Income Tax Treaty Interpretation and Practice for Tax...

WHO TO CONTACT

For Additional Registrations:

-Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10)

For Assistance During the Program:

-On the web, use the chat box at the bottom left of the screen

If you get disconnected during the program, you can simply log in using your original instructions and PIN.

IMPORTANT INFORMATION

This program is approved for 2 CPE credit hours. To earn credit you must:

• Participate in the program on your own computer connection (no sharing) – if you need to register

additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford

accepts American Express, Visa, MasterCard, Discover.

• Listen on-line via your computer speakers.

• Respond to five prompts during the program plus a single verification code. You will have to write down

only the final verification code on the attestation form, which will be emailed to registered attendees.

• To earn full credit, you must remain connected for the entire program.

Income Tax Treaty Interpretation and Practice for Tax Professionals:

Claiming and Reporting Tax Treaty Positions for Individuals

TUESDAY, OCTOBER 27, 2015, 1:00-2:50 pm Eastern

Tips for Optimal Quality

Sound Quality

When listening via your computer speakers, please note that the quality

of your sound will vary depending on the speed and quality of your internet

connection.

If the sound quality is not satisfactory, please e-mail [email protected]

immediately so we can address the problem.

Viewing Quality

To maximize your screen, press the F11 key on your keyboard. To exit full screen,

press the F11 key again.

FOR LIVE EVENT ONLY

mailto:[email protected]

Oct. 27, 2015

Income Tax Treaty Interpretation and Practice for Tax Professionals

Alison N. Dougherty, J.D., LL.M.

Aronson

[email protected]

William K. Norman, J.D., LL.M.

Ord & Norman

[email protected]



Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction

described in the associated materials we provide to you, including, but not limited to,

any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be

determined through consultation with your tax adviser.

Income Tax Treaty

Foundational Topics

Interpretation and Practice

Prepared by:

William K. Norman, Esq.

Ord & Norman

Los Angeles, California

Tel.: (310) 473-8067

E-mail: [email protected]

5 7151970.ppt

x

COMMON FEATURES OF

U.S. INCOME TAX TREATIES 1. Treaties are bilateral agreements between the

U.S. Government and another foreign country.

2. U.S. has over 60 income tax treaties in force.

3. Stated goals are to avoid double taxation and prevent tax evasion.

4. Additional stated goal in proposed revisions of U.S. model to prevent double nontaxation.

6 7151970.pptx

COMMON FEATURES OF

U.S. INCOME TAX TREATIES (cont.) 5. More practically speaking, U.S. and other

countries enter into treaties to promote trade and investment.

6. Goals are accomplished by allocation of taxing rights and facilitating exchange of information and administrative assistance.

7. Treaties and the Internal Revenue Code are co-equal in legal status—last in time prevails.

7 7151970.pptx

BASIC STRUCTURE OF

U.S. INCOME TAX TREATIES 1. U.S. Income tax treaties are bilateral.

2. Taxes covered (exemptions or reductions) are described or listed. (Art. 2)

3. Benefits (exemptions or reductions) are available only to a resident of one or both countries. (Art. 1(1))

4. Benefits are denied with exceptions to U.S. citizens under a so-called Savings Clause. (Art. 1(2))

8 7151970.pptx

BASIC STRUCTURE OF

U.S. INCOME TAX TREATIES (cont.) 5. Benefits available to a legal entity are further

limited by a limitation on benefits article (“LOB”). (Art. 2(2), IRC §§ 844(c) and 884(2) and Treas. Reg. § 1.881-3).

6. Some terms but not all are defined in the Treaty. (Art. 3).

7. The two most important definitions are:

▫ Resident (Art. 4) and ▫ Permanent establishment (Art. 5).

9 7151970.pptx

BASIC STRUCTURE OF

U.S. INCOME TAX TREATIES (cont.) 8. Among the provisions allocating taxing rights are:

▫ Business profits (Art. 7);

▫ Dividends (Art. 10);

▫ Interest (Art. 11);

▫ Royalties (Art. 12); and

▫ Income from employment (Art. 12).

