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CTI Tax Solutions: Section 871(m)

Streamline your Section 871(m) compliance processes with our centralized solutions

In 2015, the US Internal Revenue Service (IRS) issued new final and temporary regulations under Section 871(m) of the US Internal Revenue Code. The regulations provide updated rules for determining whether certain payments under swaps or equity-linked instruments might be treated as US dividend equivalent payments and, if paid to a non-US beneficial owner, would be subject to US withholding tax generally applicable to US source dividends. The regulations are effective as of January 1, 2017 and Delta One products are in scope. The IRS issued Notice 2017-42, which provides the industry more time to manage non-delta-one products. The Notice states that the current grace period for non-delta-one products would be extended one year through 2018.

As part of Notice 2017-42, the US IRS also outlined changes to the combination rules for simplified approach to combined transactions to include 2018. Only transactions that are priced, marketed, or sold in connection with each other are relevant for combination. Withholding agents are not required to combine any transactions that are listed securities entered into until January 1, 2019.

Since payments under swaps or equity-linked instruments were previously not subject to withholding, banks and brokers must create new systems and processes to monitor which products might be subject to the Section 871(m) regulations and implement withholding and reporting where required.

IHS Markit can help you streamline Section 871(m) compliance by providing one central location for the data you can use to determine which of your payments are subject to the regulation and host your associated compliance obligations. Leveraging our tax and compliance expertise, you can conduct due diligence regarding your derivative products and integrate transaction screening that features withholding and reporting functionality.

Financial institutions that act as an issuer can also choose to share Section 871(m) specific data on their structured notes and distribute these details through a repository that securely will share and grant permission to withholding agents to access relevant data. It couples the distribution channel with a Dividend Equivalent Amount (DEA) calculator, if needed.

Key benefits:

  • Risk reduction – Pre-screen derivative products to see potential withholding rates, validating data points to mitigate the risk of non-compliance
  • Centralization – Use one platform to pre-screen, process payments, withhold payments and extract reporting data needed to meet Section 871(m) regulations
  • Cost effective – Streamline workflows via one platform to reduce resource allocations, lower overall costs and reduce the risk of costly regulatory fines
  • Compliance – Validate data lineage and reporting needed to meet Section 871(m) requirements


  • Broker dealers
  • Fund administrators
  • Private equity funds
  • Hedge funds
  • Investment banks
  • Investment managers
  • Custodians
  • Depositories


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