Replies to post #5608 on The Rising Influence of Rising Affluence

[DewDiligence]

p.s. Even if you take your Shell dividend in cash, the 15% withholding tax is not lost. In general (i.e. if you are not a tax-exempt entity), you can get the money back via the foreign tax credit on Form 1040.

[DewDiligence]

Correction to #msg-78716366 re RDS-A vs RDS-B:

In #msg-78716366 I said that both classes of shares were subject to a 15% withholding tax if the dividend is elected to be taken in cash rather than shares; actually, RDS-B dividends taken in cash are not subject to a 15% withholding tax, but they are taxable at a 15% rate on US personal income-tax returns. Thus, if you are a taxable US investor, it makes no difference in the end whether you get a cash dividend on RDS-A (with 15% withholding) or a cash dividend on RDS-B (without 15% withholding) because the tax withheld on RDS-A dividends can be recovered as a foreign-tax credit on Form 1040.

However, even some accountants I’ve worked with fail to appreciate the simple arithmetic involved in this discussion and have argued to me that if one reports the “net dividend” on RDS-A (i.e. the gross dividend less the 15% withholding) then one is square on the tax without taking a foreign-tax credit. This is nonsense, of course; reporting the RDS-A “net dividend” and not taking a foreign-tax credit results in an effective tax rate of 27.75% (15% plus [15% of 85%]) rather than 15%.

Despite the above, the decision on which class of shares to buy (for a taxable US investor) remains as stated in #msg-78716366: buy whichever class of shares is selling at a lower price.