[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: 26CFR503.2]
[Page 17-19]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 503--GERMANY--Table of Contents
Subpart--Withholding of Tax
Sec. 503.2 Dividends.
(a) General. (1) Dividends paid by a German company (other than a
United States corporation) and received in taxable years beginning on or
after January 1, 1954, by a nonresident alien or a foreign corporation
are exempt from United States tax under the provisions of Article XIV of
the convention. Such dividends are, therefore, not subject to the
withholding of United States tax at source.
(2) The rate of United States tax imposed by the Internal Revenue
Code upon dividends (other than dividends falling within the scope of
subparagraph (1) of this paragraph) derived from sources within the
United States in taxable years beginning on or after January 1, 1954, by
a German company (other than a United States corporation) shall not
exceed 15 percent under
[[Page 18]]
the provisions of Article VI of the convention if (i) such company at no
time during the taxable year in which such dividends are derived has a
permanent establishment in the United States and (ii) such company owns,
at the time the dividends are paid, 10 percent or more of the voting
stock of the paying corporation.
(b) Application of reduced rate of withholding. (1) To secure
withholding of United States tax at the rate of 15 percent at source in
the case of dividends to which paragraph (a)(2) of this section is
applicable, the German company shall notify the withholding agent by
letter in duplicate that such income is subject to the reduced rate of
United States tax under the provisions of Article VI of the convention.
The letter of notification shall be signed by an officer of the company
and shall show the name and address of the corporation paying the
dividend, the name and address of the German company receiving the
dividend, and the official title of the officer signing the letter. It
shall contain a statement (i) that the owner of the dividend is a German
company (other than a United States corporation), (ii) that the owner at
no time during the current taxable year had a permanent establishment in
the United States, and (iii) that the German company owns 10 percent or
more of the voting stock of the corporation paying such dividend.
(2) This letter of notification, which shall constitute
authorization for application of the reduced rate of withholding of
United States tax at source, shall be filed with the withholding agent
for each successive 3-calendar-year period during which such income is
paid. For this purpose, the first such period shall commence with the
beginning of the calendar year in which such income is first paid on or
after January 1, 1954. Each such letter filed with any withholding agent
shall be filed not later than 20 days preceding the date of the first
payment within each successive period, or, if that is not possible
because of special circumstances, as soon as possible after such first
payment.
(3) If such letter is also to be used as authorization for the
release, pursuant to Sec. 503.6(a)(3), of excess tax withheld from
dividends, it shall also contain a statement (i) that, at the time when
the dividends were derived from which the excess tax was withheld, the
owner was a German company (other than a United States corporation),
(ii) that the owner at no time during the taxable year in which such
dividends were derived had a permanent establishment in the United
States and (iii) that the German company owned, at the time when such
dividends were paid, 10 percent or more of the voting stock of the
corporation paying such dividends.
(4) Once a letter has been filed in respect of any 3-calendar-year
period, no additional letter need be filed in respect thereto unless the
Commissioner of Internal Revenue notifies the withholding agent that an
additional letter shall be filed by the taxpayer. If, after filing a
letter of notification, the taxpayer ceases to be eligible for the
reduction in rate of United States tax granted by the convention in
respect to such dividends, such taxpayer shall promptly notify the
withholding agent by letter in duplicate. When any change occurs in the
ownership of the stock as recorded on the books of the payer the
reduction in the rate of withholding of United States tax shall no
longer apply unless the new owner of record is entitled to and does
properly file a letter of notification with the withholding agent.
(5) Each letter of notification, or the duplicate thereof, shall be
immediately forwarded by the withholding agent to the District Director
of Internal Revenue, Audit Division, Alien Returns Section, Baltimore 2,
Maryland.
(c) Dividends paid to German company where degree of stock ownership
uncertain. (1) In any case in which a German company (other than a
United States corporation) anticipates the receipt of dividends
described in paragraph (a)(2) of this section and the relationship
existing between the German company and the paying corporation is such
as to render uncertain whether, by reason of the requirement as to stock
ownership, the reduction in rate of United States tax granted by Article
VI of the convention will apply to such dividends, the German company
shall not undertake to file the letter of notification prescribed by
paragraph (b)(1) of
[[Page 19]]
this section unless it has, prior to such filing, applied for and
received from the Commissioner of Internal Revenue, Washington 25, D.C.,
a determination that such German company owns 10 percent or more of the
voting stock of the paying corporation. The application to the
Commissioner shall contain a full statement of all the facts pertinent
to a determination of the question.
(2) As soon as practicable after the application has been filed, the
Commissioner of Internal Revenue will determine whether the German
company owns sufficient voting stock of the paying corporation to permit
it to claim the benefit of Article VI of the convention in the case of
such dividends and shall notify the German company of his determination.
The German company shall forthwith file with the paying corporation a
copy of the Commissioner's letter of notification.
(3) If the Commissioner's determination is that the German company
does own 10 percent or more of the voting stock of the paying
corporation, the German company may thereafter, if otherwise qualified,
secure the reduced rate of withholding at the source with respect to
subsequent payments of such dividends, by filing the letter of
notification in accordance with paragraph (b) of this section.
(4) A determination by the Commissioner that the German company does
own sufficient voting stock of the paying corporation to permit it to
claim the benefit of Article VI of the convention will apply until such
time as the stock ownership of the paying corporation has changed to the
extent that, because of such change, dividends to be received from the
paying corporation by the German company no longer qualify for the
reduced rate of United States tax under Article VI of the convention. If
such change in stock ownership occurs, the German company shall promptly
notify both the Commissioner of Internal Revenue and the paying
corporation of the then existing facts with respect to such stock
ownership.
(5) In any case in which a German company (other than a United
States corporation) has received on or after January 1, 1954, dividends
described in paragraph (a)(2) of this section and the relationship
existing between the German company and the paying corporation was, at
the time the dividends were paid, such as to render uncertain whether,
by reason of the requirement contained in Article VI of the convention
as to stock ownership, such dividends qualified for the reduced rate of
United States tax, the German company shall apply to the Commissioner of
Internal Revenue for a similar determination as to the degree of stock
ownership at the time the dividends were paid. If the Commissioner's
determination is that at such time the degree of stock ownership was
such as to permit the application of the reduced rate of United States
tax granted by Article VI of the convention, his letter of notification
may, subject to the provisions of Sec. 503.6(b), authorize the release
of excess tax withheld with respect to such dividends.