Part III. Administrative, Procedural, and Miscellaneous

United States Income Tax Treaties That Meet the Requirements of Section 1(h)(11)(C)(i)(II)

Notice 2011–64

1. SUMMARY

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108–27, 117 Stat. 752) (the “2003 Act”) was enacted on May 28, 2003. Subject to certain limitations, the 2003 Act generally provides that a dividend paid to an individual shareholder from either a domestic corporation or a “qualified foreign corporation” is subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for purposes of this provision and that includes an exchange of information provision. On October 20, 2003, the Service published Notice 2003–69, 2003–2 C.B. 851, which contains a list of the U.S. income tax treaties that met these requirements at that time. The list was updated by Notice 2006–101, 2006–2 C.B. 930, published on November 20, 2006. This notice updates the list to reflect two new income tax treaties that have entered into force since the publication of Notice 2006–101. In addition, this notice clarifies the requirements for treatment as a qualified foreign corporation.

2. ANALYSIS

Section 1(h)(1) of the Internal Revenue Code (the “Code”) generally provides that a taxpayer’s “net capital gain” for any taxable year will be subject to a maximum tax rate of 15 percent (or 5 percent in the case of certain taxpayers). The 2003 Act added section 1(h)(11), which provides that net capital gain for purposes of section 1(h) means net capital gain (determined without regard to section 1(h)(11)) increased by “qualified dividend income.” Qualified dividend income means dividends received during the taxable year from

domestic corporations and “qualified foreign corporations.” Section 1(h)(11)(B)(i). Subject to certain exceptions, a qualified foreign corporation is any foreign corporation that is either (i) incorporated in a possession of the United States, or (ii) eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for purposes of this provision and that includes an exchange of information program (the “treaty test”). Section 1(h)(11)(C)(i). A foreign corporation that does not satisfy either of these two tests is treated as a qualified foreign corporation with respect to any dividend paid by such corporation if the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States. Section 1(h)(11)(C)(ii). See Notice 2003–71, 2003–2 C.B. 922, for the definition, for taxable years beginning on or after January 1, 2003, of “readily tradable on an established securities market in the United States.”

A qualified foreign corporation does not include any foreign corporation that for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a passive foreign investment company (as defined in section 1297). Section 1(h)(11)(C)(iii). A dividend from a qualified foreign corporation is also subject to the other limitations in section 1(h)(11). For example, a shareholder receiving a dividend from a qualified foreign corporation must satisfy the holding period requirements of section 1(h)(11)(B)(iii). The appendix to this notice sets forth the current list of U.S. income tax treaties that meet the requirements of section 1(h)(11)(C)(i)(II). The list has been updated to include two treaties that entered into force after the publication of Notice 2006–101: the treaty with Bulgaria (which entered into force on December 15, 2008) and the treaty with Malta (which entered into force on November 23, 2010).

Three U.S. income tax treaties do not meet the requirements of section 1(h)(11)(C)(i)(II). They are the U.S.-U.S.S.R. income tax treaty (which was signed on June 20, 1973, and cur

rently applies to certain former Soviet Republics), and the tax treaties with Bermuda and the Netherlands Antilles.

Treasury and the IRS intend to continue to update this list, as appropriate. Situations that may result in changes to the list include the entry into force of new income tax treaties and the amendment or renegotiation of existing tax treaties. Further, Treasury and the IRS continue to study the operation of each of our income tax treaties, including the implications of any change in the domestic laws of the treaty partner, to ensure that the treaty accomplishes its intended objectives and continues to be satisfactory for purposes of this provision.

3. OTHER REQUIREMENTS

In order to be treated as a qualified foreign corporation under the treaty test, a foreign corporation must be eligible for benefits of one of the U.S. income tax treaties listed in the Appendix. Accordingly, the foreign corporation must be a resident within the meaning of such term under the relevant treaty and must satisfy any other requirements of that treaty, including the requirements under any applicable limitation on benefits provision. For purposes of determining whether it satisfies these requirements, a foreign corporation is treated as though it were claiming treaty benefits, even if it does not derive income from sources within the United States. See H.R. Conf. Rep. No. 108–126, at 42 (2003) (stating that a company will be treated as eligible for treaty benefits if it “would qualify” for benefits under the treaty).

