Isn’t it ‘other income’ that the US has not taxed? They already taxed the dividends who went to the party holding the shares. They didn’t tax the PIL that you received.
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@Tony1337 's screenshots show withholding tax for PIL. Also, I remember that the borrower has to pay gross dividends. So someone does receive this withholding tax equivalent (=> this is not a virtual entry).
I think you’d need to confirm with the tax documents whether withholding was really held or whether the WHT on the IBKR statement is some kind of virtual accounting.
It is of course possible that IBKR just pockets the difference and tells you it’s “withholding tax”. But I think that is unlikely. This is bound to be tax fraud in some jurisdiction.
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I made a quick analysis on SYEP on ETF on an account for the past years.
- Typically, some interest received, mostly coming from an European ETF
- Heavy lending of US ETF around the ex-date. Low interest received, since the loan is returned the next day. Probably some tax game?
- On payments-in-lieu on US ETF, 15% are withheld
- No issues so far with reclaiming those via DA-1
But if those 15% were not reclaimable, the cost would outweigh the interest received, heavily on the US side. I haven’t digged into the legal side, yet. I understand from a purely US perspective, it’s supposed to be tax neutral for the borrower, possibly negative for the lender.
Would be interesting to see that analysis when holding individual stocks, especially hotly debated ones. 
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Payments in lieu of dividends received by a U.S. taxpayer do not qualify for the
preferential qualified dividend income rate and are taxed as normal ordinary income.
This rule applies irrespective of the tax residency of the underlying company. On the
other hand, payments in lieu of dividends on U.S. securities received by a non-U.S.
taxpayer are treated in the same manner as dividends on U.S. securities. That is, 30%
U.S. withholding tax is due unless Customer qualifies for a reduced rate of withholding
under a U.S. income tax treaty.
This is from IBKR Canada but the above part is about US tax law.
https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=4092
As the US applies tax treaty rates to payments in lieu, it would make sense for Switzerland to treat it equivalent to withholding taxes of regular dividends, i.e., provide a tax credit via DA-1, as I understand it. However, I may well be missing something.
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Fair enough, that also reflects my amateur understanding, or at least the handling I’ve seen on my depot / taxes (see previous post)
By any chance, did you receive PILs on European ETFs?
It specfically says US tax, see my screenshots. That would be fraud otherwise.
That‘s great to hear, thank your for providing another reference point and confirming my thinking.
How do you declare it in your taxes and which canton, if I may ask?
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Peanuts. It’s much less concentrated on dividend dates compared to US.
Why do you ask?
It’s included in “Broker Interest Received”. I add it minus “Broker Interest Paid” to the income from the account.
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On the DA-1?
Yes, in the case of IB. I think the field is “Bruttoertrag” in German, but I can’t check right now.
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Thanks for the detailed reply.
In my case, I checked again, all my shares were in the “Securities Segregated” column. I didn’t make any purchase in that share for months, so it cannot be a question of trading around ex-date. For the record, this was a Swiss share. When I questioned IB about this issue, they pointed me to the customer agreement and said that the only way to avoid PILs is to have a cash account.
In fact, the only way that I can see the whole system work is if IB takes the withheld tax from the gross amount the short seller has to pay back (gross PIL) and pay that withheld tax to the tax authorities directly. In that case, the tax authorities would receive, on an agregated basis, more than what the dividend paying company withheld. Only in that case, could the tax authorities reimburse the withholding tax for the PIL.
Otherwise, the tax authorities cannot reimburse a withholding tax they did not receive.
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This is great! Can you give numbers? You can scale to one share if you are uncomfortable with the real amounts.
I’m interested in:
- gross dividends of the underlying shares
- PIL received
- US withholding tax stated
I hope to see how non-US dividends are handled.
Optimally, they give the whole gross dividends. Or at least gross minus US WHT treaty rate.
Worst would be net and applying US WHT (and non-treaty rate at each step).
Edit: I remember you have Japanese ETF. Those have actual non-US WHT. If by any chance you had PILs on those too?
There’s no withholding tax on dividends from IE funds.
They do seem to return a higher lending fee, and with a different pattern around dividend payments. I haven’t done a study, just looked through some reports in a few minutes.
So I still don’t get the excitement or purpose of the questions 
, and don’t want distract too much from the original thread’s question.
If you specify, maybe I or someone else can provide a better answer?
The PILs are are major uncertainty for SYEP. I am excited, because your data could clarify it. Others don’t do SYEP or don’t have distributing non-US securities. The outcome could be good or bad, but it would be clear, and that would help everybody considering to do SYEP.
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That would be great, but wouldn’t you need to get very lucky to lend out your funds regularly on dividend day?
Lucky (or unlucky), but securites lending seems to have very different likelyhoods depending on the security, maket, and corporate actions (e.g., dividends).
And maybe some Japanese ETFs are shorted a lot, so you could expect to get PILs at a significant rate. Which could be good if you:
- get gross dividends and pay no WHT
- get gross dividens minus 15% US WHT, but get tax credit for the WHT (instead of only 10% treaty rate on the 15% non-treaty rate JP WHT)
And bad in all other combinations.
Also you don’t want to be caught with your pants down when KMLM is doing a 10% distribution (that would have partly been a non-taxable capital gains distribution).
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