Only non-US Derivative operations teams have received a one-year breather from implementing much of the Internal Revenue Code’s section 871(m), which aims to collect withholding tax from non-US persons who hold US equity-based derivatives. Non-US persons will wind up paying a 15% or 30% withholding tax on equity-linked certificates, convertible bonds, indices, repos, securities lending, structured notes, swaps, and warrants depending in which foreign jurisdiction they are located. The withholding tax applies to any equity-linked derivatives that pay dividends during their lifecycles and have delta valuations more than 0.8 or meet the substantial equivalency test. Aggregated transactions also fall under the regulation’s purview even if the derivatives have a delta valuation less than 0.8. Everyone is going to feel the pain of this sell-side tax, except for the instances when the transactions are between buy-side firms, Kerril Burke, CEO of Meritsoft told Markets Media. Affected firms initially had until January 3, 2018, to implement a process to monitor the products that may be subject to the new regulation, implement withholding, and file the necessary reports, before the Internal Revenue Service granted a 12-month delay in August. There is going to be a lot of heavy lifting for derivatives operations people as they have to do things that they had not had to do before, noted Burke. He doubts that firms will be able to meet their obligations without some level of automation since they may have to track dividend payment through the lifesome instruments, which may have lifespans of 30 years or more. “When you are called before the IRS in 10 years from now, you probably have already lost the spreadsheet by then,” he said. Although many firms may not see it as a silver lining, meeting 871(m)’s requirement will put firms in a good place for when other jurisdictions decide to put a similar transaction tax in place. France already implemented a financial transaction tax on securities in 2012 and Italy enacted a similar tax on securities and derivatives a year later.
Are index futures affected? I get the impression they should not be because index futures do not pay dividends.
So that's mainly ETFs? Because futures don't payout dividends... EDIT... didn't see @helpme_please ... same comment
Hope not... why is that line in the article re France's transaction tax though? Transaction tax will kill daytrading... especially in index futures...
Dude, all they are doing is killing the tax arb in the structured notes. It will not effect anything listed.
France and Italy's versions of FTT were mostly limited and specific (akin to stamp duty that has been in place in the UK for 200+ years). I don't really understand what this has to do with withholding taxes and I don't see a good reason why the article mixes them up.
But Italy has the tax on derivs as well I think? Not that they have a big derivatives market... so doesn't really matter. That article is just about dividend arb, like SLE says. I remember when Germany was contemplating transaction tax... the dumbest move ever, would take liquidity and efficiency away. The whole idea behind it was to stop firms (read HFT) manipulating the market... and get some money back for bailing out financial institutions... but it would just create more problems.
[QUOTE="Martinghoul, post: 4539130, member: 131528]I don't see a good reason[/QUOTE] I don’t see a good reason for you to be up at this hour unless you’re changing diapers