[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: 26CFR513.2]
[Page 53-56]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 513--IRELAND--Table of Contents
Subpart--Withholding of Tax
Sec. 513.2 Dividends.
(a) General. (1) Under Article VI of the convention the rate of tax
imposed with respect to dividends by section 211(a) of the Internal
Revenue Code (relating to nonresident alien individuals not engaged in
trade or business within the United States) and by section 231(a) of the
Internal Revenue Code (relating to foreign corporations not engaged in
trade or business within the United States) is reduced to 15 percent in
the case of dividends derived from a United States corporation and
received in taxable years beginning on or after January 1, 1951, by a
nonresident alien (including a nonresident alien individual, fiduciary,
and partnership) who is resident in Ireland for the purposes of Irish
tax, or by a foreign corporation (whether or not created or organized in
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or under the laws of Ireland) whose business is managed and controlled
in Ireland, if such alien or corporation is subject to Irish tax on such
dividends and at no time during the taxable year had a permanent
establishment within the United States. As to what is a United States
corporation, see Article II (1)(d) of the convention.
(2) Thus, if a nonresident alien who is resident in Ireland for the
purposes of Irish tax performs personal services within the United
States during the taxable year, has at no time during such year a
permanent establishment within the United States, and is subject to
Irish tax on a dividend derived by him in such year from a United States
corporation, he is entitled to the reduced rate of tax with respect to
such dividend, as provided in Article VI of the convention, even though
under the provisions of section 211(b) of the Internal Revenue Code he
has engaged in trade or business within the United States during such
year by reason of his having rendered personal services therein.
(3) The fact that the payee of the dividend is not required to pay
Irish tax on such dividend because of the application of reliefs or
exemptions under Irish revenue laws does not prevent the application of
the reduction in rate of United States tax with respect to such
dividend. If the dividend would have been subject to Irish tax had the
payee thereof derived an income large enough to require payment of tax
then liability to Irish tax exists for the purpose of the reduction in
rate of United States tax. As to what constitutes a permanent
establishment, see Article II (1)(l) of the convention.
(4) In the case of dividends paid on or after January 1, 1951, by an
Irish corporation, as defined in Article II (1)(e) of the convention, no
withholding of United States tax is required. See Article XV (1) of the
convention.
(b) Dividends paid by a United States subsidiary corporation. (1)
Under the proviso of Article VI (1) of the convention dividends derived
from a domestic corporation by a foreign corporation whose business is
managed and controlled in Ireland and which controls, directly or
indirectly, at the time the dividends is paid 95 percent or more of the
entire voting power in such domestic corporation are, when received in
taxable years beginning on or after January 1, 1951, subject to tax at
the rate of only 5 percent, if (i) not more than 25 percent of the gross
income of such paying corporation for the three-year period immediately
preceding the taxable year in which the dividend is paid consists of
dividends and interest (other than dividends and interest paid to such
domestic corporation by its own subsidiary corporations, if any), (ii)
the relationship between such domestic corporation and such foreign
corporation has not been arranged or maintained primarily with the
intention of securing such reduced rate of 5 percent, (iii) such foreign
corporation is subject to Irish tax on such dividends, and (iv) such
foreign corporation at no time during the taxable year had a permanent
establishment within the United States.
(2) Any domestic corporation which claims or contemplates claiming
that dividends paid or to be paid by it on or after January 1, 1951, are
subject only to the 5 percent rate shall file the following information
with the Commissioner of Internal Revenue as soon as practicable: (i)
The date and place of its organization; (ii) the location of the
management and control of the foreign corporation to which the dividends
are paid or to be paid; (iii) the number of outstanding shares of stock
of the domestic corporation having voting power and the voting power
thereof; (iv) the person or persons beneficially owning such stock of
the domestic corporation and their relationship to such foreign
corporation; (v) the amount of gross income by years of the domestic
corporation for the three-year period immediately preceding the taxable
year in which the dividend is paid; (vi) the amount of interest and
dividends by years included in the gross income of the domestic
corporation, and the amount of interest and dividends by years received
by such corporation from its subsidiary corporations, if any; and (vii)
the relationship between the domestic corporation and the foreign
corporation to which it pays the dividend.
