Read Notice 2014-14 [PDF 13 KB]
In early December 2013, Treasury and the IRS released final regulations (T.D. 9648) and, by cross-reference, proposed regulations (REG-120282-10) as guidance for nonresident aliens and foreign corporations that hold certain financial products that provide for payments contingent upon or determined by reference to the payment of dividends from sources within the United States.
Read more about the 2013 regulations: TaxNewsFlash-United States [PDF 186 KB]
The 2013 proposed regulations:
- Included new rules for determining whether a transaction is subject to tax under section 871(m) (i.e., dividend equivalent is treated as a dividend from sources within the United States)
- Provided that a dividend equivalent includes any payment pursuant to a “specified notional principal contract” (specified NPC) or a “specified equity-linked instrument” (specified ELI) that references the payment of a dividend from an underlying security
According to the 2013 proposed regulations, an ELI would only be a specified ELI if the “long party” acquired it on or after March 5, 2014.
Comments made in response to the 2013 proposed regulations recommended that an ELI issued prior to January 1, 2016, not be treated as a specified ELI or, alternatively, that an ELI not be treated as a specified ELI if it is issued prior to the date that the final regulations are published.
The comments noted that:
- The 2013 proposed regulations significantly expanded the scope of ELIs that would be subject to tax pursuant to section 871(m).
- This expansion would create uncertainty in pricing transactions today and would not give market participants sufficient time to implement the systems necessary to track the information required by the 2013 proposed regulations by March 5, 2014.
In response, Notice 2014-14 states that Treasury and the IRS intend to amend the term “specified ELI” in the final regulations, so that the term “specified ELI” is limited to ELIs issued on or after 90 days after the date of publication of the final regulations.
Notice 2014-14 is effective March 4, 2014.