Section 871(m) of the Internal Revenue Code, enacted in 2010, imposes withholding tax on, among other things, “dividend equivalents” paid to foreign counterparties pursuant to “specified notional principal contracts” (“specified NPCs”). Temporary Treasury regulations released yesterday extend the currently operative definition of a specified NPC through the end of 2012. For payments beginning on January 1, 2013 (including on instruments entered into prior to that date), proposed Treasury regulations, also released yesterday, would among other things revise the definition of a specified NPC substantially and extend withholding under Section 871(m) to dividend-equivalent payments on a variety of equity-linked instruments other than swaps.

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