- Suppose a U.S. investor buys 100 shares of SAP Systems (SAP) listed in Germany on the XETRA, quoted at EUR 14.5 per share (including commissions) for a total trade cost of EUR 1,450. The exchange rate is one EUR = USD 0.90. The U.S. currency cost is USD 1,305 for the entire trade, including commissions charged by the U.S. broker. Three months later a one-euro dividend is paid for each share owned. Dividends are subject to a 15% withholding tax in Germany, and 28% tax on short-term capital gains and dividends in the U.S. At this point, the investor decides to sell the 100 shares of SAP now worth EUR 16. The current exchange rate is now one EUR = USD 0.95. Calculate the impact of taxes on the total return. A) 6.7% B) 6.4% C) 5.6%
Euro Return: (1,600 - 1,450 + 100)/1,450 = 17.24% US Return: (1,520 - 1,305 + 95)/1,305 = 23.75% Euro Dividends: 100(1-.15) = 85E US Gains Tax (1520 - 1305)(1-.28) = 154.8$ US Dividends Tax: 95(1-.28)= 68.4$ Total US Tax: 154.8 + 68.4 = 223.2$ Impact On Total Return: (1520 - 1305 + 95 -223.2)/1305 = 6.7% A?
1520-1305=Capital gains = 215 Cap Gains tax=215*.28=60.2 Dividend = 100*1*.95 = 95USD Total Div tax = 95*.28=26.6 Total tax=86.8 Impact of tax=86.8/1305=6.65% A
Correct answer = C. cpk123, I like your calculation. Pretty straight to the point and bypasses having to credit for foreign tax withholding. Pretty Neat.
damil – is it C? Looks like A to me…
Right cp, A is the correct answer. Typo in my response there. Sorry for the initial error. Thanks for the catch. Very important for others reviewing.