About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

IHS Markit Launches ‘Different’ Solution For Derivatives Tax Compliance

Subscribe to our newsletter

Information, analytics and solutions provider IHS Markit has launched Markit / CTI Tax Solutions for Section 871(m), a service that went live with some users on January 1 as the US Internal Revenue Service (IRS) rule governing withholding on foreign investors for dividend equivalent payments for US equity derivatives took effect.

Brown Brothers Harriman (BBH), and other firms that the provider has not named, collaborated on the design of the service and are early adopters. Their participation makes IHS Markit’s 871(m) tax compliance service “different” than what is offered in Bloomberg’s 871(m) Tax Solution, according to Cyrus Daftary, co-head of operational risk and regulatory compliance solutions at IHS Markit.

“A lot of accounting firms are helping people decide and do analysis as to what’s in and out, particularly on a security-by-security transaction,” says Daftary. “Some accounting firms may have advised Bloomberg or Thomson Reuters on how and what they should publish. What Markit is doing is more about helping users operationalize and manage data. [Markit / CTI Tax Solutions for Section 871(m)] helps contain the data and operationalize the end-to-end process, as opposed to focusing on a particular data point.”

Firms that began using IHS Markit’s service completed testing during December to prepare to operate live starting January 1, according to Daftary. Working with BBH and other collaborators, IHS Markit built its solution to include a front-office tool that determines whether a security is covered by the Section 871(m) rule, a back-office tool for withholding calculations, and an issuer distribution tool to publish information about their instruments that is relevant to Section 871(m) compliance.

In addition, IHS Markit is leveraging its other data and services offerings to enhance the Tax Solutions service. For example, DeltaOne index and ETP data will support classifying of instruments as subject to Section 871(m) or not, according to Daftary. DeltaOne is one of several services from CoreOne Technologies, which Markit acquired in August 2015.

A key litmus test for whether a derivative is subject to tax withholding under Section 871(m) is whether its delta measurement is higher than one. Delta in this case means the equivalence of changes in the price of a derivative with changes in the price of the underlying security. A delta higher than one shows that the derivative’s price will change by more than the change in price of the underlying security. Earlier versions of Section 871(m) had set a delta threshold of 0.8.

The IRS has said there are likely to be clarifications of how derivatives are determined to be subject to Section 871(m) withholding in 2018. IHS Markit’s Section 871(m) solution provides pre-trade impact analysis about whether a derivative instrument is subject to the regulation, and calculates the amount subject to withholding and the withholding tax rate.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Leveraging cloud as part of your colocation or proximity hosting strategy

As firms assess which elements of the trading workflow can be profitably migrated to cloud environments, ensuring compatibility with colocation and proximity hosting facilities becomes paramount. Practitioners need to take into account data access and security, messaging latency and regulatory considerations around operational resilience and physical location of client data. This webinar will discuss best...

BLOG

Toward a Modern Data Fabric for Capital Markets

By Gary West, General Manager, EMEA, Yellowbrick. Every financial institution I talk to is re-considering some aspect of their data infrastructure. Renewal is of course an ever-present feature of the financial technology landscape with firms racing to compete. However, current conversations feel different. When it comes to data, the subject turns quickly away from discrete...

EVENT

Data Management Summit London

Now in its 13th year, the Data Management Summit (DMS) in London brings together the European capital markets enterprise data management community, to explore the evolution of data strategy and how to leverage data to drive compliance and business insight.

GUIDE

Trading Regulations Handbook 2022

Welcome to the third edition of A-Team Group’s Trading Regulations Handbook, a publication designed to help you gain a full understanding of regulations that have an impact on your trading operations, data and technology. The handbook provides details of each regulation and its requirements, as well as ‘at-a-glance’ summaries, regulatory timelines and compliance deadlines, and...