IRS Chief Counsel - Character of domestic depositary payments 

July 15:  The IRS publicly released a Office of Chief Counsel memorandum* addressing the character and source of payments by a domestic depositary institution on behalf of a foreign corporation in consideration for a grant of the exclusive right to offer American Depositary Receipts. AM 2013-003 (released July 12, 2013, and dated July 3, 2013).

*The memorandum is legal advice, signed by executives in the National Office of the Office of Chief Counsel and issued to IRS personnel who are national program executives and managers. The memo is issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. It is not to be used or cited as precedent.


AM2013-003 [PDF 86 KB] concludes that the payments:


  • Represent compensation to the foreign corporation for its transfer of an interest in property in the United States
  • Are sourced within the United States
  • Are subject to 30% withholding under section 1442, unless the applicable rate of withholding is reduced under a U.S. income tax treaty
  • Are treated as “other income”—and not “royalties” or “business profits”—under U.S. and OECD model income tax treaties



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