Section 871(m) amendment - ISDA Provision

Section 871(m) of the Internal Revenue Code clamps down on foreigners avoiding withholding tax for dividends on US equities.

The new regulations will establish up to a 30% withholding tax on foreign investors on dividend-equivalent payments under equity derivatives. There are a wide range of products that fall into this camp including swaps, options, futures, convertible debt, structured notes and other customised derivative where the ...

Beware of Greeks

... delta (see what I did there?) against the underlying stock is .08 or greater. (Pro tip: a delta of 1 gives a one-for-one correlation with the delta on the underlying. A delta of -1.0 does the exact opposite of what the underlyer is doing. a delta of 0 means the two products are correlated at random).

The calculation is cumulative so even if the delta threshold isn’t met in one transaction, it may be as a result a connected transaction.

It applies from 1 January 2017.