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Citigroup set to pay $6,00,000 in fine to FINRA: Report

Last Updated: Monday, October 12, 2009 - 15:46

London: Citigroup will have to pay USD
6,00,000 in fine to an US regulator for providing derivative
transactions as that helped foreign clients avoid paying
billions of dollars in taxes on dividends, a media report

"Citigroup is to be fined over derivatives transactions
that were partly designed to help foreign clients avoid taxes
on dividends," a British daily has reported.

The USD 6,00,000 fine by Financial Industry Regulatory
Authority (FINRA), which oversees broker dealers, comes after
the US authorities hardened their stance on offshore tax
operations with a series of actions in the past few months.

According to the publication, FINRA`s fine against
Citigroup Global Markets is expected to be announced later
today and partly involves the bank`s failure to control
trading related to strategies including so-called "total
return swaps".

Such swaps helped Citi`s foreign clients receive the full
value of dividends from US securities without paying the
withholding tax.

As part of their campaign, regulators have targeted the
complex derivatives deals used by banks that they allege help
offshore bank clients avoid billions of dollars in US taxes.

In US, dividends on stock paid to foreign investors is
subject to withholding taxes, depending on applicable treaty
between America and the foreign investor`s home country.

The daily noted that Citi voluntarily paid USD 24 million
to the Internal Revenue Service (IRS), the US tax authority,
in 2006 in relation to the withholding of dividend taxes on a
limited set of swap transactions from 2003 to 2005.

FT said that IRS was examining "numerous transactions".
The enquiries focus on whether financial institutions failed
to withhold tax on payments made to foreign clients who may be
liable for US taxes with respect to dividend payments.
Derivatives deals came under scrutiny late last year when
the Senate released a report that some financial institutions
designed, marketed and used transactions to enable foreigners
to dodge millions of dollars of taxes on US stock dividends.

Bureau Report

First Published: Monday, October 12, 2009 - 15:46

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