Those having ADS (American Depository Shares) of Mahindra Satyam are better of to either transfer or surrender them for cancellation on or before March 12. Or, proceeds from sale of unsurrendered ADS (after converting them into underlying shares in India) could attract 42 per cent of Withholding Tax in India when sold by the depository company.
Withholding Tax is levied on income on securities owned by non-residents.
The new management has announced ‘winding down' of its ADS after realising that it would be impossible for it to get relisted on US bourses. It had to deal with some unanswerable questions with regard to the years of fraud that happened during 2002-08.
3 options
The ADS holders can trade off their shares in over-the-counter market during the winding down period. They can open a demat account in India (after getting relevant permissions), convert ADS into Indian equity shares, either hold or sell them.
The third option is to let them pass the deadline (March 12) to pave way for transfer of all such shares into a special account by Citibank (the depository company) after the termination of Depository Agreement signed in 2001. Citibank would sell them in India after conversion. But the proceeds could attract Withholding Tax by Indian tax officials.
“Failure to surrender your ADS for cancellation before March 12 will attract 42 per cent tax on the gross share sale proceeds,” the company informed the ADS holders through a note to the US Securities and Exchange Commission (SEC).
After termination of the Depository Agreement (notices of which would be sent soon by the company), the company would hold such shares in a specific account. Citibank would convert all such shares into Indian equity shares, sell them and pay back the original holders proportionately. This, however, is after paying relevant taxes in India.
Satyam ADS are hovering at $2.31 over the counter on Wednesday against $3 when the company announced its winding down programme.