The Investor
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Hi there,
I'm wondering what the process is to get back tax paid on foreign dividends. I'm based in the UK, and for US dividends it's simple: you sign the W-8BEN form, and the tax that is deducted is automatically reduced to the correct amount according to the double taxation treaty. However for all other countries, it seems the governments do not go out of their way to make it easy to stop paying more than is required.
Any tips on the process for getting money back on dividends in the following countries would be appreciated. Although I know most of you will be based in the US, I suspect the process will be very similar.
France
Switzerland
New Zealand
South Africa
Cheers!
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AAPL Apple Inc.
BRK.B Berkshire Hathaway
GOOG Alphabet Inc
RYM Ryman Healthcare Ltd.
WFC Wells Fargo
Top 5 positions
Interesting to revisit after a couple of years and a major crisis. Not much has changed after a lot of reading and not a lot of doing:
Apple
Berkshire Hathaway
Trupanion
Alphabet
Ryman Healthcare
Sold out of WFC at $45.17 on 26 Feb, just as the market started to tumble. Added to BRK B, TRUP, GOOGL/GOOG, and reduced my position in AAPL slightly. Also established a position in CDLX during the market lows (I surprised myself by increasing my position after the stock went up around 30% in one day from the absolute low, that's a tough thing to do!). More recently I've been buying WINE.
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The probability of these lawsuits/attempts to retrospectively change contracts succeeding on a large scale is very small indeed I would say.
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Cardlytics and XLMedia are worth analysing.
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I didn't want to start a new thread and I have a few questions on IB.
Does anyone here use them for their RRSP / TFSA? It seems they support that now. I am looking for something that will allow me to do trades on foreign exchanges, my current broker charges prohibitive prices ($200 per trade + forex charge).
Yeah, I helped my sister in law set up a TFSA account with IB in Canada. I'm based in the UK, and it's a shame they don't offer the UK equivalent ISA account.
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The investor, I think your framework is flawed. You don't get to do what you want with the float and I think that 8% is really optimistic for return on float. There are regulations around what insurance companies can do with float - see Berkshire's huge bond portfolio --that's not an accident. Also you don't get to have fun with the float for 50 years. You pay it out and have to try to raise new one. There are thousands of people each day asking for their float money back from Berkshire.
What you say about float being a superior type of liability is true. I would account for that by adjusting c higher. But I would be careful about the size of the adjustment. Keep in mind. The vast majority of companies did not have a problem refinancing themselves in 2008. Berkshire wouldn't have had a problem either. The fact is just that Berkshire wasn't and still isn't very levered up.
In the 1995 annual meeting there is a question regarding this (the video should start on 1:42:40):
Warren is asked how much flexibility Berkshire has in investing float, and the answer is 'a lot'. "We are not disadvantaged by that money being in float as opposed to equity, really in any significant way. If we had a very limited amount of equity, and a very large amount of float, we would impose a lot of restrictions on ourselves..."
I interpret that as meaning that Berkshire's existing equity is so much larger than it needs to be to support claims, that they can effectively do whatever they want with float. Most insurance companies need to invest in low volatility investments (bonds etc.) because they can't afford to lose much money, operating on wafer thin equity to cover claims.
Presumably the regulations you mentioned are far more restrictive for companies with less equity/more float than they are for Berkshire? Warren suggests he would restrict activity voluntarily if it was necessitated by low equity relative to float.
If the quote about float and equity above holds true today, I don't think 8% is particularly optimistic.
Berkshire float has grown over time, and I think it is reasonable to assume it will continue to grow over time at a slower rate. If that's true, you do continue to get to have fun with the (increasing) float. Sure that might take a lot of work, but the same could be said of all the other businesses that keep producing over time.
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With regard to how to value the Berkshire insurance float, - popping up again here now -, I still think the best place I have read about it is rb's post #89 in this topic of July 19th 2017. rb's angle & way of looking at it just makes so much sense to me.
What do you think about this post on another thread?
To me that suggests the formula given massively underestimates the value of the float, or am I missing something?
Imagine you get to choose one of the following two options:
a) You get $1m cash, no strings attached.
b) You get $1m in cost free float. This float grows at 5% per year, and while you never get to own it, you own all investment income derived from it for 50 years.
Assuming an 8% rate of return in the above scenario, $1m cash grows to $1.08m after 1 year if you choose "option a", and $0 grows to $80k if you choose "option b". You make $80k on the $1m float, and the float grows to $1.05m. So next year you make $84k from the float, plus 8% on the $80k you made in the previous year.
