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Abstract: 

New Section 871(m)(3)(B) provides that, effective March 2012, all equity swap contract payments that reference U.S.-source dividends will be subject to withholding tax, unless the U.S. tax authorities determine that the equity swap contract is of a type that does not have the potential for tax avoidance. Unfortunately, there is currently no direct guidance for interpreting the statute. This article presents existing, indirect guidance that suggests principles to follow in this area, and proposes that a narrow interpretation grounded in those principles—and extended as new investigations warrant—is the most supportable approach.

Keywords:  IRC Sec. 871(m); dividend equivalent; equity swap; total return swap; U.S.-source dividends; withholding; notional principal contract

Affiliations:  .