US Government Issues Treaty List For Reduced Dividend Taxes

by Mike Godfrey, Tax-News.com, Washington

02 October 2003

The United States Treasury and the Internal Revenue Service have issued a Notice concerning the taxation of dividends paid by foreign corporations under the The Jobs and Growth Tax Relief Reconciliation Act of 2003, which reduces the rates of tax on certain dividends.

In a statement released on September 30, the Treasury outlined the details of the Notice:

"Dividends paid by a foreign corporation are subject to the reduced tax rates if the corporation is a qualified foreign corporation. With certain exceptions, a “qualified foreign corporation” for this purpose includes a foreign corporation that is eligible for benefits of a US income tax treaty if the treaty meets three requirements. To qualify, the treaty must be comprehensive, the Secretary must determine it is satisfactory, and it must provide for the exchange of tax information. The Notice issued today contains the current list of the US tax treaties that meet these three requirements."

"Corporations incorporated in one of the countries included in this treaty list must also be eligible for benefits of the US income tax treaty in order to qualify for the reduced tax rates for dividends. Treasury and the IRS are working on further guidance regarding the eligibility requirements for foreign corporations.

The statement concluded: "Dividends paid by a foreign corporation also may qualify for the reduced rates of tax under an alternative test based on whether the stock of the corporation is readily tradable on an established US securities market. Treasury and the IRS will issue guidance relating to this alternative test shortly."

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