The Investment Industry Association of Canada (IIAC) is hailing the decision by the U.S. Internal Revenue Service (IRS) to extend the transition period for certain tax rules for derivatives for another two years as a "significant win" for Canadian dealers.
The Qualified Securities Lender (QSL) regime was set to expire on Jan. 1, and was to be replaced by new rules, known as the Qualified Derivatives Dealers (QDD) regime. However, the IRS decided to extend the existing rules through 2019.
The decision is a "significant win" for Canadian dealers as, the IIAC says in its Jan. 2 newsletter, adding the new QDD regime, "is not yet properly defined, which would have resulted in excessive withholding tax on securities lending transactions, a disproportionate compliance burden and potential disruption of business, if the new regime had gone into effect."
U.S. authorities now have another two years to finalize the QDD regime. In a submission to the IRS and the U.S. Treasury Department on Nov. 30, the IIAC called on the U.S. authorities to keep the existing QSL regime, or to at least delay the implementation of the planned new QDD regime.
"After considering comments from participants in the securities lending market and the tax administration concerns of the IRS, particularly with respect to verification, the Treasury Dept. and the IRS have decided to extend the QSL regime … but only for payments made in calendar years 2018 and 2019," the IRS says in its announcement. "During this period, the Treasury Dept. and the IRS intend to consider whether additional guidance is appropriate to address the particular circumstances of foreign lenders of U.S. dividend-paying stocks."