9. A resident is not required to have income subject to otherwise applicable provisions of a treaty. (Art. 1(2))

10 7151970.pptx

PERSONS WHO CAN CLAIM BENEFITS

UNDER A TREATY 1. Person must be a “resident” of one or both

countries. (Art. 1)

2. Person is a resident of a country if under the laws of the country he/she is liable to tax by reason of:

▫ Domicile; ▫ Residence; ▫ Citizenship; ▫ Place of management; ▫ Place of incorporation; or ▫ Similar criteria. (Art. 4(1))

11 7151970.pptx


UNDER A TREATY (cont.) 3. Person is not a resident of a country if liable to

tax only on income from sources in country nonprofit attributable to a permanent establishment in the country.

4. U.S. citizens are not eligible for benefits under a treaty except for treatment under certain provisions typically relating to pensions, social security, annuities, alimony, child support, and government service.

12 7151970.pptx


UNDER A TREATY (cont.) 5. Pass through entity is treated as a resident

under special provisions found in Treaty and the Code. (Art. 1(6) and IRC 894(c))

6. An individual treated as a tax resident of both countries is treated as a resident of only one country under the so-called tie breaker rules. (Art. 4(3))

13 7151970.pptx


UNDER A TREATY (cont.) 7. The tie breaker rules assign residence to a

treaty country in the following order:

▫ Permanent home is available;

▫ Personal and economic relations are closer;

▫ Habitual abode is found;

▫ He/she is a national; and

▫ Competent authorities assign by agreement.

14 7151970.pptx

CONSEQUENCES OF BEING A TREATY

NONRESIDENT OF THE U.S. 1) Claim benefits under Treaty including:

▫ Business profits not subject to U.S. Federal income taxation unless he/she has a PE in U.S. (Art. 7);

▫ Reduction in or exemption of U.S. Federal income tax on qualifying income from U.S. Source in the form of:

Dividends (Art. 10),

Interest (Art. 11),

Royalties (Art. 12),

Remuneration from employment (Art. 14); and

Compensation of Students and Trainees (Art. 20).

15 7151970.pptx

EXAMPLE Facts:

Percival Taxnott and his wife Diana are both U.K. nationals. Diana was born in the U.S. and holds a U.S. passport she seldom uses. After their marriage in 1990, Percival and Diana left the U.K. and worked as investment bankers in Toronto. In 2005, they returned to the U.K. They now live in a large flat in Knightsbridge. Both work in the City of London as investment bankers. They both are participating in pension schemes of their respective employers. They currently file in the U.K. as domiciled and resident in the U.K. In 2014 through the lottery, Percival obtained a U.S. green card. Beginning in 2010, Percival and Diana spend 120 days a year in Malibu, from which location each is able to work remotely.

16 7151970.pptx

EXAMPLE (cont.)

Issue:

For each individual, what is the U.S. Federal income tax filing status and U.S. tax and financial asset reporting obligations?

17 7151970.pptx

PERCIVAL – ANALYSIS

1. Percival is a resident of U.S. for Federal income tax purposes. (IRC § 7701(b))

2. He is also resident of the U.K. for U.K. income tax purposes. (US/UK Art. 4(1))

3. An income tax treaty is in force between U.S. and U.K.

4. Under the Treaty, Percival is a resident of the U.K. (US/UK Art. 4(4))

5. Percival is subject to U.S. Federal income tax with respect to his employment income, amounts contributed to his pension scheme, and all of his investment income. (IRC § 61)

18 7151970.pptx

PERCIVAL – ANALYSIS (cont.)

6. U.S. Federal income taxes are taxes covered for the Treaty. (US/UK Art. 1)

7. He does not maintain a PE in the U.S. (US/UK Art. 5)

8. He is eligible to claim benefits under Treaty for employment income from U.S. sources, (US/UK Art. 14), dividends from U.S. sources, interest from U.S. sources (US/UK Art. 11), pension contributions, (US/UK Art. 17) and others.

19 7151970.pptx

PERCIVAL – ANALYSIS (cont.)

