On August 31, 2012, the IRS and Treasury Department amended temporary treasury regulations addressing the tax treatment of dividend equivalent payments. Internal Revenue Code (IRC) Section 871(m), enacted in 2010, requires a US withholding tax on certain cross-border dividend equivalent payments including substitute dividend payments made under a securities lending or sale-repurchase transaction, as well as payments made under a "specified notional principal contract," if the payments are contingent on or determined by reference to the payment of a dividend from US sources.

The amendment extends the more limited statutory definition of "specified notional principal contract" in IRC Section 871(m) through the end of 2013. The IRS and Treasury Department also indicated that when finalized the proposed treasury regulations on dividend equivalent payments will apply to payments made on or after January 1, 2014.

For more information on the temporary and proposed regulations on dividend equivalent payments, see Legal Update, IRS Issues Regulations on Dividend Equivalent Payments.