U.S.A.: Implementation of Section 871(m) of the Internal Revenue Code


Clearstream Banking1 informs customers that it will start withholding and reporting cashless 871m dividend equivalent payments (DEP) for the fiscal year 2017 from December based on the information reported by issuers or domestic and common depositories.

For DEP converted into actual cash payments by the issuer, Clearstream Banking processes remain the same as for any U.S. dividend payment.


Internal Revenue Code (IRC) Section 871(m) imposes taxation rules applicable to certain financial products providing for payments that are contingent upon or determined by reference to U.S. source dividend payment.

Impact on customers

Withholding tax adjustments

Clearstream Banking is generally acting as a QI (Qualified Intermediary) that has assumed primary Non-Resident Alien (NRA) withholding responsibility and Form 1099 reporting and backup withholding responsibility.

However, the actual tax withholding on securities subject to the Section 871(m) Regulations is expected to be handled by the issuer in most cases.

To facilitate applicable U.S. tax reporting obligations, issuers must provide an information schedule in Excel format, listing the DEPs and indicating all withheld amounts remitted to the IRS per ISIN during the month. This is done on a monthly basis via the standard custody chain.

As a consequence, Clearstream Banking will not be able to assist customers regarding the methodology used in order to determine DEPs. Customers should note that no tax adjustments will be made on DEPs withheld at source by the issuer and no tax reclaims will be available via Clearstream Banking.

If the DEP tax withholding is not done by the issuer but by Clearstream Banking, customers will be informed of any taxable deemed dividends for 2017 by SWIFT notification. The notification will also include a deadline for Clearstream Banking customers to send their tax instructions (whenever applicable) in order to benefit from a reduced tax rate and to provision their accounts whenever tax should be applied. The certification date will need to cover the payments for which a reduced tax rate is requested. For an over-withheld amount, tax reclaim is also available via Clearstream Banking.

For DEP converted into actual cash payments by the issuer, Clearstream Banking processes remain the same as for any U.S. dividend payment


As qualified intermediaries (“QI”), Clearstream is subject to the requirement to include DEPs in the annual Form 1042 and 1042-S reporting (under income code “40 - Other dividend equivalents under IRC section 871(m)”), where such items are included in the Form 1042-S reporting received from the relevant upstream intermediaries. For securities where tax withholding was performed by the issuer, the tax will be reported within box “8 -Tax withheld by other agents.

DEP will also be reported within US Tax in CreationOnline and Xact Web Portal.

Further information

Customers may contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or their Relationship Officer.

1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.