9. Under Treaty, all of his business profits not attributed to a PE in US and investments income from sources without the U.S. are not subject to U.S. Federal income tax. (US/UK Art. 7)

10. As a U.S. tax resident under the Code, he is still obligated to file Fin CEN 114, Forms 5471, 3520A, 3520 but not Form 8938.

20 7151970.pptx

DIANA - ANALYSIS

1. Diana (as a U.S. citizen) is “resident” for U.S. Federal income tax purposes.

2. She is also a resident of the U.K. for U.K. tax purposes.

3. Under the Savings Clause of the Treaty, she is not eligible to claim benefits (reductions in or exemptions from U.S. Federal income tax) except for U.K. pension contributions and other certain income. (US/UK Art. 1(5))

4. She is obligated to file a U.S. Federal income tax return (Form 1040) and all applicable international reporting forms.

21 7151970.pptx

© 2015 | All Rights Reserved | Aronson LLC | www.aronsonllc.com | www.aronsonllc.com/blogs | 23

ALISON N. DOUGHERTY

SENIOR MANAGER ARONSON LLC

Direct (301) 231-6290

Main (301) 231-6200

Email: [email protected]

805 King Farm Blvd, Third Floor

Rockville, MD 20850

Washington, DC Metro Area

Alison N. Dougherty is a Senior Manager with Aronson

LLC. She has extensive experience assisting clients

with U.S. tax reporting and compliance for offshore

assets and foreign accounts. She specializes in

international tax compliance, planning and structuring

as a subject matter leader of Aronson’s international

tax practice. Her responsibilities include U.S. Federal

and multi-state tax compliance for C corporations,

S corporations, partnerships and individuals. She also

provides transactional tax planning and structuring

services.

Alison completed the LL.M. in Securities and Financial

Regulation in 2004 with academic distinction at

Georgetown University Law Center. She completed

the LL.M. in Taxation in 2000 and the Juris Doctor in

1999 at the University of Denver College of Law.

She completed the Bachelor of Arts in Foreign

Language in 1995 at Virginia Commonwealth

University.

http://www.aronsonllc.com/

http://www.aronsonllc.com/blogs



PERSONAL SERVICES INCOME

• Independent personal services

• Dependent personal services

• Director’s fees

• Entertainers and sportsmen (artistes and athletes)

• Visiting professors, teachers and researchers

• 2006 U.S. Model Income Tax Convention and the 2001

U.S./U.K. Income Tax Convention and Protocol have

consistent provisions regarding personal services




PERSONAL SERVICES INCOME – INDEPENDENT

PERSONAL SERVICES

• Income from independent personal services = income received from work performed as an independent contractor or self-employed individual

• U.S/U.K. treaty Article 7 on Business profits applies to independent services

• Income from independent personal services is generally exempt from source country taxation unless the individual is considered to earn the income through a Permanent Establishment in the source country

• Article 7 on Business Profits provides for net basis taxation in the source country, i.e., where the services are performed





PERSONAL SERVICES

• U.S. Treasury Dept. Technical Explanation to U.S./U.K.

treaty clarifies that Article 7 on Business Profits applies to

income derived by a partner that is attributable to personal

services performed in the source country through a

partnership with a Permanent Establishment in the source

country.





PERSONAL SERVICES

• U.S./U.K. treaty Article 7 Business Profits paragraph 1

The business profits of an enterprise of a Contracting State

shall be taxable only in that State unless the enterprise

carries on business in the other Contracting State through a

permanent establishment situated therein. If the enterprise

carries on business as aforesaid, the business profits of the

enterprise may be taxed in the other State but only so much

of them as are attributable to that permanent establishment.





PERSONAL SERVICES

• U.S/U.K. treaty Article 3 General Definitions 1(c) the term

“enterprise” applies to the carrying on of any business.

• U.S./U.K. treaty Article 3 General Definitions 1(d) the term

“business” includes the performance of professional

services and of other activities of an independent

character.





