[Federal Register Volume 65, Number 234 (Tuesday, December 5, 2000)]
[Notices]
[Pages 75986-75987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30883]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43631; File No. SR-DTC-00-14]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Creating a United States Withholding Tax Service Available 
Through The Depository Trust Company's Elective Dividend Service

November 28, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 31, 2000, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by DTC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested parties.

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change
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    \1\ 15 U.S.C. 78s(b)(1).
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    The proposed rule change would allow DTC to institute a U.S. 
withholding tax service available to foreign participants beginning 
January 1, 2001, in which DTC will act as withholding agent to deduct 
and withhold U.S. tax on U.S.-source income paid to foreign 
participants.

II. Self-Regulatory Organization's Statement of Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, DTC 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. DTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements. \2\
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    \2\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to institute a U.S. 
withholding tax service available to foreign participants beginning 
January 1, 2001, in which DTC will act as withholding

[[Page 75987]]

agent to deduct and withhold U.S. tax on U.S.-source income paid to 
foreign participants.
    The U.S. Internal Revenue Code (``Code'') generally requires U.S. 
payors such as DTC to deduct and withhold thirty percent from most 
payments of U.S.-source income paid to a foreign payee unless lower 
U.S. withholding tax rates or exemptions apply under provisions of the 
Code, the regulations, or applicable tax treaties.\3\ In the past, DTC 
has complied with its withholding obligations with respect to 
securities dividends and other payments made by a U.S. entity to 
foreign participants by generally requiring each foreign participant to 
appoint a U.S. bank or broker/dealer to act as its withholding agent or 
to otherwise obtain an exemption from the IRS thereby relieving DTC of 
the withholding responsibility. DTC currently has seven foreign 
participants.\4\
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    \3\ See Sections 1441, 1442 and 1443 of the Internal Revenue 
Code and the regulations promulgated thereunder.
    \4\ The seven foreign participants referenced herein are The 
Canadian Depository for Securities; Cavali ICLC S.A.; Clearstream 
Banking AG; Crest International Nominees Limited; Donaldson Luftkin 
& Jenrette International; Hong Kong Securities Clearing Limited; and 
Transatlantic Securities Company.
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    Foreign central securities in obtaining U.S. tax withholding 
services from U.S. financial institutions and have requested that DTC 
undertake the U.S. tax withholding responsibility.
    In its role as U.S. tax withholding agent under the proposed rule 
change, DTC will accept relevant instructions from the foreign 
participant to determine the withholding tax rates; pay dividends, 
interest, and other securities distributions to the participant net of 
appropriate taxes, if any, based on the applicable withholding rates; 
remit the taxes to the IRS; and report the payments on Form 1042-S. 
Initially, DTC will use its Elective Dividend Service to solicit and 
receive the instructions from foreign participants, similar to the 
procedures currently in place with respect to instructions received 
from U.S. participants that use DTC's TaxRelief service to obtain 
relief from foreign taxes imposed on U.S. holders of foreign 
securities.\5\
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    \5\ Securities Exchange Act Release Nos. 34-42192 (December 1, 
1999), 64 FR 69054 [File No. SR-DTC-99-23] (describing DTC's 
TaxRelief service) and 32171 (April 19, 1993), 58 FR 22003 [File No. 
SR-DTC-92-17] (approving the extension of DTC's EDS service to 
include all foreign securities).
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    DTC proposes to charge the following fees for the U.S. tax 
withholding service:

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Monthly Fee...........................    $150  Monthly service charge
                                                 assessed on each
                                                 account using the
                                                 service.
Transaction Fee.......................   $1.50  The fee for each tax
                                                 adjustment instruction
                                                 to withhold taxes at a
                                                 specific rate pool.
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    Foreign participants that elect not to use DTC's U.S. tax 
withholding service may continue the current practice of appointing a 
third party U.S. bank or broker-dealer to receive gross payments on 
their behalf and act as U.S. tax withholding agent for such payments, 
or otherwise obtain an exemption from the IRS that relieves DTC of the 
withholding obligation.
    The proposed rule change is consistent with the requirements of 
section 17A of the Act \6\ and the rules and regulations thereunder 
applicable to DTC because it promotes the prompt and accurate clearance 
and settlement of securities transactions by facilitating international 
investment in U.S. securities. The proposed rule change will be 
implemented consistently with the safeguarding of securities and funds 
in DTC's custody or control or for which it is responsible.
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    \6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    DTC has not solicited nor received written comments on the proposed 
rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) \7\ of the Act and Rule 19b-4(f)(4) promulgated 
thereunder because the proposal effects a change in an existing service 
of a registered clearing agency that does not adversely affect the 
safeguarding of securities or funds in the custody or control of the 
clearing agency or for which it is responsible, and does not 
significantly affect the respective rights or obligations of the 
clearing agency or persons using the service. At any time within sixty 
days of the filing of such proposed rule change, the Commission may 
summarily abrogate 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
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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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of DTC. All submissions 
should refer to File No. SR-DTC-00-14 and should be submitted by 
December 26, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-30883 Filed 12-4-00; 8:45 am]
BILLING CODE 8010-01-M