The U.S. Tax Withholding Service is an automated service that enables non-U.S. financial institutions holding U.S. securities at the depository to comply with U.S. non-resident alien (NRA) withholding tax rules.

Overview

The U.S. Tax Withholding Service is an automated service that enables non-U.S. financial institutions holding U.S. securities at the depository to comply with U.S. non-resident alien (NRA) withholding tax rules. In addition, the service can help participants maintain the lowest possible U.S. withholding rates for their customers. Through the service, the depository becomes a participant's withholding agent and assists the participant in complying with U.S. Internal Revenue Service (IRS) 1441 regulations governing NRA tax withholding.

Who Can Use the Service

The service is available to the depository's direct non-U.S. participants, including central securities depositories (CSDs) and other non-U.S. financial institutions that obtain Qualified Intermediary (QI) status from the Internal Revenue Service (IRS). Non-U.S. subsidiaries of U.S. participants may also use the service, provided they have obtained QI status. Non-U.S. financial institutions located in countries where QI status is not available may use the service on a restricted basis.

Benefits

This service relieves participants from having to coordinate a range of tax withholding, payment and reporting processes. Key benefits include:

• Fully automates the process of making elections at various tax rate pools via the Elective Dividend Service (EDS) function on the Participant Terminal System (PTS) - the service eliminates the need to set up separate accounts by tax rate pools, as all elections are effected on an omnibus basis at the time of the income payment announcement
• Covers eligible tax rates for many countries and types of income payments
• Allows participants to take advantage of IRS rules that permit accounts maintained at registered clearing agencies to co-mingle customer and proprietary assets for tax election purposes
• Eliminates the need to name a third-party withholding agent
• Expedites availability of income payment funds
• Makes tax reporting information available on new Computer-to-Computer Facility (CCF) files, including the enhanced Dividend Announcement File

How the Service Works

As a U.S. tax withholding agent, the depository will:

• Provide users of the service with access to the U.S. Tax Withholding menu item on the EDS function
• Notify participants of taxable events
• Inform participants of the "election window" during which they must send withholding rate instructions to the depository; the election window generally extends from one day after the record date ("record date +1") to one day before the payable date ("payable date -1")
• Pay dividends or interest to participants on the payable date, net of appropriate withholding tax in accordance with participants' instructions
• Prepare settlement statements that will reflect the gross dividend amount, tax amounts withheld at each designated rate and net dividends paid
• Remit tax funds to the IRS on a weekly schedule
• Prepare and send the appropriate year-end 1042-S tax forms to participants

For More Information

To learn more about the U.S. Tax Withholding Service, contact your Relationship Manager at (800) 422-0582, or the International Tax Product Management Group via e-mail at globaltaxservices@dtcc.com or phone at 212-855-2702.