(3) As soon as practicable after such information is filed, the
Commissioner
[[Page 55]]
of Internal Revenue will determine whether the dividends concerned fall
within the scope of the proviso of Article VI(1) of the convention and
may authorize the release of excess tax withheld with respect to
dividends which come within such proviso. In any case in which the
Commissioner of Internal Revenue has notified the domestic corporation
that the dividends fall within the scope of such proviso the reduced
withholding rate of 5 percent will apply to any dividends subsequently
paid by such corporation to the foreign corporation, unless the stock
ownership of the domestic corporation, or the character of its income,
or the place of management and control of the corporation to which the
dividend is paid materially changes; or unless the Commissioner of
Internal Revenue determines that the relationship between the two
corporations is being maintained primarily with the intention of
securing the reduced rate of tax; and, if such change in stock
ownership, character of income, or place of management and control
occurs, the domestic corporation shall promptly notify the Commissioner
of Internal Revenue of the then existing facts with respect thereto. The
continued application of the reduced withholding rate is also dependent
upon the continued fulfillment of conditions in subparagraph (1) (iii)
and (iv) of this paragraph.
(c) Effect of address in Ireland on withholding in case of
dividends. For the purpose of withholding of the tax in the case of
dividends every nonresident alien (including a nonresident alien
individual, fiduciary, and partnership) whose address is in Ireland
shall be deemed by United States withholding agents to be a nonresident
alien who is (1) resident in Ireland for the purposes of Irish tax, (2)
subject to Irish tax on such dividends, and (3) without a permanent
establishment in the United States; and every foreign corporation whose
address is in Ireland shall be deemed by such withholding agents to be a
foreign corporation whose business is managed and controlled in Ireland
and which is (i) subject to Irish tax on such dividends and (ii) without
a permanent establishment in the United States.
(d) Rate of withholding. (1) Withholding at source in the case of
dividends derived from a United States corporation and paid on or after
January 1, 1952, to nonresident aliens (including a nonresident alien
individual, fiduciary, and partnership) and to foreign corporations,
whose addresses are in Ireland, shall be at the 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 has notified the
withholding agent that (i) such dividends fall within the scope of the
proviso of Article VI(1) of the convention or (ii) the reduced rate of
tax shall not apply.
(2) The preceding provisions respecting the application of the
reduced withholding rate in the case of dividends paid to nonresident
aliens and foreign corporations with addresses in Ireland are based upon
the assumption that the payee of the dividend is the actual owner of the
capital stock from which the dividend is derived and consequently is the
person liable to United States tax upon such dividend. As to action by
the recipient who is not the owner of the dividend, see Sec. 513.8.
(3) The rate at which United States tax has been withheld from any
dividend paid on and after thirty days from the date on which this
subpart is filed with the Division of the Federal Register to any person
whose address is in Ireland at the time the dividend is paid shall be
shown either in writing or by appropriate stamp on the check, draft, or
other evidence of payment, or on an accompanying statement.
Effectve Date Note: By T.D. 8734, 62 FR 53497, Oct. 14, 1997,
Sec. 513.2 was revised, effective Jan. 1, 1999. At 63 FR 2723, Jan. 16,
1998, Sec. 513.2 was corrected in the fifth line by changing the word
``does'' to read ``does not'' 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. For the convenience of the user, the revised
text is set forth as follows:
Sec. 513.2 Dividends.
The fact that the payee of the dividend is not required to pay Irish
tax on such dividend because of the application of reliefs or exemptions
under Irish revenue laws does not prevent the application of the
reduction in rate of United States tax with respect to
[[Page 56]]
such dividend. If the dividend would have been subject to Irish tax had
the payee thereof derived an income large enough to require payment of
tax then liability to Irish tax exists for the purpose of the reduction
in rate of United States tax. As to what constitutes a permanent
establishment, see Article II(1)(i) of the convention.
[62 FR 53497, Oct. 14, 1997; 63 FR 2723, Jan. 16, 1998]