IRS 871(m) Data Service

Q: Why is tax compliance important?

We have to keep in mind that regulatory bodies have the capacity to impose huge fines on institutions that fail to comply. And these fines usually go with reputational damages.

Q: How does SIX help financial institutions being compliant with IRS Section 871(m)?

SIX handles the data collection, delta calculation and Qualified Index analysis, and provides customers with a clean list of in-scope and potentially in-scope securities affected by the regulation.

Q: What is IRS Section 871(m) and when did it enter into force?

This US tax is applied on dividend equivalents of certain financial products called Equity Linked Instruments (ELIs). Examples of ELIs are exchange traded derivatives, traded options, futures, securitized derivatives, warrants, structured products all with US underlying. IRS Section 871(m) entered into force on January 1 st , 2017.

Q: How can financial services professionals get ready for IRS Section 871(m)?

By ensuring they have access to all the data they need from a reliable source, which can be easily integrated into their workflows so that any exposure can be monitored and actioned upon.

IRS 871(m) Compliance

The IRS regulation 871(m) aims to collect tax on dividend-equivalent payments for derivative instruments referencing US equity instruments. Transactions executed in US equity-linked derivative instruments, or those with non-qualified indices, may be “in-scope” for withholding and reporting.

Determining which instruments are “in-scope” is a difficult task that requires a thorough understanding of equity-linked derivatives. Our expert knowledge of derivatives’ delta, constituents, weighting, and performance makes this possible. As does our constant monitoring of dividend payments on the underlying instruments used by 871(m)-relevant derivatives.

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Do you have all the information on the taxation and reporting of instruments falling under U.S. Tax?
Or are you at risk of non-compliance and hefty fines?

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How You Will Benefit

Save Time

SIX does the flagging, so you don’t have to

Extensive Information

30,000 instruments from over 300 issuers opened and analyzed daily

Confident Compliance

Rely on accurate and timely identification of “in-scope” securities

Our IRS 871(m) Data Service

We identify “in-scope” derivatives based on their underlying instruments and indices, and then flag them for clear identification. Based on our award-winning corporate actions, the IRS 871(m) data from SIX provides the required information to track changes in instrument lifecycles and to determine dividend-equivalent payments. Furthermore, SIX delivers dividend equivalent payment tax messages containing the calculated or contributed base amount for withholding.

Darren Marsh — Jürg Stalder, Senior Product Manager, SIX

Tax Suitability in the Advisory Process

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About This Service

SIX delivers the critical data elements required to comply with IRS Section 871(m) and the expertise and global market knowledge to support you to fulfill your withholding and reporting obligations. Learn more about our service.

IRS 871(m): Service Overview

SIX helps you to identify data relevant for section 871(m) by providing the underlying data. Download our factsheet for more information.

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IRS 1446(f): Service Overview

SIX also has the data you need to comply with IRS Section 1446(f). Find out more in our factsheet.

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Making a Difference with IRS 871(m) Data

Andrea Dubach, Head Customer Experience, recently sat down with Jürg Stalder, Head of Regulatory Propositions, to discuss:

Why IRS 871(m) is still such a challenge, seven years after it has been enforced?
How this regulation impacts derivatives trading?
How SIX is making a difference with its IRS 871(m) offering?
How delta-one transactions can be screened?
What the main observation is in regards to the IRS 871(m) regulation?

IRS 871(m) Service by SIX: Facts and Figures

4.3 million instruments identified and monitored by SIX
230,000 instruments in scope in August 2023
2.2 million issuer-defined 871(m) tax-applicability codes captured
200,000 issuer withholding responsibility attributes reported by SIX

Main Service Features

“In-scope” and “delta at issue” information from issuers and exchanges with daily calculations and updates
Instruments with qualified index underlyings are classified as exempt from 871(m) withholding
Collection and emission of dividend-equivalent tax messages
Provision of relevant dividend payment corporate action data for the underlying US securities of equity-linked instruments

Included Data in Support of Section 871(m):

Classification of “in-scope” equity derivatives
For equity derivatives (e.g. options, futures, structured
products, etc.), SIX sets 871(m) “in-scope” or “potentially in-scope” flags
Issuer-confirmed tax applicability codes for securitized
derivatives

Industry Accolades

The 871(m) Data Service has won the following industry awards:

Best Vendor Solution for Tax Compliance, RegTech Insight, 2019
Best Reference Data Initiative for IRS 871 (m),
Inside Market Data & Inside Reference Data Awards (IMD/ IRD), 2018

Frequently Asked Questions (FAQ)

What is IRS Section 871(m) and when did it enter into force? Who should feel concerned by IRS Section 871(m) compliance?

Non-US investors and non-US corporations that hold ELIs with US underlying need to pay this tax. Withholding agents need to retain this tax. In addition the following functions within financial services are affected: tax specialists, compliance specialists, wealth management support functions, securities processing and payment functions, portfolio / fund managers.

What are the main obligations of IRS Section 871(m) for financial service providers?

Financial service providers need to be aware that they need to withhold these taxes if clients hold these in their portfolios, unless the issuer already withholds. It is also relevant for any end-client tax reporting they may do. Issuers of ELIs need to be aware of the tax implications of the products they create. Investment advisors need to be aware of implications of holding these instruments (suitability).

What are the main challenges of IRS Section 871(m) for financial institutions?

Determining which instruments are in-scope is complex and requires extensive knowledge of the characteristics of equity-linked derivatives including whether equity indices are a Qualified Index as per regulatory definition. Obtaining 871(m) relevant product information from issuers of Warrants/Structured Products. Knowing whether the issuer takes on the responsibility of withholding.

How can financial services professionals get ready for IRS Section 871(m)? Why is tax compliance important? How does SIX help financial institutions being compliant with IRS Section 871(m)?

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