Qualified Derivatives Dealers (QDD) - End of Transition Relief

QDD Information Reporting and Withholding Background:

As part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010, rules related to withholding on dividend equivalents were introduced. The regulations also provided guidelines for withholding of payments made to QDDs. However, dividend equivalent payments paid to properly documented QDDs are exempt from withholding and reporting except payments related to Repurchase Agreements (Repos) and Securities Lending. 

QDD Dividend Withholding Tax Exemption Rule:

The exemption for dividend equivalents was extended to actual dividends paid to be properly documented until 2019 as part of transition relief. This applied no withholding on dividends paid regardless of whether acting in equity derivatives dealer capacity or proprietary trading capacity. However, QDD only relieved of tax on dividends when acting in equity derivatives dealer capacity. This transition period was extended under IRS Notice 2018-72 and Notice 2020-2. This provided transition relief until December 31, 2022. 

Dual Form Validation and Withholding Tax Implications

The implications of the end of the transition relief are that QDD that are currently relying on the Form W-8IMY on file with the paying agent/financial institution will be required to also provide a Form W-8BEN-E for reduced withholding on any actual dividends being paid to the QDD. The existing exemption will no longer apply. Institutions will need to be able to validate and apply both the Form W-8IMY and the Form W-8BEN-E as dual certifications at the direct account level only applying the W-8BEN to certain dividends received for the customer.  This does not eliminate the need to apply additional withholding based upon the withholding statement for the dividend equivalent payments.

How can TAINA help?

TAINA’s fully-automated FATCA and CRS Validation Platform can help financial institutions lighten their FATCA, CRS and QI compliance burden whilst reducing cost, mitigating risk and improving process efficiency. Streamline your tax form validation and withholding tax processes using our flexible and lightweight platform, whilst ensuring you have good data that will result in clean tax reporting to tax authorities all year round. 

The TAINA Platform has also been extended to support Dual Form scenarios. This applies to instances where more than one tax form may be required to consider an account documented or certified including;

• Qualified Derivatives Dealers 

• Hybrid Entities Making Treaty Claims 

• Disregarded Entities Making Treaty Claims

For Dual Form scenarios within Platform 2.0, Withholding Rates and Certification Statuses are only calculated when all qualifying tax forms are submitted and completed. 

We would love to talk to you more about your current documentation validation and intermediary processes and show you how our award-winning FATCA and CRS Validation platform may add value to your organization.

For more information on how our fully automated FATCA and CRS Validation platform can add value to your business, get in touch or request a demo to see it in action.