4. EFFECTIVE DATE

This notice is effective with respect to Bulgaria for dividends paid on or after December 15, 2008. This notice is effective with respect to Malta for dividends paid on or after November 23, 2010.

This notice is effective with respect to Bangladesh for dividends paid on or after August 7, 2006. This notice is effective with respect to Barbados for dividends paid on or after December 20, 2004. This notice is effective with respect to Sri Lanka for dividends paid on or after

2011–37 I.R.B. 231 September 12, 2011

Chief Counsel (International). For further information regarding this notice, contact Ms. Lor at (202) 622–3880 (not a toll-free call).

July 12, 2004. This notice is effective with respect to all other U.S. income tax treaties listed in the Appendix for taxable years beginning after December 31, 2002.

5. EFFECT ON OTHER DOCUMENTS

Notice 2006–101 is amplified and superseded.

6. CONTACT INFORMATION

The principal author of this notice is Rosy L. Lor of the Office of Associate

September 12, 2011 232 2011–37 I.R.B.

APPENDIX

U.S. INCOME TAX TREATIES SATISFYING THE REQUIREMENTS OF SECTION 1(h)(11)(C)(i)(II)

Australia Germany Luxembourg South Africa Austria Greece Malta Spain Bangladesh Hungary Mexico Sri Lanka Bulgaria Iceland Morocco Sweden Barbados India Netherlands Switzerland Belgium Indonesia New Zealand Thailand Canada Ireland Norway Trinidad and Tobago China Israel Pakistan Tunisia Cyprus Italy Philippines Turkey Czech Republic Jamaica Poland Ukraine Denmark Japan Portugal United Kingdom Egypt Kazakhstan Romania Venezuela Estonia Korea Russian Federation Finland Latvia Slovak Republic France Lithuania Slovenia

with only a foreign address if the name of the participating payee indicates that it is a foreign per se corporation listed in §301.7701–2(b)(8)(i) (a foreign per se corporation) and the PSE neither knows nor has reason to know that the participating payee is a U.S. person. The final regulations also provide a grace period after account opening to collect documentation by applying the grace period rules of §1.6049–5(d)(2)(ii) if the participating payee has only a foreign address.

The final regulations apply to returns for calendar years beginning after December 31, 2010. The final regulations also provide a transition rule, which provides that for payments made pursuant to contractual obligations entered into before January 1, 2011, a PSE that is a U.S. payor is not required to report payments made to a participating payee with a foreign address as long as the U.S. payor neither knows nor has reason to know that the payee is a U.S. person. For this purpose, a renewal of such a contractual obligation will not result in a new contractual obligation unless there is a material modification of the contractual obligation.

DISCUSSION

Treasury and the IRS have received comments citing administrative burdens associated with implementing the final regulations and requesting that, in light of those administrative burdens, the final regulations be amended so that PSEs that are U.S. payors operating outside the United States would be required to collect

Documentation Requirements Under Section 6050W for U.S. Payors Making Payment Outside the United States to an Offshore Account

Notice 2011–71

PURPOSE

This notice provides interim guidance to payment settlement entities (as defined in §1.6050W–1(a)(4)(i)) (PSEs) that are United States payors or United States middlemen (each as defined in §1.6049–5(c)(5)) (U.S. payors) regarding the circumstances under which such a PSE must obtain, review, and maintain documentation to establish that a participating payee is a foreign person for purposes of section 6050W. The Treasury Department and the Internal Revenue Service (IRS) intend to amend the regulations under section 6050W to reflect the guidance provided in this notice. PSEs may rely on the interim guidance in this notice until the regulations are amended.

