[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: 26CFR503.3]
[Page 19-21]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 503--GERMANY--Table of Contents
Subpart--Withholding of Tax
Sec. 503.3 Interest.
(a) General. (1) Interest paid by a German company (other than a
United States corporation) and received in taxable years beginning on or
after January 1, 1954, by a nonresident alien or a foreign corporation
is exempt from United States tax under the provisions of Article XIV of
the convention. Such interest is, therefore, not subject to the
withholding of United States tax at source.
(2) Interest (other than interest falling within the scope of
subparagraph (1) of this paragraph) on bonds, notes, debentures,
securities, or on any other form of indebtedness, including interest on
obligations of the United States and of instrumentalities of the United
States, which is derived, bona fide as interest, in taxable years
beginning on or after January 1, 1954, by a natural person (other than a
citizen or resident of the United States) resident in the Federal
Republic of Germany, or by a German company (other than a United States
corporation), is exempt from United States tax under the provisions of
Article VII of the convention if such person or company at no time
during the taxable year in which such interest is derived has a
permanent establishment in the United States. