IIAC has been on the forefront in Canada, reviewing and commenting on proposed amendments to U.S. tax withholding and reporting legislation, regulations and policies. In conjunction with the IIAC U.S. Tax Committee, IIAC staff have presented the Canadian securities industry’s position on practical and conceptual matters surrounding U.S. tax withholding and reporting requirements, and have developed practical tools and templates for its members.

Cost Basis Reporting

Section 403 of the U.S. Energy Improvement and Extension Act of 2008 amended the Internal Revenue Code to mandate that every broker required to file a return with the IRS reporting gross proceeds from the sale of a covered security additionally report a customer’s adjusted basis in the security and whether any gain or loss on the sale is classified as short-term or long-term. Additionally, the amendments direct brokers to follow customers’ instructions and elections when determining adjusted basis. The amendments also provide that, when a broker transfers securities to another new broker before their sale, the transferring broker must furnish to the receiving broker a statement containing sufficient information about the transferred securities for the receiving broker to determine the customer’s adjusted basis and whether any gain or loss is short-term or long-term when the transferred security is eventually sold. Finally, the amendments require issuers of securities to file a return with the IRS and furnish a statement to holders of the securities after taking a corporate action that affects the basis of the security to explain the corporate action and its quantitative effect upon the basis of the security.

Qualified Securities Lenders (QSL)

On March 18, 2010, “Hiring Incentives to Restore Employment Act” (the HIRE Act) was signed into law, adding new section 871(l) to the U.S. Internal Revenue Code. This new section states that all “dividend equivalent” payments made to non-U.S. persons shall be subject to the same U.S. tax withholding requirements as a dividend from a U.S. source. On May 20, 2010, the IRS released Notice 2010-46: “Prevention of Over-Withholding and U.S. Tax Avoidance with Respect to Certain Substitute Dividend Payments”, to provide initial transitional guidance with respect to the new legislation and to seek comment on proposed future regulations. However, the Notice did provide for exemptions on withholding on payments made to “Qualified Securities Lenders”, who will make certain certifications to the IRS and will comply with forthcoming regulations, and who are already subject to IRS approved audits. For more information, please see the documents and links listed below.


U.S. Taxation of Substitute Dividends [PDF]
Fri, Jul 09, 2010


Useful Links

Qualified Intermediary (QI)

A “Qualified Intermediary” (QI) has entered into a QI Agreement with the IRS, generally agreeing to assume certain documentation and withholding responsibilities in exchange for simplified information reporting for its foreign account holders and the ability not to disclose proprietary account holder information to a withholding agent that may be a competitor. For more information on QIs, please see the FAQ document on the IRS website (see link below).

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