July 31, 2017
The Honorable Steven Mnuchin
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
RE: Executive Order 13777
Dear Secretary Mnuchin:
The Securities Industry and Financial Markets Association (SIFMA)1 appreciates the opportunity to provide comments on measures that the Treasury Department could take to reduce regulatory burdens pursuant to Executive Order 13777, issued on February 24, 2017.
Executive Order 13777 requires each federal agency to develop a joint Regulatory Reform Task Force (“Task Force”) and requires the Task Force to identify regulations that:
(i) eliminate jobs, or inhibit job creation;
(ii) are outdated, unnecessary, or ineffective;
(iii) impose costs that exceed benefits;
(iv) create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies;
(v) are inconsistent with the requirements of section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note), or the guidance issued pursuant to that provision, in particular those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproductivity; or
(vi) derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.
We are writing to urge you to review the September 2015 final and temporary regulations under Internal Revenue Code Section 871(m) (T.D. 9734) and subsequent amendments, including the final regulations published on January 24, 2017 (T.D. 9815), and the regulations under Sections 1471-1474 (FATCA) in the report required by E.O. 13777 and consider immediate steps to reduce the regulatory burden and complexity for taxpayers created by these far-reaching and expensive regulatory mandates.
IRC Section 871(m) Regulations
Final regulations under Section 871(m) were published in the Federal Register on September 18, 2015 (T.D. 9734). The effective date for these regulations was first revised in December 2015, and later further revised in a final rule published in the Federal Register on January 24, 2017 (T.D. 9815). SIFMA has submitted multiple comment letters on the regulations under Section 871(m) that are available on the SIFMA website.2
Section 871(m) was enacted in 2010 in response to concerns over transactions where foreign investors owning U.S. equities avoided U.S. withholding taxes on dividends by entering into swap transactions over dividend record dates. The 2010 statute immediately imposed withholding on certain swaps that closely resembled the transactions of concern, and granted regulatory authority to U.S. Treasury to develop additional rules to identify any additional derivative transactions that should be subject to withholding if they have the potential for tax avoidance.
Since 2012, Treasury and the IRS have issued multiple versions of proposed, temporary and final regulations, supplemented by IRS Notices and Revenue Procedures. The January 2017 final Section 871(m) regulations left in place a January 1, 2017 effective date for withholding on so-called “delta one” transactions, despite industry requests for a delay in light of interpretive questions and implementation challenges. The regulations also currently require withholding on a broader class of transactions – defined as having a delta of 0.80 or higher – beginning January 1, 2018.
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1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.