Business Context and Reporting Period
Company: Digital Realty Trust, Inc. and Digital Realty Trust, L.P.
Filing Type: Form 8-K (Current Report)
Date of Report: April 2, 2013
Subject: Item 8.01 Other Events - Supplemental United States Federal Income Tax Considerations.
This filing serves as a supplement to the Registration Statement on Form S-3 (File No. 333-180886) and supersedes prior tax discussions filed on June 26, 2012. It addresses proposed Treasury Regulations, REIT distribution requirements, updated tax rates effective January 1, 2013, and foreign account withholding rules.
Key Financial Metrics
The filing text does not provide specific financial performance data such as revenue, profit, cash flow, margins, debt, or liquidity figures. The document is strictly informational regarding tax compliance and regulatory updates.
Material Changes Versus Prior Period
- Superseding Prior Disclosures: This report entirely supersedes the "Supplemental United States Federal Income Tax Considerations" section from the 8-K filed on June 26, 2012.
- Updated Tax Rates: Reflects changes effective January 1, 2013, where the maximum tax rate for non-corporate taxpayers on capital gains and qualified dividend income is generally 20%.
- Medicare Tax: Introduces an additional 3.8% tax on unearned income (dividends and capital gains) for certain individuals, estates, and trusts.
- Foreign Withholding: Clarifies that 30% withholding on dividends generally applies to payments made on or after January 1, 2014, and on gross proceeds from stock sales on or after January 1, 2017.
Guidance, Outlook, and Risks
REIT Distribution Requirements
To maintain REIT qualification, the company must distribute dividends equal to at least:
- 90% of "REIT taxable income"; and
- 90% of after-tax net income from foreclosure property;
- Minus the excess of specified non-cash income items over 5% of "REIT taxable income."
Proposed Treasury Regulations (Built-in Gains Tax)
If the company acquires assets from a C corporation with a tax basis lower than fair market value, it may be subject to corporate tax on gains recognized within ten years of acquisition. Proposed regulations suggest excluding gains from Section 1031 (like-kind exchanges) or Section 1033 (involuntary conversions), but these are not yet final.
Foreign Account Compliance
Risks exist regarding 30% withholding taxes on payments to foreign financial institutions or non-financial foreign entities unless specific diligence, reporting, or certification requirements are met.
Investor Verification Checklist
- Verify the final status of Proposed Treasury Regulations regarding built-in gains tax exclusions for Section 1031 and 1033 exchanges.
- Confirm the impact of the 3.8% Medicare tax on unearned income for individual, estate, or trust shareholders.
- Review the specific timing of foreign withholding tax applicability (dividends from Jan 1, 2014; sale proceeds from Jan 1, 2017).
- Ensure understanding of the "REIT taxable income" calculation, specifically regarding the deduction of taxes paid on built-in gains.