The Depository Trust & Clearing Corporation (DTCC) has recently began providing section 305(c) and 871(m) tax announcements via ISO 20022 and the Corporate Actions Web (CA Web) to help clients meet their tax withholding and reporting obligations. Available via Tax Event Announcements, this pilot service provides information-only announcements on deemed distributions under section 305(c) and dividend equivalent payments under section 871(m) of the U.S. Internal Revenue Code.
DTCC has leveraged its unique position within the industry to source tax information directly from issuers, which is then provided in a standardized fielded format over the same medium that DTCC announces other corporate action events. This drives operational efficiency, enabling smooth data integration into clients’ systems.
Save the Date for DTCC’s 18th Annual Global Tax Forum
DTCC will host its 18th Annual Global Tax Forum, an interactive exchange of ideas and industry information, on Friday, April 28. The half-day program for clients will be held at a brand new venue this year, the Convene Conference Center, 32 Old Slip, New York, NY.
Topics on the forum agenda this year include:
- Challenges and operational best practices in tax compliance
- New regulations such as 871(m) and 305(c)
- DTCC solutions developed to help clients comply with these regulations
For more information or to attend the forum, contact Ian DeSacia, DTCC product manager, at email@example.com or 212.855.3448.
Section 305(c) states that holders of convertible securities may deem to have received a dividend as a result of an underlying common stock’s cash dividend. Issuers of convertible securities are required to file IRS Form 8937 if a conversion rate adjustment results in a deemed dividend under section 305(c). The 305(c) Announcement eliminates the need for firms to source, review and interpret Form 8937. In addition, the Form 8937s are available in DTCC’s Legal Notice System (LENS), providing access to the source document and allowing users to search notices by CUSIP, keyword, notice type or document number.
Section 871(m) imposes a withholding tax on foreign investors holding derivatives linked to U.S. equity securities. DTCC’s 871(m) announcements simplifies compliance with this very complex tax regulation by announcing the timing and the amount of dividend equivalents paid or deemed to be paid to non-U.S. holders. Clients currently receive Tax Event Announcements via ISO 20022 messaging and can also leverage CA Web to search for — and download — Tax Event announcements.
“With the tax landscape always evolving, there has been a lot of discussion and industry collaboration about the challenges of implementing a cost-efficient solution to adhere to these tax regulations,” said Dan Thieke, DTCC Managing Director, General Manager, Settlement and Asset Services. “By announcing these Tax Events, we believe firms will be able to provide a quicker and more consistent experience for their clients.”
The announcement service is currently in a production pilot phase, but a full-service offering is expected to be rolled out later this year. Within the ISO 20022 message, Tax Event Announcements are labeled as OTHR event type with comments stating “Tax Event”. During the annual SWIFT Release this November, DTCC will introduce a 305(c) and 871(m) sub event type to help clients differentiate these events.
For more information about Tax Event Announcements, please click here.