[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: 26CFR502.3]
[Page 8-10]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 502--GREECE--Table of Contents
Subpart--Withholding of Tax
Sec. 502.3 Interest.
(a) General. (1) Interest paid on or after January 1, 1953, by a
Greek corporation is exempt from United States tax under the provisions
of Article IX of the convention if the recipient is not a citizen,
resident, or corporation of the United States. Interest paid to such
recipients is, therefore, not subject to the withholding of United
States tax at source.
(2) Interest (other than interest falling within the scope of
paragraph (b) of this section) on bonds, securities, notes, debentures,
or on any other form of indebtedness, including interest on obligations
of the United States, obligations of instrumentalities of the United
States, and mortgages and bonds secured by real property, which is paid
by a person other than a Greek corporation and which is received from
sources within the United States on or after January 1, 1953, by a
nonresident alien (including a nonresident alien individual, fiduciary,
and partnership) who is a resident of Greece, or by a Greek corporation,
is exempt from United States tax under the provisions of Article VI (1)
of the convention if such alien or corporation at no time during the
taxable year in which such interest is received has engaged in trade or
business within the United States through a permanent establishment
situated therein. Such interest is, therefore, not subject to the
withholding of United States tax at source. As to what constitutes a
permanent establishment, see Article II (1)(i) of the convention.
(b) Exemption not applicable to interest paid by subsidiary
corporation to its parent corporation. Under the exception contained in
Article VI (1) of the convention any interest received from sources
within the United States and paid by a domestic corporation to a Greek
corporation is not exempt from United States tax if such Greek
corporation controls, directly or indirectly, at the time the interest
is paid more than 50 percent of the entire voting power of all classes
of stock of such domestic corporation. The exemption from United States
tax provided by Article VI (1) of the convention does not, therefore,
apply to such interest paid by such domestic corporation.
(c) Application of exemption from withholding. (1) To avoid
withholding of United States tax at source in the case of coupon bond
interest to which paragraph (a)(2) of this section is applicable, the
nonresident alien who is a resident of Greece, or the Greek corporation,
shall for each issue of bonds file Form 1001-G in duplicate when
presenting the interest coupons for payment. This form shall be signed
by the owner of the interest, trustee, or agent and shall show the name
and address of the obligor, the name and address of the owner of the
interest, and the amount of the interest. It shall contain a statement
(i) that the owner is a resident of Greece, or is a Greek corporation,
(ii) that the owner is not engaged in trade or business within the
United States through a permanent establishment situated therein, and,
in the case of interest paid by a domestic corporation to a Greek
corporation, (iii) that the owner does not control, directly or
indirectly, more than 50 percent of the entire voting power of all
classes of stock of the United States domestic corporation.
(2) The exemption from United States tax contemplated by Article VI
(1) of the convention, insofar as it concerns coupon bond interest, is
applicable only to the owner of the interest. The person presenting the
coupon or on whose behalf it is presented shall, for the purpose of the
exemption from tax, be deemed to be the owner of the interest only if he
is, at the time the coupon is presented for payment, the owner of the
bond from which the coupon has been detached. If the person presenting
the coupon or on whose behalf it is presented is not the owner of the
bond, Form 1001, and not Form 1001-G, shall be executed.
(3) The original and duplicate of Form 1001-G shall be forwarded by
the withholding agent to the District Director of Internal Revenue,
Audit Division, Alien Returns Section, Baltimore
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2, Maryland, with the quarterly return on Form 1012. Form 1001-G need
not be listed on Form 1012.
(4) To avoid withholding of United States tax at source in the case
of interest, other than coupon bond interest, to which paragraph (a)(2)
of this section is applicable, the nonresident alien who is a resident
of Greece, or the Greek corporation, shall notify the withholding agent
by letter in duplicate that such income is exempt from United States tax
under the provisions of Article VI (1) of the convention. The letter of
notification shall be signed by the owner of the interest, trustee, or
agent and shall show the name and address of the obligor and the name
and address of the owner of the interest. It shall contain a statement
(i) that the owner is neither a citizen nor a resident of the United
States but is a resident of Greece, or, in the case of a corporation,
that the owner is a Greek corporation, (ii) that the owner has at no
time during the current taxable year engaged in trade or business within
the United States through a permanent establishment situated therein,
and, in the case of interest paid by a domestic corporation to a Greek
corporation, (iii) that the owner does not control, directly or
indirectly, more than 50 percent of the entire voting power of all
classes of stock of the United States domestic corporation.
