[Code of Federal Regulations]
[Title 26, Volume 18, Parts 500 to 599]
[Revised as of April 1, 2000]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR514.21]
[Page 77-79]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 514--FRANCE--Table of Contents
Subpart--Withholding of Tax
Sec. 514.21 Dividends.
(a) Exemption from or reduction in rate of United States tax--(1)
Exempt from U.S. tax. Except as provided in subparagraph (2) of this
paragraph, dividends paid by a French corporation on or after August 11,
1968, to a nonresident alien individual or foreign corporation are
exempt from tax by the United States under the provisions of Article
13(1)(a) of the convention. Such dividends are, therefore, not subject
to the withholding of U.S. tax at source.
(2) Exemption and reduced rate of withholding not applicable.
Dividends paid by a French corporation on or after August 11, 1968, to a
nonresident alien individual or foreign corporation (other than a
resident of France or a French corporation) are subject to U.S. tax in
accordance with the provisions of section 871(a) or 881(a) of the
Internal Revenue Code and the regulations thereunder if the paying
corporation has a permanent establishment in the United States and more
than 80 percent of its gross income was taxable to such permanent
establishment for a 3-year period ending with the close of its taxable
year preceding the declaration of such dividends (or for such portion of
that period as the corporation has been in existence). Such dividends
are not eligible for the reduced rate of withholding under Article 9(2)
of the convention or to exemption from tax under Article 13(1)(a) of the
convention.
(3) Application of reduced rate--(i) Rate of 15 percent. Except as
provided in subdivision (ii) of this subparagraph, and subparagraph (4)
of this paragraph the rate of U.S. tax imposed upon dividends derived
from sources within the United States on or after August 11, 1968, and
received by a nonresident alien individual who is a resident of France
or a French corporation or a person resident in France for French tax
purposes shall not exceed 15 percent of the gross amount actually
distributed as provided for in Article 9(2) of the convention. For the
purposes of this section the gross amount actually distributed includes
amounts constructively received.
(ii) Rate of 5 percent. The rate of U.S. tax imposed upon dividends
derived from sources within the United States on or after August 11,
1968, and received by a French corporation shall not exceed 5 percent of
the gross amount actually distributed if--
(a) During the part of the paying corporation's taxable year which
precedes the date of payment of the dividend and during the whole of its
prior taxable year (if any), at least 10 percent of the outstanding
shares of the voting stock of the paying corporation was owned by the
recipient corporation, and
[[Page 78]]
(b) Not more than 25 percent of the gross income of the paying
corporation for such prior taxable year (if any) consisted of interest
and dividends (other than interest derived in the conduct of a banking,
insurance, or financing business and dividends or interest received from
subsidiary corporations, 50 percent or more of the outstanding shares of
the voting stock of which was owned by the paying corporation at the
time such dividends or interest were received).
(iii) Information to be filed with the Commissioner when claiming a
5-percent rate. Any paying corporation which claims or contemplates
claiming that dividends paid or to be paid by it on or after August 11,
1968, are subject to United States tax at the rate of 5 percent under
Article 9 of the convention shall file the following information with
the Commissioner of Internal Revenue, Washington, D.C. 20224, as soon as
practicable:
(a) The date and place of its organization;
(b) The number and a brief description of outstanding shares of
stock of the paying corporation and the voting power thereof;
(c) The number of shares of each class of voting stock of the paying
corporation owned by the recipient corporation and the date the
recipient corporation acquired such stock;
(d) The amount of the gross income of the paying corporation for its
taxable year immediately preceding the taxable year in which the
dividends are paid;
(e) The amount of the interest and dividends included in such gross
income, the amount of such interest derived in the conduct of a banking,
insurance, or financing business, if any, and the amount of such
interest and dividends received from a subsidiary corporation in which
the paying corporation owns at least 50 percent of the voting stock on
the date of receipt.
(iv) Notification by Commissioner--5 percent rate. As soon as
practicable after such information is filed, the Commissioner of
Internal Revenue will determine whether the dividends concerned qualify
under Article 9 of the convention for the reduced rate of 5 percent and
will notify the paying corporation of his determination. If the
dividends qualify for such reduced rate, this notification may also
authorize the release, pursuant to Sec. 514.28(a)(1)(ii), of excess tax
withheld from the dividends concerned. A duplicate copy of such
notification shall be attached to the Form 1042S filed by the paying
corporation for the first year of payment. There shall be attached to
Form 1042S filed by the paying corporation for each subsequent year of
payment a statement that the conditions upon which the notification was
issued are applicable to such subsequent year.
(4) Dividends effectively connected with a permanent establishment.
The reduction in rate of tax provided in subparagraph (3) of this
paragraph shall not apply if the owner of the dividends has a permanent
establishment in the United States and the shares with respect to which
the dividends are paid are effectively connected with such permanent
establishment. Such dividends are subject to tax in accordance with the
provisions of Article 6 of the convention.
(b) Withholding of tax from dividends-- (1) 15 percent rate--(i)
Reduction based on address in France. Except as provided in subparagraph
(2) of this paragraph, withholding of United States tax at source on or
after August 11, 1968, from dividends derived from sources within the
United States by a person whose address is in France, shall be at the
reduced rate of 15 percent in every case except that in which, prior to
the date of payment of such dividends, the Commissioner of Internal
Revenue or the owner of the dividends has notified the withholding agent
that such reduced rate of withholding shall not apply.
(ii) Reduced rate of 15 percent applicable only to owner of capital
stock. The reduced rate of 15 percent is available only to the real
owner of the capital stock from which the dividend is derived. As to
action by a French addressee who is not the real owner of the capital
stock, see Sec. 514.22(c).
(iii) Evidence of rate of tax withheld. The rate at which U.S. tax
has been withheld from a dividend paid on or after August 11, 1968, to a
person whose address is in France on the date the dividend is paid to
such person shall be
[[Page 79]]
shown either in writing or by appropriate stamp on the check, draft, or
other evidence of payment, or on an accompanying statement.
(2) 5-percent rate--(i) Reduction based on notification by
Commissioner. If, in accordance with paragraph (a)(3)(iv) of this
section, the Commissioner of Internal Revenue has notified the paying
corporation that the dividends qualify under Article 9 of the convention
for the reduced rate of 5 percent, the reduced withholding rate of 5
percent, to the extent withholding of U.S. tax is required, shall apply
to any dividends paid by the paying corporation on or after August 11,
1968.
(ii) Dividends cease to qualify for 5-percent rate. If, after
receipt of notification from the Commissioner of Internal Revenue that
the dividends qualify for the reduced rate of 5 percent, the French
recipient corporation ceases to be eligible for the reduction in rate
because one or more of the conditions of subdivision (ii) (a) or (b) of
paragraph (a)(3) of this section are not satisfied, the reduction in the
rate of withholding of U.S. tax shall no longer apply. When any change
occurs in the ownership of stock as recorded on the books of the paying
corporation or in the percentage of dividends and interest included in
gross income of the paying corporation, the paying corporation shall
notify the Commissioner of Internal Revenue as soon as possible.
(iii) Evidence of tax withheld. The rate at which U.S. tax has been
withheld from a dividend paid on or after August 11, 1968, to a French
corporation shall be shown either in writing or by appropriate stamp on
the check, draft, or other evidence of payment, or on an accompanying
statement.
Effective Date Note: By T.D. 8734, 62 FR 53498, Oct. 14, 1997,
Sec. 514.21 was removed, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date was delayed until Jan. 1, 2000.
By T.D. 8856, 64 FR 73408, Dec. 30, 1999, the effective date was delayed
until Jan. 1, 2001.