Prop. Regs. Apply ‘Delta’ Approach For Dividend-Equivalent Payments To Foreign Persons

Section 871(m) was enacted in 2010 to curb the perceived abuse of foreign persons using derivatives — primarily notional principal contracts (NPCs) or swaps — to replicate the ownership of an underlying U.S. equity without such person being subject to U.S. withholding tax on the underlying dividend. Under Section 871(m), a "dividend equivalent payment" is treated as a dividend from U.S. sources and therefore (unless exempt under an applicable income tax treaty) subject to a 30% U.S. withholding tax.

Treasury and the IRS issued Proposed Regulations in 2012 that applied a seven-factor approach to determine whether the use of an NPC by a foreign person was a tax avoidance transaction that would trigger the application of Section 871(m).1 Recently, however, Treasury and the IRS withdrew the 2012 Proposed Regulations and issued new Proposed Regulations (REG-120282-10, 12/4/13) under Section 871(m) that apply a more objective standard.

Originally Published in Journal Of Taxation - January 22, 2014.

Please see full Article below for more information.

LOADING PDF: If there are any problems, click here to download the file.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bilzin Sumberg Baena Price & Axelrod LLP | Attorney Advertising

Written by:

more+
less-

Bilzin Sumberg Baena Price & Axelrod LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
×
Loading...
×
×