PERSONAL SERVICES

• U.S/U.K. treaty Article 5 Permanent Establishment para. 1 means a fixed place of business through which business of an enterprise is wholly or partly carried on.

• U.S./U.K. treaty Article 5 Permanent Establishment para. 2 includes: – A place of management

– A branch

– An office

– A factory

– A workshop

– A mine, an oil or gas well, a quarry or any other place of extraction of natural resources





PERSONAL SERVICES

• U.S/U.K. treaty Article 5 Permanent Establishment para. 3 a building site or construction or installation project is a PE if it lasts for more than 12 months.

• U.S./U.K. treaty Article 5 Permanent Establishment para. 4 exceptions: – Use of facilities solely for storage, display or delivery of goods or

merchandise

– Maintenance of stock of goods or merchandise for storage, display or delivery

– Maintenance of fixed place of business solely for purpose of carrying on activity of preparatory or auxiliary character





PERSONAL SERVICES

• U.S/U.K. treaty Article 5 Permanent Establishment para. 5 PE exists where an agent other than an agent of independent status is acting on behalf of the enterprise and has and habitually exercises in the Contracting State an authority to conclude contracts that are binding on the enterprise unless the activities are excepted under para. 4.

• U.S/U.K. treaty Article 5 Permanent Establishment para. 6 an enterprise does not have a PE merely because it carries on business through a broker, general commission agent or other agent of independent status acting in the course of his business as an independent agent.

• U.S./U.K. treaty Article 5 Permanent Establishment para. 7 the fact that a company in a Contracting State controls or is controlled by a company resident of the other State or carries on business in the other State through a PE or otherwise does not constitute either company a PE of the other.





PERSONAL SERVICES

• U.S. Federal Form 8233 Exemption from Withholding on Certain Compensation from Independent (and Certain Dependent) Personal Services of a Nonresident Alien

• Form 8233 allows exemption from I.R.C. Section 1441 U.S. Federal nonresident tax withholding at 30% on gross income from independent personal services performed by a nonresident in the United States when a U.S. treaty provision applies.

• Form 8233 allows exemption from tax withholding at 30% or tax at graduated rates on income from dependent personal services performed by a nonresident in the United States when a treaty provision applies.

• Form 8233 allows tax exemption for noncompensatory scholarship or fellowship income when a nonresident claims a treaty exemption on personal services income received from the same U.S. withholding agent.





PERSONAL SERVICES

1. Nonresident alien provides Form 8233 to U.S. withholding

agent

2. U.S. withholding agent provides executed copy of Form

8233 to nonresident alien

3. U.S. withholding agent keeps executed copy of Form

8233 for its own records

4. U.S. withholding agent files executed original Form 8233

with IRS in Philadelphia, PA





PERSONAL SERVICES




PERSONAL SERVICES INCOME – DEPENDENT

PERSONAL SERVICES

• Income from dependent personal services =

compensation, wages, bonuses, etc. received from

working as an employee for an employer

• For U.S. Federal tax purposes, the employee’s work is

considered to be subject to the control, direction and

supervision of the employer.





PERSONAL SERVICES

• U.S./U.K. treaty Article 14 Income from Employment para. 1

income from employment is only taxed in the resident country

unless the services are performed in the other treaty country.

• U.S./U.K. treaty Article 14 para. 2 exception from taxation of the

employee in the country where the services are performed if:

1. The individual is not in the source country for more than 183 days in

any 12 month period in the tax year;

2. The compensation is paid by or on behalf of an employer which is not

a resident of the country where the services are performed; and

3. The compensation is not attributable to a PE that the employer has in

in the country where the services are performed.





PERSONAL SERVICES

• U.S./U.K. treaty Article 14 para. 2 exemption from taxation

of the employee in the country where the services are

performed does not apply to director’s fees received by a

resident of a treaty country for services performed as a

member of the board of directors of a company resident in

the other treaty country.

• U.S./U.K. treaty Article 14 para. 3 income from dependent

personal services in respect of employment as a member

of the crew of a ship or aircraft operated in international

traffic shall be taxable only in the resident country.




