New law targets the use of sale and repurchase agreements and securities lending transactions for tax advantages. According to the new law, the repo buyer or borrower in a securities lending transaction is eligible for tax benefits such as credits for withholding taxes or foreign taxes or participation exemption for dividends on stock, only if and to the extent those benefits could be attributed to the repo seller or securities lender. The new provision is aimed at stopping transaction such as dividend washing or dividend stripping, in which the a holder of securities who would not be eligible for certain tax benefits, transfer those securities to an accommodating party, who collects the benefits, in exchange for an equivalent economic consideration.
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