[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: 26CFR514.23]
[Page 80-82]
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. 514.23 Interest.
(a) Not subject to U.S. tax. Interest derived from sources within
the United States on or after August 11, 1968, by the French Government
or by an instrumentality of the French Government and which is not
subject to income tax in France is exempt from U.S. tax under the
provisions of Article 10(8). Such interest is not subject to withholding
of U.S. tax at source.
(b) Application of reduced rate--(1) In general. Except as provided
in subparagraph (2) of this paragraph, the rate of U.S. tax imposed by
the Internal Revenue Code upon interest derived from sources within the
United States on or after August 11, 1968, by a nonresident alien
individual who is a resident of France, or French corporation or person
resident in France for French tax purposes shall not exceed 10 percent
[[Page 81]]
under the provisions of Article 10(2) of the convention.
(2) Definitions. As used in this paragraph, the term ``interest''
means income from Government securities, bonds, or debentures, whether
or not secured by mortgage and whether or not carrying a right to
participate in profits, and debt-claims of every kind as well as all
other income assimilated to income from money lent by the taxation law
of the United States, including interest on certain deferred payments
described in section 483 of the Internal Revenue Code and original issue
discount described in section 1232(b) of the Internal Revenue Code.
(3) Interest effectively connected with a permanent establishment.
The reduction in rate of tax provided in subparagraph (1) of this
paragraph shall not apply if the owner thereof has a permanent
establishment in the United States and the indebtedness giving rise to
the interest is effectively connected to such permanent establishment.
Such interest is subject to tax in accordance with the provisions of
Article 6 of the convention.
(c) Withholding of tax from interest--(1) Coupon bond interest--(i)
Form to use. To secure withholding of U.S. tax at the rate of 10 percent
in the case of coupon bond interest, the nonresident alien individual
who is a resident of France, or French corporation or person resident in
France for French tax purposes shall, for each issue of bonds, file Form
1001-F in duplicate when presenting the interest coupons for payment.
This form shall be signed by the owner of the interest, or by his
trustee or agent, and shall show the information required by paragraph
(d) of Sec. 1.1461-1 of this chapter. It shall contain a statement that
at the time the interest is derived the owner (a) if an individual, is
neither a citizen nor resident of the United States, but is a resident
of France, or is a French corporation or person resident in France for
French tax purposes, and (b) has no permanent establishment in the
United States, or if the owner does have such a permanent establishment,
the indebtedness giving rise to the interest is not effectively
connected to such permanent establishment.
(ii) Reduction in rate applicable only to owner. The reduction in
the rate of U.S. tax contemplated by Article 10(2) 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 reduction in 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-F, shall be used, and U.S. tax shall be withheld at
the statutory rate.
(iii) Disposition of Form 1001-F. The original and duplicate of Form
1001-F shall be forwarded by the withholding agent to the Director,
Office of International Operations, Internal Revenue Service,
Washington, D.C. 20225, in accordance with paragraph (b)(2) of
Sec. 1.1461-2 of this chapter, with the annual return on Form 1042. A
summary of the Form 1001 or 1001-F shall be reported on Form 1042 as
provided by instructions thereto.
(2) Other interest--(i) Letter of notification. To secure the
reduced rate of U.S. tax at source in the case of interest other than
coupon bond interest, the nonresident alien individual who is a resident
of France, or French corporation or person resident in France for French
tax purposes, shall notify the withholding agent by letter in duplicate
that the interest is taxable at the reduced rate of tax provided in
Article 10(2) of the convention. The letter of notification shall be
signed by the owner of the interest, or by his trustee or agent, shall
show the name and address of the obligor and the name and address of the
owner of the interest, and shall indicate the dates on which the taxable
years of the owner to which the letter is applicable begin and end. The
letter shall contain a statement that the owner (a) if an individual, is
neither a citizen nor a resident of the United States but is a resident
of France, or is a French corporation or other entity resident in France
for French tax purposes, and (b) does not have a permanent establishment
in the
[[Page 82]]
United States or, if the owner does have such a permanent establishment,
a statement that the indebtedness giving rise to the income is not
effectively connected to such permanent establishment. If the interest
is taxable at the reduced rate of tax, the letter of notification may
also authorize the release, pursuant to Sec. 514.28, of excess tax
withheld from the interest concerned.
(ii) Manner of filing letter. The letter of notification, which
shall constitute authorization for the withholding of U.S. tax at source
at the reduced rate of 10 percent, shall be filed with the withholding
agent as soon as practicable for each successive 3-calendar-year period
during which the income is paid. 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 owner
of the interest. If, after filing a letter of notification, the taxpayer
ceases to be eligible for the exemption from U.S. tax granted by Article
10(2) of the convention, 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 reduction in rate of
withholding of U.S. tax shall no longer apply unless the new owner of
record is entitled to such reduced rate and promptly files a letter of
notification with the withholding agent.
(iii) Disposition of letter. The original of each letter of
notification filed pursuant to this subparagraph shall be retained by
the withholding agent and the duplicate shall be immediately forwarded
by the withholding agent to the Director, Office of International
Operations, Internal Revenue Service, Washington, D.C. 20225.
(3) Change in circumstances. If the owner of the interest acquires a
permanent establishment in the United States after filing a letter of
notification referred to in subparagraph (2) of this paragraph, such
owner shall file a new letter of notification even though the
indebtedness giving rise to the income to which such document relates is
not effectively connected to such permanent establishment
Effective Date Note: By T.D. 8734, 62 FR 53498, Oct. 14, 1997,
Sec. 514.23 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.