Interbank network Swift claims to have developed a low-cost messaging solution to address the new IRS 1441 regulations in the US, which concern non-resident withholding tax laws.
The Swift solution, which uses existing payment instruction and ISO 15022 corporate action messages, as well as two new message types, will enable foreign agents of institutional investors - broker-dealers and custodians - to exchange information with their US agent about the amount of withholding tax that must be held and for whom.
From the beginning of next year, financial institutions that hold any US security paying income to non-US residents will be forced to comply with tighter controls concerning ownership of US securities outside of the United States. The new regulations increases the quantity of data that must be communicated between financial intermediaries, their counterparts, and the IRS.
The Swift solution will facilitate automated exchange of the required information between financial intermediaries, their counterparts, and the IRS.
In developing the solution, Swift worked with banks, broker-dealers, and other players, who will be directly affected by the 1441 regulations, to establish market practice guidelines that address the new tax laws through use of Swift messages. The resulting documentation and messaging communications process has been approved by the US Revenue and Treasury authorities.
"One Swift customer estimated that they would need to hire an additional 500 people to accommodate the new regulations if an automated process wasn't made available," says Bob Davies, who is responsible for Swift's securities business in the US. "Given our unique position within the industry, we were able to work closely with those that will be most affected. The result is a low-cost solution developed by the industry to address an industry issue - and one that will significantly reduce the lead time required by our customers to be ready to comply with the new regulations."