No Result
View All Result
SUBSCRIBE | NO FEES, NO PAYWALLS
MANAGE MY SUBSCRIPTION
NEWSLETTER
Corporate Compliance Insights
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
No Result
View All Result
Corporate Compliance Insights
Home Compliance

Can Financial Institutions Navigate the Labyrinth of 871(m) Compliance?

by Phillip Lynch
June 15, 2017
in Compliance, Featured
puzzled businessman standing near entrance of labyrinth

What FIs Can Expect in 2017 and Beyond

In the months since the new tax rule IRS 871(m) came into force, many financial institutions are still struggling to find the best approach to manage the complex tangle of data required for compliance. Phillip Lynch, Global Head of Markets, Products & Strategy at SIX Financial Information, explores the challenges and counsels that compliance isn’t the only issue at play.

For some time, one of the most persistent problems bedeviling U.S. tax officials has been the collection of tax from overseas income. Inevitably, corporations and individuals have complex and disparate financial pictures, with assets often held outside the U.S. for a variety of reasons, including to minimize income tax liabilities. In its quest to get its hands on the billions of dollars’ worth of revenue lost abroad, the U.S. government has trained its focus on regulation specifically designed to capture these foreign earnings.

The government’s first move on this front came in the form of the Foreign Account Tax Compliance Act (FATCA), which was signed into law by President Obama in 2010 and came into force on July 1, 2014. FATCA requires U.S. persons, including those living abroad, to file annual reports on any foreign financial accounts. It also requires foreign financial institutions to report any U.S.-sourced assets held by U.S. persons to the U.S. government. Now, the American government is continuing its efforts in the area of tax compliance by homing in on “dividend equivalent” payments from derivative transactions involving U.S. equities through an IRS regulation known as 871(m), the implementation of which began in January 2017.

It will come as little surprise that the implementation of 871(m) has created an array of compliance headaches for financial institutions. Firms are scrambling to establish the appropriate withholding and reporting processes for the financial instruments falling under the jurisdiction of the new regulation. For instance, 871(m) applies to equity-linked instruments (ELIs) where the delta (ratio of change in the value of the instrument vs. the value of the underlying security) of the underlying instrument is 0.8 or greater. In order to determine which instruments are affected, firms must make these often complicated calculations on their own.

In short, to ensure effective compliance with 871(m) without specialist support involves a herculean degree of research, recordkeeping, monitoring and calculations from already overburdened designated teams. The IRS, recognizing the complexity of the regulation’s implementation, relaxed compliance mandates for the first year (2017), raising the delta requirement for affected securities to 1.0 from 0.8 and announcing that for the first year of implementation they would take into account whether a firm made a “good faith” effort to comply with the law when assessing penalties. This simplified standard only applies to withholding agents, however, and does not cover taxpayers that are long parties (the buyers), meaning the hardest burden may fall on foreign investors.

Regardless, any foreign investors that trade in U.S.-backed ELIs will need to take concrete steps to prove that they are complying with the reporting provisions of the new law. In order to comply with 871(m), firms will need up-to-date and comprehensive information provided to investors on the financial instruments affected by the rule.

Having this information will be vital if firms expect to accurately determine which products fall under 871(m)’s scope and which do not, to ensure that the appropriate sharing of necessary data has been undertaken and to successfully execute withholding and reporting requirements.

Compliance is only the beginning, though. After all, investors are not simply interested in avoiding fines; they’re interested in optimizing their portfolios and strategies in order to maximize returns. In order to do this, advisors and investors need to have a clear picture of how the IRS rules affect all investment decisions they might make. Every new regulation represents not just another potential stumbling block, but an opportunity for intelligent, savvy and well-informed investors to gain a leg up on their peers.

The same principle holds true for 871(m). While it may seem like a minor, obscure rule amongst a sea of tax regulations, financial institutions’ responses will shed light on the quality of their operations. Complete information on the affected instruments will enable firms to improve their business strategies, alerting them to potential savings and risks and allowing them to better counsel clients. For example, advisors are required to disclose the characteristics of products offered to investors – like the instruments’ type, risks and costs, along with the tax implications related to the investments in question, as required under ESMA “Knowledge and Competence Guidelines.” 871(m)-related data will provide advisors and investors this information regarding the tax implications of particular products, empowering them to make better-informed decisions and helping to make investing easier and more efficient.

