The US IRS has issued final guidance under section 871(m) on dividend equivalent payments made to foreign corporations and nonresident aliens. The regulations, published in the Federal Register on September 18, establish whether the payments are US source dividends under section 871(m) and therefore subject to 30 percent withholding tax.
The regulations finalize proposed and temporary regulations issued in December 2013 that established a new approach for determining whether a a payment made pursuant to a notional principal contract or an equity-linked instrument is a dividend equivalent based on the delta of the contract.
Service also released temporary and proposed regulations covering some of the more significant changes made to the December 2013 regulations to give stakeholders an opportunity to comment on them. These regulations provide new rules for determining whether certain complex derivatives are subject to section 871(m) and cover payments made to certain dealers.
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