Template:Isda 871(m) amendment summ

Section 871(m) of the Internal Revenue Code clamps down on dirty foreigners avoiding withholding tax for dividends on US equities. Previously, US dividend withholding did not apply to returns on notional principal contracts and instruments linked to underlying US equities.

That’s all changed now.

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 derivatives where the delta against the underlying stock is .08 or greater.

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.