PERSONAL SERVICES INCOME – DIRECTOR’S FEES

• U.S./U.K. treaty Article 15 director’s fees derived by a

resident of a treaty country from services rendered in the

other country as a member of a board of directors of a

company that is a resident of the other treaty country are

taxable in the other country.




PERSONAL SERVICES INCOME – ENTERTAINERS AND

SPORTSMEN (ARTISTES AND ATHLETES)

• U.S./U.K. treaty Article 16 Entertainers and Sportsmen

Residents of the United States or U.K. who are public

entertainers such as theater, motion picture, radio or

television artists, musicians or athletes who earn more than

$20,000 USD or equivalent in GBP in gross receipts including

reimbursed expenses from their entertainment activities in the

other country are subject to tax in the other country.




PERSONAL SERVICES INCOME – PROFESSORS,

TEACHERS AND RESEARCHERS

• U.S./U.K. treaty Article 20A Teachers

• A professor or teacher who is a resident of the United States or the U.K. and who is in the other treaty country for not more than two years primarily to teach or engage in research at a university, college or other recognized educational institution is exempt from tax on the income from the teaching or research in the country where the services are performed.

• If the two year visit is exceeded, the exemption is lost for the entire visit including the two year period.

• The exemption does not apply to income from research carried on for private benefit rather than public interest.




INTEREST INCOME

• U.S./U.K. treaty Article 11 Interest para. 1 interest sourced

to the other treaty country is only taxable in the resident

country.

• The resident country has the exclusive right to tax interest

beneficially owned by its residents and arising in the other

treaty country.

• Zero U.S. Federal nonresident withholding tax rate on

interest under U.S./U.K. treaty.




INTEREST INCOME

• U.S./U.K. treaty Article 11 Interest para. 2 definition of

interest includes income from debt claims of every kind

whether or not secured by a mortgage.

• Interest does not include penalty charges for late payment.

• Interest paid or accrued subject to a contingency is within

the scope of U.S./U.K. treaty Article 11.

• Interest includes original issue discount (OID) which is the

difference between the issue price and the stated

redemption price at maturity of a debt obligation.




INTEREST INCOME

• U.S./U.K. treaty Article 11 Interest para. 3 provides an

exception to exclusive resident country taxation of interest

income where the beneficial owner of the interest carries

on business through a permanent establishment in the

source country and the interest income is attributable to

the PE.

• Article 7 on Business Profits applies in this case and the

source country has the right of taxation.




INTEREST INCOME

• U.S./U.K. treaty Article 11 Interest para. 4 provides an anti-

abuse rule which limits the exemption from source country

taxation to the arm’s length interest payment in the case of

interest arising between parties with certain relationships.

• Article 11 para. 4 provides that any interest in excess of the

arm’s length interest is subject to source country taxation.

• The special relationships at issue in Article 11 para. 4

implicate Associated Enterprises per Article 9 and the

definition of control for purposes of I.R.C. Section 482.




INTEREST INCOME

• U.S./U.K. treaty Article 11 Interest para. 5 provides an anti-abuse rule for contingent interest.

• For purposes of Article 11 para. 5 contingent interest is determined by reference to the receipts, sales, income, profits or other cash flow of the debtor or a related person, to any change in the value of any property of the debtor or a related person or to any dividend, partnership distribution or similar payment made by the debtor to a related person.

• Per Article 11, para. 5, a 15% source country tax rate applies if the beneficial owner of the contingent interest is a resident of the other treaty country.




DIVIDEND INCOME

• U.S./U.K. treaty Article 10 Dividends para. 2 provides

reduced source country tax rates.

– 5% of the gross amount of the dividend if the beneficial owner is

a company that owns shares representing directly or indirectly at

least 10% of the voting power of the company paying the

dividends

– 15% of the gross amount of the dividends in all other cases

• Article 10, para. 2 does not affect the taxation of the

company in respect of the profits out of which the

dividends are paid




DIVIDEND INCOME

• U.S./U.K. treaty Article 10 Dividends para. 3 provides for exclusive resident country taxation with a zero withholding tax rate on dividends distributed by a company resident in one treaty country to a resident of the other treaty country. – The dividends must be beneficially owned by a company that has owned

directly at least 80% of the voting power of the company paying the dividend for the 12 month period ending on the date that the dividend is declared.

