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

"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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