[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: 26CFR517.4]

[Page 118-119]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY 
                               (Continued)
 
PART 517--PAKISTAN--Table of Contents
 
                       Subpart--Withholding of Tax
 
Sec. 517.4  Private pensions and annuities.

    (a) Exemption from United States tax--(1) Pensions and annuities 
which are exempt. Except as provided in subparagraph (2) of this 
paragraph, a pension or annuity which is derived from sources within the 
United States and received in a taxable year beginning on or after 
January 1, 1959, by a nonresident alien individual who is resident in 
Pakistan for the purposes of Pakistan tax shall be exempt from United 
States tax under the provisions of Article X of the convention.
    (2) Pensions and annuities which are not exempt. The following 
pensions or annuities are not exempt from United States tax under the 
provisions of Article X of the convention or under this section--
    (i) A pension or annuity paid by or on behalf of the Government of 
the United States or its political subdivisions, for services rendered 
to that Government in the discharge of governmental functions; and
    (ii) A pension or annuity paid by or on behalf of the Government of 
Pakistan or the Government of a Province in Pakistan or any local 
authority thereof, for services rendered in the discharge of functions 
of that Government or of local authority, as the case may be; and
    (iii) A pension or annuity payable from a fund, under an employees' 
pension or annuity plan, contributions to which are deductible under the 
tax law of the United States in determining taxable income of the 
employer.
    (b) Definition of annuity. As used in this section, the term 
``annuity'' means a stated sum payable periodically at stated times 
during life, or during a specified or ascertainable period of time, 
under an obligation to make the payments in return for adequate and full 
consideration in money or money's worth.
    (c) Exemption from withholding of tax--(1) Notification by letter. 
To avoid withholding of United States tax on or after January 1, 1959, 
from pensions or annuities which are exempt from tax in accordance with 
paragraph (a) of this section, the nonresident alien individual who is 
resident in Pakistan for the purposes of Pakistan tax shall notify the 
withholding agent by letter in duplicate that the pensions or annuities 
are exempt from United States tax under the provisions of Article X of 
the convention. The letter of notification shall be signed by the owner 
of the income, shall show the name and address of both the payer and the 
owner of the income, and shall contain a statement that the owner, an 
individual, is neither a citizen nor a resident of the United States but 
is a resident of Pakistan for the purposes of Pakistan tax. The letter 
shall also indicate the dates on which the current taxable year of the 
taxpayer begins and ends.

[[Page 119]]

    (2) Use of letter for release of tax. If the letter is also to be 
used as authorization for the release, pursuant to Sec. 517.7(a)(3), of 
excess tax withheld from the pensions or annuities, it shall also 
contain a statement that the owner was, at the time when the income was 
received from which the excess tax was withheld, neither a citizen nor a 
resident of the United States but was a resident of Pakistan for the 
purposes of Pakistan tax. The dates of the beginning and ending of the 
taxable year of the taxpayer in which the income was received shall also 
be indicated.
    (3) Manner of filing letter. The letter of notification shall 
constitute authorization for the payment of the pensions or annuities 
without withholding of United States tax at source unless the 
Commissioner of Internal Revenue notifies the withholding agent 
thereafter to withhold the tax from such items of income. If, after 
filing a letter of notification, the owner of the income ceases to be 
eligible under the convention for the exemption from United States tax 
in the case of such items of income, he shall promptly notify the 
withholding agent by letter in duplicate. When any change occurs in the 
ownership of the income 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.
    (4) Disposition of letter. Each letter of notification, or the 
duplicate thereof, shall be forwarded immediately by the withholding 
agent to the Director of International Operations, Internal Revenue 
Service, Washington 25, D.C.