Determining Treaty Benefits, by Jean Mammen, EA

In September, 2016, the IRS issued an updated Publication 901, U.S. Tax Treaties.

It contains the narrative information traditionally present in this publication, but not the list of countries with which the U.S. has tax treaties, nor the usual tables.

That list of income tax treaty countries, the traditional tables, and a new Table 4 on Limitation on Benefits (LOB) are now best reached through clicking in a new, extensive article titled ‘Tax Treaty Tables’.

On the www.irs.gov website, enter the search term: Tax Treaty Tables. This will take you to the article.

NOTE: The links in this blogpost are not live. Please do this by hand on your own computer. I am showing the links for information purposes only. Right now, hackers are just too active!

https://www.irs.gov/individuals/international-taxpayers/tax-treaty-tables?_ga=1.241664642.1464907806.1433460939

The article states that the tables were moved out of Publication 901 in order to make it easier to update them. Note that Publication 901 had not been issued since 2013. Also note that the U.S. Senate has not acted upon bilateral income tax treaties for a number of years.  There are a half-dozen or more awaiting Senate action.

Note: The heading for each table states: You must meet all of the treaty requirements before the item of income can be exempt from U.S. income tax.

You can find the treaty text and its technical explanation by going to the www.irs.gov website, entering into the search box: (country name) tax treaty, and clicking through to the list of texts of treaties, protocols, and technical explanations for the bilateral income tax treaty(ies) between the U.S. and that country,

Table 1. Withholding Tax Rates on Income Other Than Personal Services Income Under Chapter 3, Internal Revenue Code and Income Tax Treaties

Income tax and withholding rates including rates for interest, dividends, royalties, pensions and annuities, and social security payments.

Table 2. Compensation for Personal Services Performed in United States Exempt from U.S. Income Tax Under Income Tax Treaties.

This table lists the different kinds of personal service income that may be fully or partly exempt from U.S. income tax. You must meet all of the treaty requirements before the item of income can be exempt from U.S. income tax, including the requirement that the income be remitted to your country of residence, if that is a requirement under your treaty with the United States.

Table 3. List of Tax Treaties

Updated through October 31, 2015.

Table 4. Limitation on Benefits (LOB)

The ‘Limitation on Benefits’ article is an anti-treaty-shopping provision intended to prevent residents of third countries from obtaining benefits under a treaty that were not intended for them.

Table 4 indicates treaty provisions  where there may be safe harbors or restrictions related to benefits for Publicly Traded Companies, Tax Exempt Organizations and Pension Funds, Stock Ownership and Base Erosion Test, Active Business, Discretionary Determination, Derivative Benefits, “Other”,  and Triangular Provision.

Enjoy!