From January 1, 2017 IB is obliged to withhold tax on long dividends related to US Share CFDs, reflecting the rate applicable to the country of residence of each investor. In the past IB paid dividend-taxes on its hedges and passed on the resulting net dividend to customers regardless of their domicile. In other words all customers received the tax treaty rate applicable to IB.
The withholding requirement only applies to positions opened after January 1, 2017. Positions opened prior to January 1 will not incur any withholding or other adjustment for tax.
Index CFDs are exempt from the new US withholding requirement. IB will therefore pay dividends on US index CFDs gross, without withholding or the previously applied tax adjustment.
For clarity, any non-US Share and Index CFDs will continue to pay net dividends based on the applicable IB rate.
The dividends are reflected as a cash adjustment based on the ordinary dividends paid by the constituents of price indexes. The adjustment will reflect applicable tax treaty rates. Dividends are accrued on the ex-date for the underlying share, and settled on the paydate. No payments or tax adjustments are made for total return indices.
IB CFDs based on US indices pay dividends gross, without withholding or other adjustments for tax.
The broker will make a cash adjustment based on the ordinary dividends paid by the constituents of each index. Dividends are accrued on the ex-date for the underlying share, and settled on the paydate.
IB does not adjust index CFDs for corporate actions. Corporate actions affecting index constituents are reflected directly in the index level.
In the event of a corporate action on the underlying security of a CFD, the broker will generally reflect the economic effect of the corporate action for CFD holders as if they had been holding the underlying security. This will be done through a cash adjustment, a position adjustment, delivery of a new security or CFD, or a combination of these. In cases where the corporate action is complex and the broker is unable to determine an accurate adjustment, the CFD position may be closed out prior to the ex-date.
|Ordinary Dividends||Cash adjustment|
|Special Dividend||Cash adjustment|
|Stock Dividend/ Bonus Issue||Position adjustment1|
|Tradable Rights Issue||Cash adjustment. The value of the right is credited on the ex-date reflecting the opening price for the right.|
|Stock Buy-Back||CFD holders do not participate. Termination2 commonly applied.|
|Stock Split||Position adjustment1|
|Spin-Off/ De-merger||Position in new CFD, position in new security, cash adjustment, or combination of these. Termination2 commonly applied.|
|Mergers, Acquisitions, Tenders||Position in new CFD, position in new security, cash adjustment, or combination of these. Termination2 commonly applied.|
|Statutory Consolidation (New Entity)||Position in new CFD, position in new security, cash adjustment, or combination of these. Termination2 commonly applied.|
In the event the corporate action results in a fractional position, the fractional component may be represented as a cash adjustment independent of the handling for the non-fractional position. The adjustment value will equal the fractional position times the adjusted closing price on the day prior to the ex-date.
A dividend adjustment is recorded as a dividend payable/receivable when a share passes its ex-dividend date, and is paid/charged on the matching payable date as the underlying.
If a choice between cash and stock is offered (choice dividend), IB will reflect the dividend as a cash adjusting payment-in-lieu-of-dividend ("PIL") for long CFD position holders. Short position holders may be charged a PIL, or new shares with a fractional share handling in cash.
Dividends are generally applied net of withholding tax to long positions, and on a gross basis to short positions. The table below shows the applicable rates for long CFD positions. Please note the following:
For non-US Share CFDs
For US Share CFDs
|United States||Individual Rate|
In cases where the broker is unable, in its sole judgment, to determine a fair and transparent handling of a corporate action, the broker will terminate the CFD prior to the ex date for the event. The broker will announce terminations at the earliest opportunity. Position closeouts will be valued at the closing price on the termination date.
The broker may terminate the CFD contract for a variety of reasons if, in its sole judgment, it determines that the CFD is no longer an adequate representation of the economics of the underlying instrument. This may occur in the case of certain corporate actions as noted above. The broker may also terminate the CFD in other circumstances, for example (without limitation) in case of illiquidity in the underlying asset, absence of sufficient and appropriate borrow ability in the underlying asset, insolvency, dissolution or delisting of the underlying security.