IRS issues GLAM on sourcing of U.S. depository payments to foreign corps


The IRS recently issued a general legal advice memorandum (GLAM 2023-001) addressing how to source specific payments made by U.S. depository institutions to foreign corporations for the rights to issue sponsored American depository receipts (ADR).


The ADR program is designed to allow foreign corporations access to the U.S. capital markets. Under the program, a U.S. depository institution receives shares in a foreign corporation and issues ADRs that participants can trade or redeem for the underlying shares.


The IRS provided that when payments are made to foreign corporations under the program for expense reimbursement or revenue sharing, the payments represent consideration for the U.S. depository institution’s exclusive right to trade the foreign corporation’s ADR in the U.S. This right constitutes a property right made available by the foreign corporation for use for a limited period of time solely in the U.S., regardless of whether the holders are located inside or outside the U.S.


The GLAM concludes that the sponsored ADR payments, either for reimbursement or revenue sharing, would be U.S.-source fixed or determinable, annual or periodical income, subject to 30% withholding under Section 1442 unless treaty benefits apply and are examples of “other like property” under Section 861(a)(4) that could generate royalties. 




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