– Companies qualifying for treaty benefits by virtue of the active trade or business or ownership-base erosion test must have acquired shares representing 80% or more of the voting stock of the company paying the dividends prior to 10/1/1998.

• The latter test is designed to prevent companies from reorganizing in order to qualify for the zero rate of withholding tax in circumstances where the Limitation on Benefits provision does not provide sufficient protection from treaty shopping.




LIMITATION ON BENEFITS

• U.S./U.K. treaty Article 23 Limitation on Benefits requires

that a resident of a treaty country will be entitled to the

benefits under the treaty if the person is a “qualified

person” under Article 23.

1. An individual

2. A publicly traded company listed on a recognized stock

exchange in the treaty country

3. A company with 50% of the voting stock owned directly or

indirectly by five or fewer publicly traded companies




LIMITATION ON BENEFITS

• U.S./U.K. treaty Article 23 Limitation on Benefits requires that a resident of a treaty country will be entitled to the benefits under the treaty if the person is a “qualified person” under Article 23. – Ownership and Base Erosion Two Part Test

• 50% or more of the vote or value of the person must be owned directly or indirectly on at least half the days during the tax year by persons who are themselves qualified persons under Article 23, para. 2(a), (b), (e), (c)(i) or (d)(i)

• Less than 50% of the person’s gross income for the tax year is paid or accrued to a person or persons who are not residents of either treaty country in the form of payments that are deductible for tax purposes in the payer’s country of residence.




U.S. Federal International Tax Reporting and Compliance

• U.S. Federal Form 8833 Treaty-Based Return Position

Disclosure under I.R.C. Section 6114 or 7701(b)

• Penalty for failure to file is $1,000 USD for individuals and

taxpayers that are not C corporations and $10,000 USD for

taxpayers that are C corporations including U.S.

corporations and foreign corporations required to file a

U.S. Federal Form 1120-F foreign corporation income tax

return




FORM 8833 TREATY-BASED RETURN POSITION

DISCLOSURE




FORM 8833 TREATY-BASED RETURN POSITION DISCLOSURE

• Form 8833 is filed by a taxpayer that takes a position that

a U.S. treaty modifies or overrules a provision of the U.S.

Federal Internal Revenue Code which causes a reduction

of U.S. Federal tax on the taxpayer’s U.S. Federal tax

return.





• Treaty position required per U.S. Treas. Reg. Sec. 301.6114-1(b) – A nondiscrimination provision of a treaty precludes the application of

any otherwise applicable IRC provision, other than I.R.C. Section 897(i) election of foreign corporation with USRPI to be treated as U.S. corporation

– A treaty reduces or modifies the taxation of gain or loss from the disposition of a USRPI

– A treaty reduces or exempts branch profits taxation or tax on excess branch interest

– Other treaty exemptions for interest, dividends and other FDAP income

• Reporting requirement waived in situations described under U.S. Treas. Reg. Sec. 301-6114-1(c)





• Treaty position required per U.S. Treas. Reg. Sec.

301.7701(b)-7 for dual resident disclosing treaty position

that resolves conflicting claims of residence by United

States and the other treaty country based on tie breaker

rules





• Form 8833 reporting requirements 1. Name, address and U.S. taxpayer identification number

2. Check box to indicate whether treaty position is being disclosed under I.R.C. Section 6114 or U.S. Treas. Reg. Sec. 301.7701(b)-7

3. Identify treat country and applicable treaty article

4. State the IRC provision overruled or modified by the treaty

5. Name, U.S. taxpayer identification number and address of U.S. person paying income subject to U.S. Federal nonresident tax withholding

