Are there exceptions to withholding on dividend equivalent payments?

The rules do provide limited exceptions to withholding. These include:

  • A derivative instrument that references a “qualified index” - generally, a passive broad publicly available index on U.S. equities such as the S&P 500, NASDAQ 100 or Russell 2000.
  • A derivative instrument that references an index with little or no U.S. equity composition – such as the Hang Seng Index.
  • If the dividend equivalent payment (or portion thereof) would not be subject to U.S. withholding tax if the non-US person owned the underlying security directly. This most often will occur for derivative instruments on U.S. mutual funds, REITs and exchange traded funds that pay ‘dividends’ which are re-characterized as capital gain distributions or returns of capital.
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What market data package do I need to see pricing on VIX, RVX, or SPX?
How is the dividend equivalent withholding computed?
What information do we provide to clients about impacted positions?
What derivative instruments potentially are subject to the dividend equivalent withholding tax?