Chief Counsel Memo on ADR payments highlights importance of income characterization under treaties

July 2013

Overview

The IRS Office of Chief Counsel recently published a memorandum (AM 2013-003) that addresses the characterization of payments made 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, and how such payments should be treated under US income tax treaties. While the memorandum does not have precedential value, it is an indication of IRS thinking on this issue.

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