Tax & Accounting Blog

Withholding on U.S. Business Income of Foreign Vendors – Part 4: Treaty Exempt ECI

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

A beneficial owner of ECI resident in a tax treaty country may be able to claim an exemption from tax under an applicable income tax treaty provision. An entity with ECI that is not attributable to a permanent establishment in the United States (as that term is defined by the applicable tax treaty), may make a claim under the Business Profits Article of the applicable treaty (usually article 7). An eligible individual may make a claim under the Business Profits Article if self-employment income is included in that article (it is for new and updated treaties) or under an Independent Personal Services (Self-Employment) Article, if the treaty has a separate article for such income.

A claim for exemption under a tax treaty is made on Part II of Form W-8BEN by an entity or on Form 8233 by an individual.