What is IRS Regulation 871(m) and what are its implications?

The IRS regulation establishes a withholding tax on payments that are similar to a dividend (dividend equivalents). The regulation or tax applies to derivatives whose value is derived from underlying US equity securities that pay dividends and only to non-US trading partners. To the extent the product is subject to Regulation 871(m) as of 1 January 2017, a 30% tax rate will be applied to dividend equivalent payments.