Understanding 871 (M) Regulations
Section 871(m) was originally referenced in 2010 through the HIRE Act and in September 2015, the Internal Revenue Service (IRS) issued final and temporary regulations under 871 (m) to curb tax avoidance from foreign investors. The regulations institute a withholding tax of up to 30% on dividend equivalent payments arising in derivative transactions referencing U.S equities when those amounts are paid to a non-U.S person. The new rules contain an anti-abuse rule that permits the IRS to subject any transaction to withholding if the transaction was entered into with a principal purpose of avoiding the application of 871 (m)
The IRS published updated Final and Temporary Regulations (the 2017 Regulations) and in August 2017, Notice 2017-42 was issued extending part of the phase-in period for one year. The anti-abuse rule will continue to apply during the extended phase-in time.
Tackling the Regulatory Burden of Section 871M
871m requires financial institutions to undertake a transformational approach to their tax compliance infrastructure. Banks must implement systems and processes that can easily streamline new client onboarding and KYC remediation requirements in order to increase operational efficiency. Furthermore, they must be able to effectively support the collection, validation, processing and maintenance of all tax-based documentation to support continued compliance with 871m regulations.
Streamline 871M Compliance with Fenergo
Fenergo Tax Compliance simplifies tax compliance processes under Section 871m throughout the client lifecycle. During client onboarding, Fenergo efficiently captures 871m-specific client information, expediting time to revenue and improving future compliance management.
For all pre-existing accounts, Fenergo enables banks to conduct an extensive remediation process in an effort to identify clients who are in scope for reporting. Once these clients have been identified, our solution performs a counterparty tax classification on them, ensuring that all data and documentation has been collected, refreshed and updated to continually support its regulatory remit.
CLIENTS WHO TRUSTOUR SOFTWARE SOLUTIONS
We chose Fenergo’s solutions because they will enable us to meet the increasing complex regulatory frameworks with an efficient and client-centric onboarding experience.
John Healy Managing Director, Head of Capital Markets Operations SunTrust Robinson Humphrey
Fenergo’s Regulatory Onboarding solution provides us with an additional level of flexibility and enhances our ability to prioritize our compliance initiatives.
Erica Benjamin Managing Director for Client Onboarding BMO Capital Markets
We chose Fenergo to support regulatory onboarding across our Global Banking and Markets division. We wanted a solution that would support an efficient onboarding experience for all of our customers.