CBOE Expresses Concern Regarding Proposed Regulations Related to Withholding Tax under IRC Section 871(m)

On January 20, 2015, the Chicago Board Options Exchange ("CBOE") submitted a comment letter to the IRS on proposed regulations issued under Section 871(m) of the Internal Revenue Code ("Code") relating to the imposition of a withholding tax on certain dividend-equivalent payments.

In its comment letter, the CBOE argued in favor of an exemption from 871(m) withholding for broad-based indexes and certain "narrow-based indexes," as defined under both the Securities Exchange Act of 1934 and Section 1256 of the Code. The CBOE also emphasized that the currently proposed 70 delta test for imposing dividend equivalent withholding is overbroad and would result in withholding on transactions that are not economically comparable to owning U.S. stock. Additionally, the CBOE highlighted certain administrative challenges and operational complexities that, initially, at least, could prevent U.S. broker-dealers from offering options on U.S. equities to foreign customers.

See: CBOE Comment Letter. See also: FATCA Specialty Page (available to Cabinet subscribers only).