Tax & Accounting Blog

Treaty Exemptions for Business Profits – Part 3: Treaty Exemptions from Withholding

1099, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting March 26, 2012

A foreign entity may claim a treaty-based exemption from NRA withholding by submitting a Form W-8BEN with the treaty claim described in Part 2 and the income for which an exemption is being claimed described on line 10. To be valid, the Form W-8BEN must include the entity’s U.S. Employer Identification Number (EIN). An entity may make a claim of exemption from tax under the Business Profits Article of an applicable treaty if: 1) the enterprise has no U.S. permanent establishment, or 2) the enterprise has a U.S. permanent establishment but the income is not attributable to its permanent establishment.

To be attributable to a permanent establishment, the profits must be derived from assets used, risks assumed, and/or activities performed by the permanent establishment. If the income is attributable to a permanent establishment that the entity has in the U.S., the income is subject to NRA withholding unless the business enterprise follows the procedures for exempting its ECI from withholding (described in the second post of this series).