Trading Worries Abound Under New Final Withholding Tax Rules

New tax rules could hold up the settlement of certain securities trades, making some elements of the markets unattractive to brokerage firms.

Final rules under Section 1446(f)—which apply to gains from sale, distribution, or exchanges of partnership stakes involving foreign investors—require U.S. brokers to administer the withholding of U.S. taxes. The responsibility was previously shared with foreign financial institutions.

After the IRS issued its proposed version in 2019, the Investment Industry Association of Canada and the Securities Industry and Financial Markets Association asked Treasury to shield financial brokers from being responsible for ...