ABC / Income tax treaties between the United States and foreign countries

Tax Treaties

1. 
   

   Income tax treaties between the United States and foreign countries typically provide for either a reduction in the statutory rate of tax or an exemption from tax for certain types of income received by citizens and/or residents of the contracting countries.

   
   
2. 
   

   Many foreign countries withhold tax at the source on income flowing out of such country. If the statutory withholding rate exceeds the treaty rate of tax, one of the following methods may be used to adjust for the treaty rate of tax.

   
   
   
   
   1. 
      

      The foreign country may automatically reduce the withholding rate to the treaty rate of tax in the case of income of recipients who have evidence of United States residency; or

      
      
   2. 
      

      The foreign country may withhold income taxes at its statutory rates and require recipients to recover taxes paid in excess of the reduced treaty rate by filing claims for refund which include evidence that the recipient is a resident of the United States and entitled to the treaty benefits.

      
      
   
   
   
   
3. 
   

   The following chart is a list of the most current treaty countries. The corresponding country codes should be used when entering the Form 8802, certification application on the Form 6166 database:

   
   
4. 
   

   Additional information is available in Publication 901, U.S. Tax Treaties or the U.S. Department of State website, www.state.gov.

   
   

Claiming Treaty Benefits

1. 
   

   Applicants can claim treaty benefits by submitting Form 6166, U.S. Residency Certification, and/or the foreign country's form to the withholding agent or any other appropriate person or office in the foreign country, when applicable.

   
   
2. 
   

   Applicants that fail to file a claim with the foreign country for treaty benefits and have paid foreign taxes exceeding the treaty rate may suffer the consequences of double taxation. Applicants cannot submit a claim to the IRS (Forms 1116 or 1118) for the amount in excess of the treaty rate.

   
   

Certifications Rejected by Treaty Countries

1. 
   

   Certifications rejected by Treaty Countries that result in a double taxation situation should be referred to the Competent Authority.

   
   
2. 
   

   Certification recipients that are entitled to a reduction in the foreign statutory rate of tax or an exemption from foreign tax for certain types of income according to treaty but are denied should be referred to Revenue Procedure 2002–52.

   
   
3. 
   

   Revenue Procedure 2002–52 can be located on the internet at www.irs.gov. It will explain the procedures for requesting Competent Authority assistance.

   
   
4. 
   

   The Competent Authority will only address matters covered in the applicable tax treaty.

   
   
5. 
   

   Competent Authority Claims should be mailed to:

   
   

   Internal Revenue Service
   
   Deputy Commissioner (International)
   
   LM:IN:T:1
   
   1111 Constitution Ave. N.W., M.A.
   
   Washington, DC 20224

   
   

Dependencies and Areas of Special Sovereignty

1. 
   

   The following chart shows Federal Information Processing Standard (FIPS) codes for Dependencies and Areas of Special Sovereignty. These codes should be used when processing certification requests when the applicant specifies one of these dependencies.

   
   
2. 
   

   When the dependency's FIPS code is not valid, contact the HQ analyst via your P&A analyst..

   
   
3. 
   

   The U.S. does not have treaties with dependencies. Therefore an applicant for a certification for a dependency must provide an explanation on Form 8802, Line 9, Purpose for Certification, as to why certification is being requested.

   
   

   Note:

   
   

   Applications that do not specify purpose will be entered on the database and letter 3428 must be issued.
   
   

   
   

Non-Treaty Countries

1. 
   

   The follow country codes are non-treaty countries. Applicants requesting certification for the following non-treaty countries or any new non-treaty country must provide an explanation on Form 8802, Line 9, Purpose for certification, as to why certification is being requested.

   
   
2. 
   

   Applicants that request certification for a non-treaty country and later received a refund of all or part of the foreign taxes paid must amend their U.S. filing when a foreign tax credit was taken for taxes they were refunded. Applicants that fail to notify the IRS of foreign tax refunds or change in the dollar amount of foreign taxes paid, may have to pay a penalty.

   
   
3. 
   

   When an explanation of why certification is requested for a non-treaty country is not provided, enter the Form 8802 on the database and letter 3428 must be issued.