FROM THE OFFICE OF PUBLIC AFFAIRS

Today, the Treasury Department and the IRS issued a Notice covering the taxation of dividends paid by foreign corporations under the provisions of The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the “2003 Act”).  By reducing the rates of tax for individuals on certain dividends, the 2003 Act reduces the double tax on dividends.  The Notice provides further guidance on the application of the reduced rates of tax to dividends paid by a foreign corporation.

Dividends paid by a foreign corporation are subject to the reduced tax rates if the corporation is a qualified foreign corporation.  With certain exceptions, a “qualified foreign corporation” includes a corporation paying dividends on common or ordinary stock that is readily tradable on an established securities market in the United States.  The Notice issued today defines “readily tradable on an established securities market in the United States” for this purpose.  The Notice provides that common or ordinary stock, or an American depositary receipt, issued by a foreign corporation meets this definition if the stock is listed on the NASDAQ Stock Market or any exchange registered with the SEC (e.g., the NYSE and the Amex).  The Notice also requests comments regarding the possible expansion of this definition for future years.

Persons who pay dividends to shareholders generally must report such payments on an information return both to the recipient of the dividends and to the IRS.  Information returns reporting dividends paid to U.S. persons for tax years beginning on or after January 1, 2003, will identify amounts of dividends that may be eligible for the reduced tax rates under the 2003 Act.  Treasury and the IRS will issue guidance shortly regarding information returns reporting dividends paid by a foreign corporation.  Treasury and the IRS also will issue guidance on specific issues relating to the treatment of preferred shares.

 is attached.

Related Documents:

• The text of Notice 2003-71