Simple Contract. All Simple Contracts must be estimated in terms of Delta presence in order to determine the threshold value falling within the scope of Dividend Equivalent rules. If Delta is 0.80 or higher, the amount of tax under the Derivative Agreement is defined in accordance with Section 871 (m) at the time of Dividend Equivalent payment. The fact, that Derivative Agreement has several validity terms or continuous term, doesn't exclude the fact, that the Derivative Agreement is a Simple Contract. E.g. an option agreement is considered as a Simple Contract, even if the option agreement can be fulfilled by the holder at any time before expiry of the validity term of the option agreement, if the amounts due under the Derivative Agreement are defined by reference to the same fixed amount of the US issuer’ Securities on the date of execution. Simplified calculation of Delta is provisioned for some Simple Contracts, the underlying asset of which are 10 or more Underlying Securities. If the underlying asset of a Derivative Agreement is 10 or more Underlying Securities and for Hedging of Simple Contract the Receiving and/or Transferring Party purchases an exchange-traded security, e.g. security of an exchange-traded fund (ETF), the structure of which consists of almost all Underlying Securities of the Simple Contract, Delta of the Derivative Agreement can be calculated by way of determination of the ratio of the Fair Value of the Simple Contract to minor change in the Fair Value of the exchange-traded security. Delta defined in a simplified manner must be used as Delta for each Underlying Security of the Derivative Agreement to calculate the amount of dividend equivalent.
Simple Contract. The first three elements of a simple contract must be present at all times for the contract to be valid.
