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Overview

This document applies to all releases of Eagle software V12 and above. This documents focuses on applying Global Tax Rates to swap securities. Please refer to the Manage Tax Withholding and Reclaim Processing section of Manage Fixed Income Processing for detailed information on Eagle Accounting's tax and reclaim functionality.

Dividends and interest income for foreign securities are subject to withholding tax and reclaims as per the tax treaty agreements between different countries. Eagle Accounting has core support for these with the Global Tax Rates functionality.

Pay special attention to underlined sections, as these highlight the most frequently encountered issues. Bold is used for navigation, modules, and screens. Italics are used for fields, tables, and errors. Fixed width indicates values for fields or code/text that should be entered. Tags are shown in parentheses (#) after field names.

Entity Setup

The following entity-level fields are critical to processing withhold tax and reclaims correctly.

  • Country of Tax (1193): entity's country of domicile
  • Taxable indicator (1143): defines if entity is taxable
    • Yes: withholding tax and reclaim will be posted
    • No: withholding tax and reclaim will not be posted
  • Accrue Interest Tax Indicator (3911): defines if entity accrues interest for tax withholding and reclaim
    • Yes: interest for withholding tax and reclaims are accrued on a daily basis
    • No: withholding tax and reclaims will be calculated on coupon payment date
  • Tax Accounting Method (3912): specifies the methods for withholding tax and reclaim
    • Gross Liability Method: income posting will generate separate receivables (income and reclaim) and payable (withholding)
    • Gross Income Method: no withholding or reclaim will be posted
      • Cannot be used if Accrue Interest Tax Indicator = Yes because this method ignores the withholding tax on dividends and coupons
    • Net Method: income posting will net dividend and withholding as a receivable and reclaim will be posted separately
    • Note: the return leg of a TRS (SWLXEQ) defaults to the Net Method regardless of this election
  • Entity Tax Type (3929): allows entities to be grouped for tax purposes
  • Entity Tax Qualifier (3930): allows entities to be grouped for tax purposes
    • Entities can be grouped based on Entity Tax Type, Entity Tax Qualifier, or both
  • Tax Exempt Processing Flag (4948): defines whether income is posted to taxable or tax-exempt general ledger accounts

Reference Data

Security Data

The following security master fields are critical to successfully drive Global Tax Rates processing on fixed income instruments and swaps.

  • Issue Country (1418): specifies the security's country of issue
  • Issue Tax Type (668): used as matching criteria for calculating withholding tax and reclaims
    • When adding this to a TRS, ensure the SWLXEQ leg is populated
  • Primary Exchange (17): exchange where the security is traded; also used as matching criteria
    • When adding this to a TRS, ensure the SWLXEQ leg is populated

Global Tax Rates

Rates can be added using Add Global Tax Rates, with the relevant fields explained below. When Global Tax Rates are in place, the Override Tax Treaty process can be used to override the matching criteria defined by the Global Tax Rates.

  • Distribution Type (670): defines type of income; Interest, Dividend, or Stock Dividend
  • Begin Date (71): first day of the tax period
  • End Date (73): last date of the tax period                                                                                                                                                                                           
  • Entity Country (1342): entity's country code
  • Issue Country (1418): security's country-of-issue code
  • Entity Tax Type (3929): allows entity grouping for tax purposes
  • Entity Tax Qualifier (3930): additional entity grouping for tax purposes
    • Entities can be grouped by Entity Tax Type, Entity Tax Qualifier, or both
  • Primary Exchange (17): exchange where the security is traded
    • This is also used as matching criteria when processing withholding tax and reclaim
  • Issue Tax Type (668): defines tax structure the security is following (ALL, FI, EQ, etc.)
  • Override Indicator Code (669): defines whether the global tax rate can be override by the Override Tax Treaty screen
  • Tax Withholding Rate (1295): the withholding rate
  • Tax Reclaim Rate (1296): the reclaim rate
  • Avoir Withholding Rate (1297): withholding rate used for Avoir Fiscal dividend processing
  • Avoir Reclaim Rate (1298): reclaim rate used for Avoir Fiscal dividend processing
  • Description (1104): user-defined description     

Trade Processing

No special trade processing is required when using Global Tax Rates.

Accounting

Once a trade is booked, it will be picked up in Eagle's global workflow. Global Tax Rates will be applied automatically to interest, cash dividends, and stock dividends.

Examples

Example 1

The setup below will only apply rates to positions with Entity Tax Type = SW and Entity Tax Qualifier = SW and security-level Issue Tax Type = SW. See attached Global Tax Rates for Swaps Example 1.xlsx spreadsheet.

  • Distribution Type = Dividend
  • Entity Country = US
  • Issue Country = UK
  • Entity Tax Type = SW
  • Entity Tax Qualifier = SW
  • Issue Tax Type = SW
  • Effective Date = 1/1/2016

Example 2

The setup below will apply rates to all positions with security-level Issue Tax Type = SW. See attached Global Tax Rates for Swaps Example 2.xlsx spreadsheet.

  • Distribution Type= Dividend
  • Entity Country = US
  • Issue Country = UK
  • Entity Tax Type = ALL
  • Entity Tax Qualifier = ALL
  • Issue Tax Type = SW
  • Effective Date = 1/1/2016
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