CFD Corporate Actions | Interactive Brokers Ireland (2024)

CFDs Corporate Actions

Notice regarding US IRS rule 871 (m)

From January 1, 2017 IB is obliged to withhold tax on long dividends related to US Share CFDs, reflectingthe rate applicable to the country of residence of each investor. In the past IB paid dividend-taxes on itshedges and passed on the resulting net dividend to customers regardless of their domicile. In other wordsall customers received the tax treaty rate applicable to IB.

The withholding requirement only applies to positions opened after January 1, 2017. Positions openedprior 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 USindex 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 IBrate.

Index CFDs

Dividends

Non-US Indices

The dividends are reflected as a cash adjustment based on the ordinary dividends paid by the constituents of priceindexes. The adjustment will reflect applicable tax treaty rates. Dividends are accrued on the ex-date for the underlying share, and settled on the paydate. Nopayments or tax adjustments are made for total return indices.

US 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.

Corporate Actions

IB does not adjust index CFDs for corporate actions. Corporate actions affecting index constituents arereflected directly in the index level.

Share CFDs

Dividends & Corporate Actions Summary

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.

Examples of Corporate Action Handling

Specific Handling

Fractional Share Adjustments

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.

Dividend Cash Flow

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 chargeda 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 theapplicable rates for long CFD positions. Please note the following:

For non-US Share CFDs

• For each CFD position IB carries an equal position in theunderlying share as a hedge. When the underlying share pays a dividend, IBreceives that dividend and passes on its economic value to the CFD holder.
• Since the actual dividend is paid to IB, the tax rate is the ratethat applies to IB, in most cases the relevant treaty rate. I.e. the CFDclient's country of residence has no bearing on the rate.
• IB passes on the net dividend to CFD clients as apayment-in-lieu-of-dividend, which is not a dividend for tax-purposes.Clients should consult their tax advisers to understand the implications intheir individual countries and circ*mstances

For US Share CFDs

• While IB continues to carry an equal position in the underlying share as a hedge, it no longer paysthe tax on the dividend itself. Rather it passes on the dividend gross to clients and withholds tax ata rate that applies to each client individually, based on the client’s country of residence andapplicable treaties, if any
• The withholding is an actual tax withholding and clients should consult their tax advisers as to theimplications of the change
• In effect, for US Share CFDs clients will pay the same tax on dividends as they would holding thephysical share

Actions typically leading to Position Changes (splits, reverse splits, buybacks, spin-offs, mergers)

• When a corporate action results in the creation of new shares in the existing underlying, The broker will create additional CFDs (position adjustment) in a manner consistent with a position holding in the underlying stock.
• If the corporate action results in the creation of a new listed entity, and the broker determines in its sole discretion that it will include the new shares in its general CFD offering, the broker will also in this case effect the corporate action by creating additional CFDs on the new security.
• In the event of a buyback or other partial tender, the action will be effected to reflect the performance of an investor in the underlying stock, including a position adjustment for the residual position, a cash adjustment for accepted positions, where the acceptance rate is based on the announced acceptance rate by the issuing Company for all shareholders. Short positions may be assigned CFDs.

Position Terminations

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.

General Termination Conditions of CFD Contract

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 circ*mstances, 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.