It takes 17 years for profit derived from cost-free float to exceed capital compounded at 8% starting with $1million cash.
After 50 years, $1m cash compounded at 8% has grown to $46.9m.
However, the investment income from $1m float growing at 5% per year, compounded at 8% per year, has grown to $94.5m, with the float standing at $11.5m.
So a few key points that to me seem to be missing from the formula:
1) The float is likely to grow over time (and I remember Warren or Charlie saying that if it contracts for any period of time, it would be very unlikely to be at faster than 3% per year, although I can't remember the source).
2) It's an extremely stable, long-term source of funds that is of far better quality than most types of borrowing, as there often tends to be an element of getting the rug pulled out from under your feet at the worst possible time. The more you need the money, the more likely it is the lending institution wants it back, or tries to charge you more when it's time to refinance. That's why float is not the Faustian bargain that a high level of 'normal' leverage is.
3) The longer your time horizon, the more the float is worth (assuming the float will tend to get larger over a long period of time).
Interested to hear your thoughts!
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My default position is to always agree with Buffett
Same here, although I like to understand why an investment makes sense. I don't really understand Teva for example, so I haven't invested. Other than indirectly through owning Berkshire that is ;)
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AAPL Apple Inc.
BRK.B Berkshire Hathaway
GOOG Alphabet Inc
RYM Ryman Healthcare Ltd.
WFC Wells Fargo
Top 5 positions
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OMG, it's them roaches again. They show up every couple of years; Like the newspaper report on predatory lending @ Clayton; the long lost grand daughter cut out of her inheritance, leadership troubles at Benjamin Moore...and now this.
We are doomed.
Haha.
That along with the obligatory "Has Buffett lost his touch?"
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Even if a strong, steadily growing company was to become cheaper relative to intrinsic value over a long time frame, you eventually realise a high return through rising dividends. As a long term holder of shares you don't even need the weighing machine effect to kick in (although in the real world it always seems to).
Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). That means if you have anything less than a multi-decade time horizon, you will be more dependent on the whims of the market to realise gains, than you would with a company that pays out some part of profits.
I was somewhat peeved at the recent runup in Berkshire, as I would like to buy more over time. If BRK goes to sub 1.3 P/B without something obviously terrible causing that, I'd be very pleased.
I am actually in the camp that I don't want Berkshire to pay me a dividend. Reasons are simple, they pay a dividend when I don't need the cash. Or that amount of cash. I will make my own dividend by selling just enough shares when I need the cash. The price may be lower (on recency basis), and I am willing to accept that knowing that there will be other times when I sell at higher prices. It is all relative. Selling a small percent of your holding bought 10-15 years ago don't mean much. So yes, holding over multi-decade time horizon is a different ball game. Buffett kind of talks only to that crowd.
Yes same here. I prefer not to get a dividend either, especially for the shares I own personally. Here in the UK there is no tax on undistributed income for personal holding companies, but the US would withhold 15% tax anyway, so it would still be disadvantageous from a tax perspective. In the case of UK companies paying a dividend, I would be able to keep reinvesting dividends received within my company with tax deferred until it's paid out to me personally.
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... Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). ...
The Investor,
I suppose, by inverting the Berkshire Buyback Ammendment of July 17th 2018, that would be when Mr. Buffett & Mr. Munger deems the Berkshire market price to be above intrinsic value per share, as one condition, out of maybe several.
It might even be the only condition? Perhaps it should be fairly significantly above fair value though, due to the negative tax implication of a dividend for many owners.
If it's below intrinsic value buybacks should come before a dividend, if there are no more attractive options.
There might be a zone where it's slightly above intrinsic value so buybacks don't make sense and dividends don't either. Then I suppose lots of cash would build up until it moves one way or the other.
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Even if a strong, steadily growing company was to become cheaper relative to intrinsic value over a long time frame, you eventually realise a high return through rising dividends. As a long term holder of shares you don't even need the weighing machine effect to kick in (although in the real world it always seems to).
Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). That means if you have anything less than a multi-decade time horizon, you will be more dependent on the whims of the market to realise gains, than you would with a company that pays out some part of profits.
I was somewhat peeved at the recent runup in Berkshire, as I would like to buy more over time. If BRK goes to sub 1.3 P/B without something obviously terrible causing that, I'd be very pleased.
