Hi All
The US has introduction a new regulation named 1446(f).
This regulation requires the broker to withhold at generally 10% when the custodian is not doing the withholding for their clients.
What I am looking for is in the AK (Confirmation) message what tags are to be used. This is not a fee or tax but withhold on the settlement amount.
Thanks Ron
Websites discussing this topic do talk about a withholding tax, e.g. https://www.thetaxadviser.com/newsletters/2021/apr/sec-1446f-regulations.html. The purpose of withholding is to ensure that the proper tax is payed and typically applies to foreign investors.
Sec. 1446(f) serves as an enforcement mechanism for Sec. 864(c )(8) by imposing a 10% withholding tax on the amount realized from the disposition.
I believe MiscFeeType(139) is the right place as this is about any deductions from the received amount beyond the actual trading price. It has many different values including specific taxes. MiscFeeSubType(2634) offers additional granularity starting with a pre-defined set of values as external code list. That list does include withholding tax for Indonesia (ID-WITHHOLD) and a generic one (US-SEC) for the SEC in the US that you could use.
However, you can also create a new value based on this, e.g. “US-SECWITHHOLD” with a description saying “UNITED STATES - SEC Regulation 1446(f)”.
Hi Ron,
As Hanno pointed out, Regulation 1446(f) is being viewed as a withholding tax:
https://www.irs.gov/pub/irs-drop/td-9926.pdf page 6
https://www.ey.com/en_gl/tax-alerts/us-final-regulations-under-section-1446f-set-forth-rules-on-withholding-on-transfers-of-partnership-interests - a good summary by EY
The AK message has the MiscFeesGrp component that Hanno mentioned. I think this is a topic that the Post-Trade WG should pick up and establish some guidelines on exactly how this should be expressed in that component. What Hanno wrote is one way of doing it but I can see other ways as well.