Bloomberg Tax Solution Eases IRS 871(m) Compliance for Issuers, Withholding Agents and Foreign Investors


Bloomberg – New York – Today, Bloomberg unveiled its 871(m) Tax Solution to help the global investment community adhere to a new Internal Revenue Service (IRS) withholding requirement, expected to go into effect January 1, 2017.

Section 871(m) of the Internal Revenue Code aims to curb tax avoidance from foreign investors by instituting a withholding tax on derivatives and structured notes linked to U.S. securities, as well as certain investments linked to equity indices. The rule requires qualified intermediaries, such as custodians or issuers, to act as withholding agents. This means they have to calculate and withhold tax on U.S. equity-linked instruments and other structured products on behalf of foreign investors.

Bloomberg’s 871(m) Tax Solution helps withholding agents identify in-scope instruments as well as non-qualified equity indices so they can spot an obligation and calculate the amount of tax that needs to be withheld. Finally, Bloomberg acts as a central repository for issuer data related to structured products and convertibles so that withholding agents can access the data needed to calculate withholding.

“The scope of instruments covered by 871(m) is massive and the deadline for compliance is rapidly approaching. This rule could trigger a withholding obligation on millions of new investments,” said Chris Casey, Head of Regulatory and Reference Data Products at Bloomberg. “Withholding agents need to have the right accounting and reporting infrastructure in place to continue trading these instruments come January 2017.”

Bloomberg’s 871(m) Tax Solution Supports Compliance at Every Stage of the Trading Lifecycle

The first step for withholding agents is to determine if an instrument gives rise to U.S.-sourced income and has a delta of 0.8 or higher; meeting both tests indicates that it’s in scope of the rule. The delta is the relative change in the price of the asset in relation to its derivative. Bloomberg’s consistent and trade-quality delta calculations for approximately 13 million global derivatives have been used by traders and investors for years. Now, withholding agents, and the investors they service, can use the same delta calculations to assist in verifying if certain instruments are in-scope from pre-trade to post-trade, when tax needs to be withheld.

“Institutional investors, such as asset managers and hedge funds, also need to know when an investment opportunity could trigger a tax obligation pre-trade. Post-trade, investors need to know how much tax should have been withheld. Our tax solution compiles pertinent information investors need to verify if 871(m) applies so they can make informed decisions,” added Casey.

Bloomberg 871(m) Tax Solution is part of a suite of data products that helps financial institutions, corporations, and software vendors adhere to regulatory, tax, and accounting mandates from different regulatory and government regimes. International broker dealers, issuers, custodians, clearing houses and wealth managers can use Bloomberg’s tax solutions for 871(m), FATCA and the Stamp Tax to help identify tax- and levy-eligible instruments that require tax to be withheld.

For more information about Bloomberg’s 871(m) Tax Solution visit: www.bloomberg.com/enterprise/content-data/regulatory-data/

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