BACKGROUND

Section 6050W was added by section 3091 of the Housing Assistance Tax Act of 2008, Div. C of Pub. L. No. 110–289, 122 Stat. 2653 (the Act) and requires information returns to be made by certain payors with respect to payments made in settlement of payment card transactions and

third party payment network transactions. Section 6050W(d)(1)(B) provides that, except as provided by the Secretary in regulations or other guidance, the term partic- ipating payee does not include any person with a foreign address. The final regulations prescribe the circumstances in which a PSE is required to report payments made to a participating payee that has a foreign address. Specifically, the final regulations provide that a PSE that is not a U.S. payor is not required to report payments made to a participating payee that does not have a U.S. address as long as the PSE neither knows nor has reason to know that the payee is a United States person (U.S. person). If the participating payee has any U.S. address, such a PSE may treat the participating payee as a foreign person only if the PSE has in its files documentation upon which the PSE may rely to treat the payment as made to a foreign person in accordance with §1.1441–1(e)(1)(ii).

The final regulations also provide that a PSE that is a U.S. payor is not required to report payments to payees with a foreign address as long as, prior to payment, the payee has provided the payor with documentation upon which the payor may rely to treat the payment as made to a foreign person in accordance with §1.1441–1(e)(1)(ii).

In addition, the final regulations provide a presumption under which a PSE that is a U.S. payor making a payment outside the United States (within the meaning of §1.6049–5(e)) to an offshore account (as defined in §1.6049–5(c)(1)) need not report payments to a participating payee

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trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust), that the income to which this certification relates is not effectively connected with the conduct of a trade or business in the United States, and that the undersigned has examined the information on this form and to the best of my knowledge and belief it is true, correct, and complete. Furthermore, I authorize this form to be provided to any person that has control, receipt, or custody of the payment to which I am entitled or any person that can disburse or make the payments to which I am entitled.”

Treasury and the IRS have also received comments questioning whether, for purposes of determining whether the requirements of §1.1441–1(e)(1)(ii) are satisfied, a PSE may rely on documentary evidence that is more than three years old. Section 1.1441–1(e)(1)(ii)(A)( 2 ) provides that, if a payment is made outside the United States to an offshore account, the withholding agent can rely on documentary evidence described in §1.1441–6(c)(3) or (4), or §1.6049–5(c)(1). Section 1.6049–5(c)(1) provides that a payor may rely on documentary evidence sufficient to establish the identity of the payee and the status of that person as a foreign person (including, but not limited to, documentary evidence described in §1.1441–6(c)(3) or (4)). Section 1.6049–5(c)(1) does not require that, at the time of collection, the documentary evidence be less than three years old. Under §1.1441–1(e)(4)(ii)(A) (cross-referenced by §1.6049–5(c)(2)), documentary evidence described in §1.6049–5(c)(1) remains valid until the earlier of the last day of the third calendar year following the year in which the documentary evidence is provided to the withholding agent or the day that a change in circumstances occurs that makes any information on the documentary evidence incorrect.

Until the amendments to the final regulations described in this notice are published, PSEs may rely on the guidance provided in this notice.

DRAFTING INFORMATION

The principal author of this notice is Danielle Nishida of the Office of Associate

documentation to determine the U.S. or non-U.S. status of a participating payee only if certain indicia of U.S. status are present.

In response to these comments, the Treasury Department and the IRS intend to amend the regulations under section 6050W to provide that a PSE that is a U.S. payor will only be required to make the return of information required under §1.6050W–1(a)(1) with respect to a payment made outside the United States to an offshore account if any of the following applies: (i) there is a U.S. address associated with the participating payee (whether a residence address or correspondence address); (ii) the PSE has standing instructions to direct the payment to a bank account maintained in the United States; (iii) the participating payee submits for payment in U.S. dollars; or (iv) the PSE knows or has reason to know that the participating payee is a U.S. person. A PSE will not be required to make the return of information required under §1.6050W–1(a)(1) with respect to a payment made outside the United States to an offshore account in the circumstances described in the preceding sentence if the PSE obtains from the participating payee a Form W–8 or documentary evidence establishing the payee’s non-U.S. status and the PSE does not know that the payee is a U.S. person. For this purpose, Forms W–8 (or the substitute forms described below) and documentary evidence: (i) must be collected by the PSE by the later of January 1, 2012, or the date that is 90 days after the date on which the PSE enters into the contractual obligations with the participating payee; and (ii) in the case of a Form W–8 (or substitute form described below), may be relied upon only when the requirements of §1.1441–7(b)(5)(i)(A) or (B), and (ii), are satisfied, or, in the case of documentary evidence, may be relied upon only when the requirements of §1.1441–7(b)(7) and –7(b)(8)(ii) and (iii) are satisfied. In the case of a payment to a foreign payee of income that is effectively connected with the conduct of a trade or business in the United States, the appropriate withholding certificate is a Form W–8ECI. For all other payments, the appropriate withholding certificate is a Form W–8BEN.

