Operations Management - Benefits from Stricter Tax Regulations...Really

Benefits from Stricter Tax Regulations...Really

Changes to personal income taxes or corporate payroll taxes may grab all the headlines, but a change currently underway in the area of withholding taxes, a little-known part of the U.S. tax code, could have major implications for dealers and investors both foreign and domestic.

Though obscure, withholding taxes are levied on all U.S.-sourced investment income. Determining the correct amount of withholding is a complex and operationally-intensive process.

Withholding Taxes, Hardly Smooth Sailing

The burden of collecting withholding taxes falls on the party responsible for distributing U.S.-sourced income, typically banks referred to as 'withholding agents'. The withholding rate of a particular client or counterparty is driven by income type and tax status, the latter being a function of tax residency and client type. If the proper amount is not withheld, withholding agents are liable for any shortfall. Tax status is determined by collecting tax forms from clients--W-9s for domestic, W-8s for foreign.

The W-8 forms are the most burdensome because ...

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Covering TransactionProcessing Issues BeforeThey Clear and Settle

Benefits from Stricter Tax Regulations...Really

Covering Transaction
Processing Issues Before
They Clear and Settle