(5) This letter of notification, which shall constitute
authorization for the payment of such interest without withholding of
United States tax at source, shall be filed with the withholding agent
for each successive three-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.
(6) If such letter is also to be used as authorization for the
release, pursuant to Sec. 502.7, of excess tax withheld from interest,
other than coupon bond interest, it shall also contain a statement (i)
that, at the time when the interest was received from which the excess
tax was withheld, the owner was neither a citizen nor a resident of the
United States but was a resident of Greece, or, in the case of a
corporation, the owner was a Greek corporation, (ii) that the owner at
no time during the taxable year in which such interest was received was
engaged in trade or business within the United States through a
permanent establishment situated therein, and, in the case of interest
paid by a domestic corporation to a Greek corporation, (iii) that the
owner did not control, directly or indirectly, at the time when such
interest was paid, more than 50 percent of the entire voting power of
all classes of stock of the United States domestic corporation.
(7) Once a letter has been filed in respect of any three-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 exemption from United States tax granted by the
convention in respect to such interest, such taxpayer shall promptly
notify the withholding agent by letter in duplicate. When any change
occurs in the ownership of the interest as recorded on the books of the
payer, the exemption from 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.
(8) 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.
(d) Interest paid by domestic corporation to Greek corporation where
degree of stock ownership uncertain. (1) In any case in which a Greek
corporation anticipates the receipt of interest from a domestic
corporation and the relationship existing between the Greek corporation
and the domestic corporation is such as to render uncertain whether,
[[Page 10]]
by reason of the exception contained in Article VI (1) of the
convention, the exemption will apply to such interest, the Greek
corporation shall not undertake to file any Form 1001-G or letter of
notification prescribed by paragraph (c) of 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 Greek
corporation does not control, directly or indirectly, more than 50
percent of the entire voting power in 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 Greek
corporation has such control of the domestic corporation as to render
the exemption provided by Article VI (1) of the convention inapplicable
to interest paid by such domestic corporation to such Greek corporation
and shall notify the Greek corporation of his determination. The Greek
corporation shall forthwith file with the domestic corporation a copy of
the Commissioner's letter of notification.
(3) If the Commissioner's determination is that the Greek
corporation does not control, directly or indirectly, more than 50
percent of the entire voting power of all classes of stock of the
domestic corporation, the Greek corporation may thereafter avoid
withholding at the source with respect to subsequent payments of such
interest by complying with the provisions of paragraph (c) of this
section, that is, by submitting Form 1001-G in the case of coupon bond
interest, or the letter of notification for each three-calendar-year
period in the case of interest other than interest payable by means of
coupons.
(4) A determination of the Commissioner that the Greek corporation
does not have such control of the domestic corporation as to render the
exemption provided by Article VI (1) of the convention inapplicable will
apply until such time as the stock ownership of the domestic corporation
has changed to the extent that interest to be received from the domestic
corporation by the Greek corporation is no longer exempt from United
States tax under Article VI (1) of the convention. If such change in
stock ownership occurs, the Greek corporation shall promptly notify both
the Commissioner of Internal Revenue and the domestic corporation of the
then existing facts with respect to such stock ownership.
(5) In any case in which a Greek corporation has received on or
after January 1, 1954, interest from a domestic corporation and the
relationship existing between the Greek corporation and the domestic
corporation was at the time the interest was paid such as to render
uncertain whether, by reason of the exception contained in Article VI
(1) of the convention, such interest was exempt from United States tax,
the Greek corporation shall apply to the Commissioner of Internal
Revenue for a similar determination as to the degree of control at the
time the interest was paid. If the Commissioner's determination is that
at such time the degree of control was such as to permit the application
of the exemption provided by Article VI (1) of the convention, his
letter of notification may, subject to the provisions of Sec. 502.7(b),
authorize the release of excess tax withheld with respect to such exempt
interest.