often referred to as the paying agent and this role includes responsibility to keep the records of how many outstanding shares/bonds there are, and who the registered shareholders/bondholders are, much of which is now held in nominee name these days. When dividends/interest ("income") payments are due to be paid, the agent is responsible to obtain funding from the issuer and make payment to the registered holders and this is sometimes referred to as "Income Collection". If the income payment is subject to deduction of withholding tax by the issuer’s home tax authority, the paying agent and/or issuer generally will withhold the tax from the income payment. If the issuer’s country tax authority allows for withholding tax relief at the time income is paid, the rate of tax withheld on pay date will reflect the tax rates that groups of investors are entitled to under income tax treaties or other issuer country regulations. This is referred to as tax relief at source. If the issuer’s country does not permit tax relief at source, then any refund due to an investor of over withheld tax must be claimed by filing a "Tax Reclaim" directly with the issuer’s tax authority.