[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: 26CFR514.24]
[Page 82-83]
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. 514.24 Royalties.
(a) Exemption from U.S. tax--(1) Copyright royalties. Except as
provided in subparagraph (2) of this paragraph royalties or other
amounts paid as consideration for the use of, or for the right to use
copyrights of literary, artistic, or scientific works (including gain
from the sale or exchange of property giving rise to such royalties)
which are 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 by a French corporation or a person resident in France for
French tax purposes are exempt from U.S. tax under the provisions of
Article 11(3) of the convention.
(2) Copyright royalties effectively connected with a permanent
establishment. The exemption from tax provided in subparagraph (1) of
this paragraph shall not apply if the owner of such royalties, or of
gain from the sale or exchange of property giving rise to such
royalties, has a permanent establishment in the United States and the
property giving rise to such royalties or gain is effectively connected
with such permanent establishment. Such royalties are subject to tax in
accordance with the provisions of Article 6.
(3) Exemption from withholding of tax--(i) Use of letter of
notification. To avoid withholding of U.S. tax at source with respect to
copyright royalties to which this paragraph applies, the nonresident
alien 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 royalty is exempt from U.S. tax
under Article 11(3) of the convention. The letter of notification shall
be signed by the owner of the royalty or of the gain from the sale or
exchange of property giving rise to such royalty, or by the trustee or
agent of such owner, and shall show the name and address of the owner.
The letter shall contain a statement that at the time the royalty is
[[Page 83]]
derived the owner (a) if an individual, is neither a citizen nor a
resident of the United States but is a resident of France or, if a
corporation or other entity is 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, a statement
that the property or right giving rise to such royalty is not
effectively connected with such permanent establishment. If the royalty
is exempt from U.S. tax, the letter of notification may also authorize
the release, pursuant to Sec. 514.28 of excess tax withheld from the
royalty concerned.
(ii) Manner of filing letter of notification. The provisions of
Sec. 514.23(c)(2)(ii) and (iii) relating to the execution, filing, and
effective period of the letter of notification prescribed therein with
respect to interest, including its use for the release of excess tax
withheld and Sec. 514.23(c)(3) relating to change of circumstances, are
equally applicable with respect to the income falling within the scope
of this section.
(b) Reduction in rate of United States tax--(1) Industrial
royalties. Except as provided in subparagraph (3) of this paragraph, the
rate of U.S. tax imposed on royalties, 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 by a French corporation shall
not, under Article 11(2) of the convention, exceed 5 percent of the
gross amount paid.
(2) Definitions. As used in this paragraph, the term ``royalty''
means royalties, rentals, or other amounts (other than royalties
described in paragraph (a)(1) of this section) paid as consideration for
the use of or the right to use patents, designs or models, plans, secret
processes or formulae, trademarks, or other like property or rights, or
for knowledge, experience, or skill (know-how) and gains derived from
the sale or exchange of such right or property if payment is contingent,
in whole or in part, on the productivity use, or disposition of the
property or rights sold. The term ``royalty'' does not include natural
resource royalties which are subject to tax in accordance with the
provisions of Article 5 of the convention.
(3) Industrial royalties 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 of the royalties or of
the gain from the sale or exchange of the property or right giving rise
to such royalties has a permanent establishment in the United States and
the property or right giving rise to such royalties or gain is
effectively connected with such permanent establishment. Such royalties
are subject to tax in accordance with the provisions of Article 6 of the
convention.
(4) Withholding of U.S. tax from industrial royalties. In order to
secure the reduced rate of U.S. tax at source as provided in
subparagraph (1) of this paragraph, 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 royalty qualifies for the reduced rate of
U.S. tax granted by Article 11(2) of the convention. The letter of
notification shall be signed by the owner of the royalty, or by the
trustee or agent of such owner, and shall show the name and address of
the owner. The provisions of subparagraph (3) of paragraph (a) of this
section relating to the form, content, execution, filing, and effective
period of the letter of notification prescribed therein with respect to
copyright royalties, including its use for the release of excess tax
withheld and relating to change of circumstances, are equally applicable
with respect to industrial royalties.
Effective Date Note: By T.D. 8734, 62 FR 53498, Oct. 14, 1997,
Sec. 514.24 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.