6. Identify the applicable treaty Limitation on Benefits provision that allows the filer to qualify for treaty benefits

7. State the specific type of treaty position that is required to be disclosed under U.S. Treas. Sec. 301.6114-1(b)

8. Explanation of the treaty-based position taken with amount and type of income for which treaty benefits are claimed




FORMS W-8BEN AND W-8BEN-E

• Form W-8BEN Certificate of Foreign Status of Beneficial

Owner for United States Withholding and Reporting

(Individuals)

• Form W-8BEN-E Certificate of Foreign Status of Beneficial

Owner for United States Withholding and Reporting

(Entities)




FORMS W-8BEN AND W-8BEN-E




FORM W-8BEN (INDIVIDUALS)

• Provide the Form W-8BEN (Individuals) to the withholding agent or payer if you are a nonresident alien who is the beneficial owner of an amount subject to withholding, or if you are an account holder of an FFI documenting yourself as a nonresident alien.

• If you are the single owner of a disregarded entity, you are considered the beneficial owner of income received by the disregarded entity. Submit Form W-8BEN when requested by the withholding agent, payer, or FFI whether or not you are claiming a reduced rate of, or exemption from, withholding.




FORM W-8BEN-E (ENTITIES)

• Provide the Form W-8BEN-E to the withholding agent or payer if you are a foreign entity receiving a withholdable payment from a withholding agent, receiving a payment subject to chapter 3 withholding, or if you are such an entity maintaining an account with an FFI requesting this form.

• Identify the beneficial owner’s Chapter 3 status for U.S. Federal nonresident tax withholding under I.R.C. Sections 1441 et seq.

• Identify the beneficial owner’s Chapter 4 (FATCA) status for tax withholding under I.R.C. Sections 1471 et seq.




FORM 8802 APPLICATION FOR U.S. RESIDENCY

CERTIFICATION




FORM 8802

• Line 7 calendar year for which certification is requested (YYYY)

• Line 7 exception for dual resident taxpayer – enter the eight digit dates (YYYYMMDD) that correspond to the beginning and ending of the period that the individual was a U.S. resident. Show the specific period of residence for each year that you are requesting the Form 6166 U.S. Residency Certification.

• Line 8 tax year on which certification will be based (YYYYMM) – If you are requesting a Form 6166 U.S. Residency Certification for a year for which a U.S. Federal tax return is not yet due then indicate the most recent tax year for which a U.S. Federal tax return was required to have been filed at the time of the application.

• If the most recent tax return filed was filed recently and it has not yet been posted by the IRS to the U.S. taxpayer’s account, then attach to the Form 8802 application a copy of the most recent U.S. Federal tax return filed marked “COPY- As Originally Filed Do Not Process” on the return.

• Must pay $85 USD user fee online and write confirmation number on first page of Form 8802 or send live check with application.




FORMS 1042 AND 1042-S

• U.S. Federal Form 1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

• U.S. Federal Form 1042-S Foreign Person’s U.S. Source Income Subject to Withholding

• Forms 1042 and 1042-S report Chapter 3 and Chapter 4 (FATCA) U.S. Federal nonresident tax withholding

• Forms 1042 and 1042-S are filed by the withholding agent responsible for paying certain types of U.S. source income to a nonresident individual or company.

• Treaty exemptions and applicable reduced U.S. Federal nonresident withholding tax rates are reported on Form 1042-S




FORMS 1042 AND 1042-S

• Amounts subject to U.S. Federal nonresident tax withholding reportable on Forms 1042 and 1042-S – Interest

– Dividends

– Rents

– Royalties

– Income for independent personal services performed in the United States

– Income for dependent personal services performed in the United States for which a U.S. income tax treaty exemption is claimed

– Annuities

– Pension distributions and other deferred income

– Amounts paid to foreign students, trainees, teachers, or researchers as scholarship or fellowship income, and compensation for personal services (whether or not exempt from tax under an income tax treaty), must be reported.

– Other types of U.S. source income




FORM 1042




FORM 1042-S




FINAL THOUGHTS AND CONCLUSIONS

QUESTIONS AND ANSWERS



Income Tax Treaty Interpretation and Practice for Tax...

Documents

Transcript of Income Tax Treaty Interpretation and Practice for Tax...