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Hielko/odballstocks,
Are you guys referring to IB charges for non-US equities? I only opened an account with them fairly recently (friends & family). And the charges for US shares are tiny. For example, calculating now, I paid 0.0015% (and 0.0017% for GBP to USD). This is only commission I'm counting, not the spread etc.
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Thanks oddballstocks, Fidelity is expensive right?
I own some NZ shares via a company I own, but paid a fairly steep fee (0.25%, using Charles Stanley here in the UK), compared to paying "close to zero on IB".
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Hi all,
Does anyone know the reason quite a few brokers such as Interactive Brokers don't have NZX as an option?
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I invested in Trupanion myself. It's the only company I've invested in that is not yet making a profit. This kind of company is normally too speculative for me, but this was very compelling.
Good shareholder letters.
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The Investor,
[Me whispering here]: If this does not satisfy your hunger, please look up Austin Value Capital on Twitter. I guarantee, that you'll leave the buffet with a full stomach! [ ; - D ]
Hi John, I've only just spotted your recommendation, but thanks a lot!
That looks great.
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Thanks racemize. Great work!
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Thanks everyone for your input.
Regarding this:
Berkshire structure - a company holding investments - makes very little sense from tax standpoint. It started to make more sense when it became (re)insurance company and started holding operating businesses. Munger (and Buffett?) has said this repeatedly. And yet there are still people doing this...
Everyone apart Buffett charges fees, since everyone likes to get paid - the more the better. Buffett is one of very few people who believes that he's paid enough through his stockholdings and does not need to charge extra salary/fees/etc.
I haven't seen it explained why this is the case though. In the UK it does make sense to own shares through a company rather than directly, as you can defer tax on dividends until you pay them out to yourself. So if you personally receive dividends, you pay tax immediately, but if you receive them within your company, you can reinvest them rather than paying them through to yourself, thus deferring the tax. I presume it must work differently in the US.
https://www.taxation.co.uk/Articles/2015/02/24/332718/all-wrapped
As an aside, I believe it's also the case in the UK that insurance companies pay tax annually on mark to market increase in value in their share portfolio, so tax on gains can't be deferred by choosing not to sell.
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I'm trying to figure out why it made sense to for Warren Buffet / Charlie Munger to have Berkshire Hathaway as their investment vehicle.
Buying Berkshire instead of a high quality insurance operation was itself a mistake according to Buffett, but that's beside the point.
When Buffett closed his partnership and decided to make Berkshire his vehicle of choice, he had a lot investors in the company who have gotten a free ride of sorts up to this day, as top management is not extracting any kind of fee, other than a nominal salary. Tod Combs and Ted Weschler receive substantial bonuses, when Buffet and Munger do not. I'd be interested to understand the rationale behind that.
If it's harder to make a 20% return on $4b than it is on $1b, then it even comes at a personal cost to have a 25% stake in a $4b "investment corporation" vs a 100% stake in a $1b "investment corporation".
On the other end of the spectrum you have the practices by management of Biglari Holdings, extracting massive fees for management. Somewhere in between are Greenlight Capital/Greenlight Re, setting itself up to profit from investment of insurance float, but taking a cut for management, and Fairfax India, which also extracts management fees.
So back to the original point...
1) Why no fees? Why does it make sense for Fairfax India to charge fees, but not for Berkshire (if this is even the case!).
2) Berkshire and some other companies were merged. Technically speaking, what was the reason it didn't make more sense to have an investment vehicle owned 100% by Buffett, Munger & Co.
Interested to hear your thoughts!
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A Few ideas:
*Filter for only the 'Superinvestors' the user is interested in.
*Along with the "% of total portfolio" show an overweight/underweight table relative to the index weight.
*More historical data.
*Showing how basic copying strategies would have performed. ie. if you own the 75-80% of the companies owned by these investors, has that historically been better than owning the index as a whole (by enough of a margin to cover the added costs). This is dangerous anyway. I'm not sure if new investors are added after a good multiyear run etc.
*Table in excel with columns for #investors, company ,sector, hold price. It's a bit of a pain to get the table data off there currently.
rebates on foreign dividends with double taxation treaties
in General Discussion
Posted
Thanks. Yeah I had an old link that didn't work for Switzerland! Snapform ;D
The treaties in place seem to reduce the tax to exactly half the standard rate almost everywhere. 30% to 15% (ie. USA). 20% to 10% (ie. South Africa).