[Federal Register Volume 86, Number 112 (Monday, June 14, 2021)]
[Notices]
[Pages 31543-31547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12338]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92125; File No. SR-DTC-2021-008]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Distributions Guide To Accommodate Participants' Tax
Reporting and Withholding Obligations
June 8, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 1, 2021, The Depository Trust Company (``DTC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
primarily prepared by the clearing agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change \5\ would amend the Procedures \6\ set
forth in the Distributions Guide to accommodate Participants' tax
reporting and withholding obligations under Section 1.1446(f)-4 (``IRS
Regulation'') \7\ of the final regulations of the Internal Revenue
Service (``IRS''), by setting forth DTC's proposed Procedure relating
to distribution of certain Participant tax forms and related
information to DTC's Participants, in accordance with the IRS
[[Page 31544]]
Regulation, as described in greater detail below.
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\5\ Each capitalized term not otherwise defined herein has its
respective meaning as set forth in the Rules, By-Laws and
Organization Certificate of The Depository Trust Company (the ``DTC
Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx, and the DTC Corporate Actions Distributions Service
Guide (``Distributions Guide''), available at http://www.dtcc.com/~/
media/Files/Downloads/legal/service-guides/
Service%20Guide%20Distributions.pdf.
\6\ Pursuant to the Rules, the term ``Procedures'' means the
Procedures, service guides, and regulations of DTC adopted pursuant
to Rule 27, as amended from time to time. See Rule 1, Section 1,
supra note 5. DTC's Procedures are filed with the Commission. They
are binding on DTC and each Participant in the same manner as they
are bound by the Rules. See Rule 27, supra note 5.
\7\ See 26 CFR 1.1446(f)-4, available at https://www.law.cornell.edu/cfr/text/26/1.1446(f)-4.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The proposed rule change would amend the Procedures set forth in
the Distributions Guide to accommodate Participants' tax reporting and
withholding obligations under the IRS Regulation. In this regard, the
proposed rule change would set forth DTC's Procedure relating to
distribution of certain Participant tax forms and related information
to DTC's Participants, in accordance with the IRS Regulation, as
discussed below.
(a) Distributions Service
The Distributions Service includes the announcement, collection,
allocation and reporting by DTC, on behalf of its Participants, of
dividend, interest and principal payments for Eligible Securities held
by Participants at DTC. This centralized processing provides efficiency
for Participants for their receipt of (i) payment information and (ii)
payments on distributions covered by Announcements (``Distribution
Event''),\8\ from multiple issuers and agents.\9\
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\8\ Distribution Events covered by Announcements include cash
dividends, interest, principal, capital gains, sale of rights on
American depositary receipts, return of capital, dividend with
option, stock splits, stock dividends, automatic dividend
reinvestments, spinoffs, rights distributions, pay in kind, and
liquidation. See Distributions Guide, supra note 5 at 12.
\9\ See Distributions Guide, supra note 5 at 9.
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Also as part of the Distributions Service, DTC also provides tax
services (``Tax Services'') to facilitate Participant compliance with
tax obligations, including international tax regulations, tax treaty
provisions and withholding tax reporting requirements, including Tax
Event Announcements, U.S. Tax Withholding, Tax Relief and Tax Info
Services relating to distributions processed by DTC.\10\ Procedures
relating to Tax Services are set forth in the Distributions Guide.\11\
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\10\ See DTC Disclosure Framework for Covered Clearing Agencies
and Financial Market Infrastructures, available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/DTC_Disclosure_Framework.pdf at 9.
\11\ See Distributions Guide, supra note 5.
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Tax Forms
In connection with its use of the DTC's services, each Participant
must submit to DTC the applicable IRS tax form (``Tax Form'').\12\ The
information in these forms, which includes the Participant's name,
federal tax identification number and certain certifications by the
Participant facilitates DTC's ability to provide Tax Services related
to tax reporting and withholding by facilitating DTC's ability to
determine the status of each Participant (``Tax Status'') with respect
to the type of reporting, and any rate of withholding, that may be
required under federal tax regulations with respect to distributions.
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\12\ See Distributions Guide, supra note 5 at 25.
