The §871(m) regime seeks to identify non-US derivative instruments that substantially replicate the economic benefits of holding US equities directly and then convert specific payments arising from those instruments into US-source dividends subject to withholding under chapter 3 of the Internal Revenue Code. Once converted into US-source dividends, the existing infrastructure of the Qualified Intermediary (QI) regime would–in theory–provide familiar and well-honed operational tools for withholding and reporting.
Pursuant to IRS Notice 2020-2, the phased-in implementation of §871(m) will expire at the end 2022. Until then the simplified version in effect since 2017 remains in force. In order to cope with several operational and technical impracticalities emerging from the final §871(m) regulations released in 2017, the US Department of the Treasury is expected to refine those rules. However, in the absence of new regulations, the 2017 final regulations will enter into force as-is in 2023.
For more information, please refer to the Millen Tax & Legal blogs, publications and presentations
Behind the 871(m)-Ball: Facing the Challenges of §871(m) Implementation in Switzerland
- On 30 October 2017, Paul Millen published an article on the current state of Switzerland's §871(m) compliance in Tax Analysts, the leading tax news aggregator website, entitled "Challenges for Swiss Compliance with U.S. Dividend Equivalent Regs"
- Based on interviews with key affected parties, the article provides a summary of the critical concerns confronting affected Swiss parties at the start of 2017, an analysis of the effectiveness of the solutions devised to address those concerns and a review of the significant items outstanding for the Swiss (and non-Swiss) financial industry in 2018
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