New rules may impede the use of and raise the cost of certain derivatives
By Ehsan Sheikh, lawyer at
The US Department of the Treasury and
Internal Revenue Service (IRS) released final and new temporary
regulations under section 871(m) on September 18 2015, which
will affect the tax treatment of certain US derivatives held by
These regulations may impede the use and
raise the cost of certain derivatives. They will introduce
additional regulatory obligations for non-US entities and for
all dealers involved. These regulations will apply to
transactions issued on or after January 1 2017. For specified
Notional Principal Contracts issued during 2016, the
regulations apply to dividend equivalent payments made on or
after January 1 2018.
These regulations have been in
development, in some form, since 2010. Comment letters to the
proposed new rule came from the insurance industry, derivatives
dealers, investment advisers, and others.
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