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In this regard, Participants that are U.S. persons provide DTC with
a valid IRS Form W-9 (``Form W-9'').\13\ Each non-U.S. Participant
submits a valid IRS Form W-8,\14\ as applicable (``Form W-8'').\15\ The
form must be (1) valid for the type of entity; (2) filled out
completely; and (3) signed by an authorized signatory of the
entity.\16\ U.S. branches of foreign banks must also submit the
appropriate W-8 Form.\17\
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\13\ See IRS Form W-9, available at https://www.irs.gov/pub/irs-pdf/fw9.pdf.
\14\ See IRS. ``About Instructions for the Requester of Forms W-
8 BEN, W-8 BEN-E, W-8 ECI, W-8 EXP, and W-8 IMY'', available at
https://www.irs.gov/forms-pubs/about-form-w-8.
\15\ See Distributions Guide, supra note 5 at 25.
\16\ Id.
\17\ Id.
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IRS Regulation
The IRS Regulation sets forth requirements relating to tax
withholding and information reporting obligations on Participants with
respect to the transfer of a publicly traded partnership interests.\18\
In addition, Section 1.1446(f)-4(a)(5) \19\ of the IRS Regulation
provides that, when such withholding requirement is applicable, the
U.S. clearing organization (e.g., DTC) may act as an agent for the
selling Participant for purposes of furnishing the selling
Participant's Tax Form to the buying Participant, provided the clearing
organization notifies the selling Participant and such Participant has
the ability to opt-out. DTC understands that Section 1.1446(f)-4(a)(5)
\20\ of the IRS Regulation is intended to address concerns about the
difficulty of Participants obtaining documentation to determine whether
tax withholding or reporting applies on certain transaction to other
Participants processed through DTC's systems. In this regard, the IRS
has issued guidance on use of the Tax Forms for determining a payee's
tax status such that a payor would be able to properly report of
affected payments and apply the correct withholding rate.\21\ In
accordance with the IRS Regulation, DTC proposes to implement a method
to share Tax Forms and related information among Participants.
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\18\ See 26 CFR 1.1446(f)-4, supra note 7.
\19\ Id.
\20\ Id.
\21\ See IRS 2021 Publication 515, available at https://www.irs.gov/pub/irs-pdf/p515.pdf at 46-47.
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Proposal
Pursuant to the proposed rule change, DTC would make each
Participant's Tax Forms available to all Participants in accordance
with the IRS Regulation. DTC would make the Tax Forms available for
download by Participant on the DTC system to facilitate tax withholding
and reporting obligations related to dispositions of partnership
interests. Also, in accordance with the IRS Regulation, Participants
would be able to opt-out of having their Tax Form(s) made available for
other Participants to download, as described below.
In this regard, beginning on or about August 31, 2021,
Participants' Tax Forms would be made available for download in DTC's
Corporate Actions Web browser (``CA Web''). Tax Forms would be
available through the ``Instructions'' tab on CA Web, under ``TaxInfo,
Country of Investment: United States.'' To find, view, and download
another Participants' tax form, a Participant would access CA Web as
described above, and scroll to the relevant Participant Tax Form to
download.
As an interim step, to facilitate Participants' ability to develop
their internal procedures and processes to comply with their tax
reporting and withholding requirements under the IRS Regulation,
beginning on June 15, 2021, DTC would make available on CA Web tax
status information (``Tax Status Information''). The Tax Status
Information for each Participant would indicate (i) the type of Tax
Form provided by the Participant to DTC (i.e., either Form W-9 or the
type of Form W-8 provided (e.g., Form W-8 IMY, W-8BEN-E or W-8ECI)),
and (ii) for Participants that provided Form W-8 IMY, whether the
Participant indicated
[[Page 31545]]
on the Form W-8 IMY that it is (a) Qualified Intermediary, (b) non-
Qualified Intermediary, (c) U.S. Branch--Treated as a U.S. Person or
(d) U.S. Branch--not-treated as a U.S. Person.
The Tax Status Information would be made available in the same
location on CA Web as the Tax Forms would be located, as described
above.
Pursuant to the proposed rule change, Participants would be able to
elect to opt-out of having their Tax Forms and Tax Status Information
posted to CA Web for other Participants to download. Participants would
use an opt-out form (``Opt-Out Form'') and submit their elections
(``Opt-Out Election'') to opt-out electronically to DTCC's Account
Administration department using a mechanism provided at a link to be
set forth in the Distributions Guide. Each Opt-Out Election would
remain in place indefinitely until DTC is in receipt of a duly
authorized written notice from the Participant rescinding this Opt-Out
Election.
Text of Proposed Rule Change
In this regard, DTC would add the following text to the
Distributions Guide in the ``Other Services'' section, just after the
subsection titled ``Undistributed Long-Term Capital Gains'' and before
the subsection titled ``Claims''.
``Tax Form Repository
Beginning on June 15, 2021, to facilitate Participants' ability to
comply with tax withholding and reporting regulations relating to the
disposition of partnership interests, and in furtherance of DTC's role
as a ``clearing organization'' in accordance with Section 1.1446(f)-
4(a)(5) of the final regulations of the Internal Revenue Service,
Participant tax status information (``Tax Status Information'') from
the Tax Forms of Participants shall be made available to Participants
in the ``Instructions'' tab of CA Web, within ``TaxInfo, Country of
Investment: United States.'' Tax Status Information will no longer be
available once Tax Forms become available for download from CA Web, as
described below.
Beginning on or about August 31, 2021, to facilitate Participants'
ability to comply with tax withholding and reporting regulations
relating to the disposition of partnership interests, and in accordance
with Section 1.1446(f)-4(a)(5) of the final regulations of the Internal
Revenue Service, Participant tax forms (i.e., IRS Forms W-9 and W-8)
(``Tax Forms'') shall be available for Participants to view and
download. Tax Forms shall be available in the ``Instructions'' tab of
CA Web, within ``TaxInfo, Country of Investment: United States.
Opt-Out
Effective immediately, a Participant may submit an election (``Opt-
Out Election'') to DTC to opt-out of having its Tax Form and Tax Status
Information posted to CA Web, by electronically submitting a form
(``Opt-Out Form'') made available by DTC for this purpose. The Opt-out
Form, as well as the mechanism for completing, electronically signing
and submitting the form, is available at https://na2.docusign.net/
Member/PowerFormSigning.aspx?PowerFormId=854f0396-16aa-4fbb-bf67-
c694274c04cf&env=na2&acct=642629e5-740a-442a-b744-d7655d9a1f21&v=2.''
Any Opt-Out Election will only be considered valid if it is (i) fully
completed and electronically signed by an authorized signer of the
Participant using the Opt-Out Form and (ii) submitted through the
mechanism made available through this link. An Opt-Out Election will
become effective as of a date designated by the Participant on the Opt-
Out Form. For this purpose, a Participant may designate its account
activation date (for new Participants of DTC), or a future date, for
its Opt-Out Election to become effective. Each Opt-Out Election will
remain in place indefinitely until DTC is in receipt of a duly
authorized written notice from the Participant rescinding this Opt-Out
Election.
Please contact your Relationship Manager with any questions
regarding Opt-Out Elections.''
Effective Date
The proposed rule change would be effective upon filing with the
Commission. The proposed rule change would not become operative for 30
days after the date of the filing, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest.
2. Statutory Basis
DTC believes that the proposed rule change is consistent with the
requirements of the Act, and the rules and regulations thereunder
applicable to DTC, in particular Section 17A(b)(3)(F) \22\ of the Act.
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\22\ 15 U.S.C. 78q-1(b)(3)(F).
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Section 17A(b)(3)(F) of the Act \23\ requires, inter alia, that the
rules of the clearing agency be designed to foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions. As described above, the proposed rule change
would amend the Distributions Guide, as described above, to accommodate
Participants' tax reporting and withholding obligations relating to
transactions subject to the IRS Regulation. Specifically, DTC
understands, when a non-U.S. Participant Delivers a Security (acting on
behalf of a seller) representing a publicly traded partnership interest
to another Participant (acting on behalf of a buyer), the Participant
acting on behalf of the buyer may be required to withhold tax and/or
perform reporting to the IRS relating the proceeds realized by a
selling non-U.S. Participant.\24\ DTC believes that the sharing of
Participant Tax Forms and Tax Status Information would accommodate
compliance by Participants with the IRS Regulation for such
transactions for such transfers between them because the Tax Form and
Tax Status Information contain information that would facilitate
Participants' ability to determine if they have an obligation for tax
withholding and reporting under the IRS Regulation.\25\ Therefore,
because the proposed rule change would accommodate the exchange of Tax
Forms and Tax Status Information between Participants, and this would
facilitate compliance with certain tax requirements for certain
activity they transact among themselves, as described above, DTC
believes that the proposed rule change would foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions, consistent with the requirements of the Act,
in particular Section 17A(b)(3)(F) of the Act, cited above.
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\23\ Id.
\24\ See supra note 7.
\25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule change, as described above,
could impose a burden on competition, because by requiring Participants
to opt-out if they do not wish to have their Tax Status Information and
Tax Status Forms shared with other Participants, a Participant would
affirmatively need to submit an Opt-Out Form, which is an action that
they do not need to perform today.
To the extent the proposed rule change may impose a burden on
competition, DTC believes it would be necessary and appropriate in
furtherance of the purposes of the Act,\26\
[[Page 31546]]
because the proposed rule change would (i) accommodate Participants'
tax reporting and withholding obligations under the IRS Regulation (ii)
and facilitate Participants' ability to comply with applicable DTC
Rules.\27\ In this regard, the proposed rule change would set forth
DTC's Procedure relating to the distribution of certain Participant tax
forms and related information to DTC's Participants, in accordance with
the IRS Regulation, and DTC is not aware of an alternative method
available to Participants to share Tax Forms and Tax Status Information
among each other in a centralized facility as contemplated by the IRS
Regulation.
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\26\ 15 U.S.C. 78q-1(b)(3)(I).
\27\ Pursuant to Rule 2, Section 8, in connection with their use
of the Corporation's services, Participants must comply with all
applicable laws, including but not limited, to all applicable laws
relating to taxation. See Rule 2, supra note 5.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
DTC has not solicited and does not intend to solicit written
comments regarding the proposed rule change. DTC has not received any
unsolicited written comments from interested parties. To the extent DTC
receives written comments on the proposed rule change, DTC will forward
such comments to the Commission.
During outreach on the proposal by DTC to Participants,
Participants have indicated to DTC that receiving Tax Forms and Tax
Status Information through DTC would facilitate their ability to comply
with their tax withholding obligations. DTC is not aware of any
Participants indicating that they would prefer that these forms and
information not be shared among Participants.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Because the foregoing proposed rule change does not (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \28\ and Rule 19b-
4(f)(6) \29\ thereunder.
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\31\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. DTC has requested that
the Commission waive the 30-day operative delay under Rule 19b-
4(f)(6)(iii) \32\ so that the proposed rule change may become effective
and operative on June 15, 2021. DTC states that the proposal is
intended to amend the Distributions Guide to allow DTC to provide tax
information and facilitate Participants' compliance with tax reporting
and withholding obligations relating to the disposition of partnership
interests, in accordance with the IRS Regulation. DTC further states
that implementation of the proposed rule change within a shorter
timeframe would facilitate Participants' ability to make necessary
adjustments to their internal processes and systems to timely comply
with the IRS Regulation, and therefore facilitate their ability to
comply with applicable U.S. tax reporting and withholding requirements
on behalf of themselves and their customers that invest in partnership
interests. Accordingly, DTC believes that the prompt implementation of
these changes would be consistent with the public interest and the
protection of investors.
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\30\ Id.
\31\ 17 CFR 240.19b-4(f)(6)(iii).
\32\ Id.
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The Commission believes that delaying the operation of the proposed
rule change for 30 days would impede DTC's ability to begin to provide
tax information and facilitate Participants' ability to comply with tax
reporting and withholding obligations relating to the disposition of
partnership interests, in accordance with the IRS Regulation which will
become effective on January 1, 2022. Moreover, the Commission believes
that the proposed rule change would not significantly affect the
protection of investors or the public interest or impose a significant
burden on competition because the changes are designed to facilitate
compliance with the IRS regulation and do not affect the rights of
Participants or impose any new costs on Participants. Accordingly, the
Commission waives the operative delay and designates the proposed rule
change as effective and operative on June 15, 2021.\33\
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\33\ DTC satisfied the five-day pre-filing requirement. For
purposes only of waiving the 30-day operative delay, the Commission
has considered the proposed rule change's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-DTC-2021-008 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-DTC-2021-008. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of DTC and on DTCC's website
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-DTC-
[[Page 31547]]
2021-008 and should be submitted on or before July 6, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12338 Filed 6-11-21; 8:45 am]
BILLING CODE 8011-01-P