PricewaterhouseCoopers has been commissioned to create an electronic communications system and central repository called Data Link for Intermediaries (Dali) at the request of The Depository Trust & Clearing Corporation (DTCC) and a consortium of global financial institutions including Goldman, Sachs, Merrill Lynch, Morgan Stanley Dean Witter and Salomon Smith Barney.
Dali will be a global, Internet-based, real-time communications tool that will help financial institutions meet new reporting requirements by facilitating the interaction between US withholding agents and their non-US intermediary customers. In addition, PricewaterhouseCoopers has developed a communications protocol for Dali called daliML.
The system will be piloted during the fourth quarter of 2000 and is scheduled to be fully operational by 2001. The Depository Trust Company, a subsidiary of DTCC, will host and operate the system.
On January 1, 2001, new US withholding tax regulations are scheduled to take effect that will allow the Internal Revenue Service (IRS) to better enforce US tax laws on foreign investments in the United States. Under a new procedure, non-US financial intermediaries may enter into an agreement with the IRS to become a qualified intermediary (QI). QIs may claim reduced rates or exemptions from US taxes on behalf of their customers without disclosing their identities. Dali is designed to help financial intermediaries to comply with the stricter regulation and realise the lower withholding rate.
"This change in withholding of US taxes is a critical issue facing the financial services industry and will have a dramatic effect on the way US institutions need to report taxes for non-US clients," says Cyrus Daftary a director in PricewaterhouseCoopers' tax technology solutions practice. "Dali provides the means for banks and custodians to be prepared for this transition, thus avoiding costly and timely disruptions that could jeopardise customer relationships."
The protocol, daliML, is based on eXtensible Markup Language (XML), the emerging Internet standard for data sharing between applications. This specification is expected to set the standard within the withholding and reporting area of the financial services industry.
"Assisting in the development of Dali, we are pooling resources, sharing industry knowledge and determining standards that meet industry needs," says Anthony DiMurro, vice president of international services at DTCC. "The alternative would be for each industry participant to develop its own solution to the new withholding tax laws which is not cost effective or efficient."