The special rule in the final regulations for a participating payee that has a name

that indicates it is a foreign per se corporation will be retained. That is, a PSE that is a U.S. payor will not be required to make the return of information required under §1.6050W–1(a)(1) with respect to a payment made outside the United States to an offshore account to a participating payee with only a foreign address if the name of the participating payee indicates that it is an entity listed as a per se corporation under §301.7701–2(b)(8)(i) unless the PSE knows or has reason to know that the payee is a U.S. person.

Treasury and the IRS also intend to amend the regulations to clarify that a PSE that is not a U.S. payor, and that has reason to know, but not actual knowledge, that a participating payee is a U.S. person, will not be required to make the return of information required under §1.6050W–1(a)(1) if the PSE obtains from the payee a Form W–8 that satisfies the requirements of §1.1441–7(b)(5)(i)(A) or (B), and (ii), or documentary evidence that satisfies the requirements of §1.1441–7(b)(7) and –7(b)(8)(ii) and (iii).

Treasury and the IRS also intend to modify the regulations to allow a PSE to accept a substitute form in lieu of a Form W–8BEN in order for a participating payee to certify its non-U.S. status. Such substitute form will be acceptable provided that it contains the payee’s name, country of incorporation (when applicable), type of entity, residence and mailing address (if different from residence address), the certification of the payee’s non-U.S. status made under penalties of perjury and, in the case of a participating payee that is an entity, the capacity of the individual providing the certification of behalf of the payee. In lieu of the certification and penalties-of-perjury statement contained on the Form W–8BEN, a substitute form may contain the following statement: “Under penalties of perjury, I declare that the payee providing this certification is not a United States person ( i.e., a citizen or resident of the United States as determined for U.S. federal tax purposes, a corporation or partnership created or organized in the United States or under the law of the United States or of any State, any estate that would be subject to U.S. federal income tax on income from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, or any

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Chief Counsel (International). For further information regarding this notice, please contact John Sweeney at (202) 622–3840 (not a toll-free call).

Use this Revenue Procedure to prepare Tax Year 2011 and prior year information returns for submission to Internal Revenue Service (IRS) using electronic filing.

Caution to filers:

Please read this publication carefully. Persons or businesses required to file information returns electronically may be subject to penalties for failure to file or include correct information if the instructions in this Revenue Procedure are not followed.

IMPORTANT NOTES:

The IRS internet connection for filing information returns electronically is http://fire.irs.gov. The Filing Information Returns Electronically (FIRE) system will be down from 6 p.m. ET Dec. 16, 2011, through Jan. 03, 2012 for yearly updates. In addition, the FIRE system may be down every Wednesday from 2:00 a.m. to 5:00 a.m. ET for programming updates. The FIRE system will not be available for submissions during these times.

The FIRE system does not provide fill-in forms for filing information returns.

The Form 4419 is subject to review before the approval to transmit electronically is granted and may require additional documentation at the request of the IRS. If a determination is made concerning the validity of the documents transmitted electronically, IRS has the authority to revoke the Transmitter Control Code (TCC) and terminate the release of the files.

Rev. Proc. 2011–40

TABLE OF CONTENTS

Part A. General

SEC. 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

SEC. 2. NATURE OF CHANGES—CURRENT YEAR (TAX YEAR 2011 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238

SEC. 3. WHERE TO FILE AND HOW TO CONTACT THE IRS, INFORMATION RETURNS BRANCH (IRB) . . . . . . . . . . . . . . . . . . 239

SEC. 4. FILING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240

SEC. 5. VENDOR LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241