While unprepared firms struggle to compile the data necessary for compliance, and most firms settle for a minimum good-faith compliance effort, a select few of the savviest firms will be turning the compliance burden posed by the regulation to their advantage. Even though the IRS has relaxed its compliance standards as firms have stumbled through the early stages of 871(m)’s implementation, the most prepared firms – those that have put themselves ahead of the pack – are already ready to go.

Perhaps the question shouldn’t be whether financial institutions can navigate the maze of 871(m) compliance, but rather which institutions are going to come out on the other side first, to the benefit of their clients.


Tags: Foreign Account Tax Compliance Act (FATCA)Tax Compliance
Previous Post

TRACE: Trump Hotel – Baku

Next Post

Ethics, Compliance and Mary Meeker’s 2017 Internet Trends

Phillip Lynch

Phillip Lynch

Phillip Lynch is the Global Head of Markets, Products & Strategy at SIX Financial Information, where he oversees the development and management of SIX’s product suite. His focus is to enhance the client experience by reshaping the overall product vision and strategy from a customer and market perspective. Lynch has many years of expertise in the financial information industry from a business, technology, and client perspective. Prior to joining SIX, he was Head of Global Accounts for the Asset Management Division of SunGard. For over five years, he served as CEO for Asset Control, where he doubled the revenue and client base. He was also a Venture Partner at Fidelity Ventures. Before that, Phillip Lynch was the CEO for Reuters America for over five years.

Related Posts

Tesla electric truck

Green Incentives Can Kickstart the Decarbonization of Your Supply Chain

by Paul Naumoff, Akshay Honnatti and David Camerucci
March 10, 2022

Forward-looking companies aren't waiting for taxes and regulations to balance the greenhouse gas emissions of their supply chains. They're taking...

A boiling kettle is viewed head on.

These 4 ACA Compliance Kettles Are Brewing in D.C. If They Boil Over, Your Business Should Be Ready.

by Kyle Scott
August 24, 2021

Enforcement shifts are rumbling in Washington regarding a section of the Affordable Care Act. New actions could find your business...

Solar panels sit before a setting sun, representing a potential avenue of ESG strategy.

When Formulating ESG Strategy, Don’t Forget to Leverage Your Tax Department

by Cathy Koch
June 24, 2021

Any ESG strategy brings tax implications with it. But tax departments often do not have a seat at this table....

The Tel Aviv skyline, where Blue Dot is headquartered.

Blue dot Signs $32 Million Series C to Scale Tax Compliance Platform

by Henry Kronk
April 7, 2021

With a Series C on the books, Blue dot (formerly VATBox) will expand operations across North America and double its...

Next Post
Ethics, Compliance and Mary Meeker’s 2017 Internet Trends

Ethics, Compliance and Mary Meeker's 2017 Internet Trends

Compliance Job Interview Q&A

Jump to a Topic

AML Anti-Bribery Anti-Corruption Artificial Intelligence (AI) Automation Banking Board of Directors Board Risk Oversight Business Continuity Planning California Consumer Privacy Act (CCPA) Code of Conduct Communications Management Corporate Culture COVID-19 Cryptocurrency Culture of Ethics Cybercrime Cyber Risk Data Analytics Data Breach Data Governance DOJ Download Due Diligence Enterprise Risk Management (ERM) ESG FCPA Enforcement Actions Financial Crime Financial Crimes Enforcement Network (FinCEN) GDPR HIPAA Know Your Customer (KYC) Machine Learning Monitoring RegTech Reputation Risk Risk Assessment SEC Social Media Risk Supply Chain Technology Third Party Risk Management Tone at the Top Training Whistleblowing
No Result
View All Result

Privacy Policy

Founded in 2010, CCI is the web’s premier global independent news source for compliance, ethics, risk and information security. 

Got a news tip? Get in touch. Want a weekly round-up in your inbox? Sign up for free. No subscription fees, no paywalls. 

Follow Us

Browse Topics:

  • CCI Press
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks Published by CCI
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • GRC Vendor News
  • HR Compliance
  • Internal Audit
  • Leadership and Career
  • On Demand Webinars
  • Opinion
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Well-Being
  • Whitepapers

© 2022 Corporate Compliance Insights

No Result
View All Result
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe

© 2022 Corporate Compliance Insights

Welcome to CCI. This site uses cookies. Please click OK to accept. Privacy Policy
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT