June 2, 2017

The Honorable Steven Mnuchin
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

RE: Executive Order 13789

Dear Secretary Mnuchin:

The Securities Industry and Financial Markets Association (SIFMA)1 appreciates the opportunity to provide comments with respect to the Treasury Department’s review of recent tax regulations pursuant to Executive Order 13789, issued April 21, 2017.

Section 2(a) of Executive Order 13789 requires the Treasury Department, in consultation with the Administrator of the Office of Information and Regulatory Affairs, to identify in an interim report to the President all significant tax regulations issued on or after January 1, 2016, that “(i) impose an undue financial burden on United States taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) exceed the statutory authority of the Internal Revenue Service.”

In this letter, SIFMA discusses four regulations that meet these parameters and that are of particular concern to SIFMA members: final regulations under Internal Revenue Code (i) Section 871(m) (T.D. 9815), (ii) Section 385 (T.D. 9790), (iii) Section 367(d) (T.D. 9803), and (iv) Sections 1471-1474 (T.D. 9808 & 9809). SIFMA urges the Treasury Department to include these regulations in its interim report and consider actions in these areas to reduce the burdens and complexity for taxpayers.

I. IRC Section 871(m) Regulations

Final Section 871(m) regulations (T.D. 9815) were published in the Federal Register on January 24, 2017. SIFMA has submitted multiple comment letters on the 871(m) regulations that are available on the SIFMA website. 2

Section 871(m) was enacted in 2010 in response to concerns over transactions where foreign investors owning U.S. equities avoided U.S. withholding taxes on dividends by entering into swap transactions over dividend record dates. The 2010 statute immediately imposed withholding on certain swaps that closely resembled the transactions of concern, and granted regulatory authority to U.S. Treasury to develop rules to identify any additional derivative transactions that should be subject to withholding from those that would not have the potential for tax-avoidance.

Since 2012, Treasury and the IRS have issued multiple versions of proposed, temporary and final regulations, supplemented by IRS Notices and Revenue Procedures. The January 2017 final 871(m) regulations left in place a January 1, 2017 effective date for withholding on so-called “delta one” transactions, despite industry requests for a delay in light of interpretive questions and implementation challenges. The regulations also require withholding on a broader class of transactions – defined as having a delta of 0.80 or higher – beginning January 1, 2018.

SIFMA believes that the burdens imposed on financial intermediaries by the 871(m) regulations are substantial and costs may exceed the amount of tax that Treasury can expect to collect as a result of the new rules. No effort has been made by Treasury to quantify the direct and indirect costs of the 871(m) regulations. Moreover, the application of the rules is uncertain with respect to many common transactions.

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1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 Letter from SIFMA to the Hon. Mark Mazur, May 7, 2014; Letter from SIFMA to the Hon. Mark Mazur Requesting Additional Guidance, March 31, 2016 (http://www.sifma.org/issues/item.aspx?id=8589959618) (“March 2016 Letter”); Letter from SIFMA to the Hon. Mark Mazur Urging Implementation Delay, June 24, 2016 (http://www.sifma.org/issues/item.aspx?id=8589961019) (“June 2016 Letter”); SIFMA Letter to Mr. Robert Stack Regarding Notice 2016-42 and Section 871(m), August 1, 2016 (https://www.sifma.org/comment-letters/2016/sifma-submits-comment-to-multiple-agencies-on-the-qiagreement-published-in-notice-2016-42/ ) (“August 2016 Letter”); and Letter from SIFMA to the Hon Mark Mazur Urging Implementation Delay in Light of G5 Position Letter, Nov. 14, 2016 (http://www.sifma.org/issues/item.aspx?id=8589963522) (“November 2016 Letter”).