Upcoming Regulatory Changes – 871(m) and the Common Reporting Standard

Recently released regulatory changes - Internal Revenue Code Section 871(m)

A Closer Look at 871(m) and CRS

June 2016

Executive Summary

Following recently released regulatory changes associated with the United States Internal Revenue Code Section 871(m) and the upcoming implementation of the Organisation for Economic Co-operation and Development (OECD) Common Reporting Standard (CRS) by the Canadian Department of Finance, there are several considerations and key deadlines that may be relevant to your organization. Please note that the following does not constitute tax, legal, or compliance advice, and clients are encouraged to consult with their legal, compliance and tax advisors for specific guidance.

871(m) Introduction 

In past, the U.S. government expressed concerns over investors’ use of derivatives to avoid payment of U.S. tax on dividends from U.S. corporations. In 2010, Section 871(m) of the U.S. Internal Revenue Code was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act, the same piece of U.S. legislation that also contains the Foreign Account Tax Compliance Act (FATCA) legislation. It imposes U.S. non-resident withholding tax on “dividend equivalent payments.”

Common Reporting Standard (CRS) Introduction

The CRS is intended to be a global standard for the exchange of financial account information, including disclosure of income earned by non-resident individuals and organizations. The purpose of the CRS is to address tax evasion, improve international tax compliance, encourage international tax cooperation, and help governments protect the integrity of their tax systems.

The Government of Canada intends to implement the CRS beginning on July 1, 2017 with the first inter-jurisdictional exchange of information with other tax jurisdictions taking place in 2018. The CRS draft legislative proposals and related explanatory notes were recently released on April 15, 2016. The Department of Finance notes that as of July 1, 2017, Canadian financial institutions will be required to have procedures in place to identify accounts held by non-residents and will be required to report certain information to the Canada Revenue Agency (CRA).

CIBC Mellon and many of its clients will be required to take action to implement the provisions of the CRS. CIBC Mellon will be complying with CRS standards and relevant regulatory, tax and disclosure requirements. It is currently assessing changes that may be relevant to clients, as well as the associated roles and responsibilities that may impact both CIBC Mellon and its clients.

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This article is provided for general information purposes only and CIBC Mellon and its affiliates make no representations or warranties as to its accuracy or completeness, nor do any of them take any responsibility for third parties to which reference may be made. This article should not be regarded as legal, accounting, investment, financial or other professional advice nor is it intended for such use.

About CIBC Mellon

CIBC Mellon is a Canadian company exclusively focused on the investment servicing needs of Canadian institutional investors and international institutional investors into Canada. Founded in 1996, CIBC Mellon is 50-50 jointly owned by The Bank of New York Mellon (BNY Mellon) and Canadian Imperial Bank of Commerce (CIBC). CIBC Mellon's investment servicing solutions for institutions and corporations are provided in close collaboration with our parent companies, and include custody, multicurrency accounting, fund administration, recordkeeping, pension services, exchange-traded fund services, securities lending services, foreign exchange processing and settlement, and treasury services.

As at June 30, 2022, CIBC Mellon had more than C$2.3 trillion of assets under administration on behalf of banks, pension funds, investment funds, corporations, governments, insurance companies, foreign insurance trusts, foundations and global financial institutions whose clients invest in Canada. CIBC Mellon is part of the BNY Mellon network, which as at June 30, 2022 had US$43.0 trillion in assets under custody and/or administration. CIBC Mellon is a licensed user of the CIBC trade-mark and certain BNY Mellon trade-marks, is the corporate brand of CIBC Mellon Global Securities Services Company and CIBC Mellon Trust Company, and may be used as a generic term to refer to either or both companies.

For more information – including CIBC Mellon's latest knowledge leadership on issues relevant to institutional investors active in Canada – visit www.cibcmellon.com or follow us on Twitter @CIBCMellon.