(July 13 – 16:35 ET) – The Investment Dealers Association has issued an FAQ on the topic of U.S. withholding taxes, and upcoming rule changes to how they are applied.
The IDA says that it is issuing the information in response to all the questions it has received on the subject. New U.S. withholding tax procedures will be coming into effect starting Jan. 1, 2001.
In the FAQ, the IDA explains that the U.S. Internal Revenue Service is changing its procedures to:
- clarify the responsibilities of the withholding agents
- identify U.S. persons investing through non-U.S. financial intermediaries
- provide uniform rules and more detailed guidelines for identifying the owners of U.S. securities
- and eliminate potential treaty abuses due to “address rule” manipulation.
Any firm dealing in U.S. securities will be affected by the changes.
Under the new regime, financial institutions may apply to enter into a contractual arrangement with the IRS that will classify them as a “qualified intermediary”, entitled to withhold taxes and report the tax status of their non-U.S. customers without having to provide customer specific information. Know-your-client procedures will also have to beefed up to meet new standards from the IRS.
The IDA cautions its members to be sure that their systems are ready to handle the changes. It suggests members submit QI applications as soon as possible, and ensure that internal policies and procedures are in compliance with the new rules.
-IE Staff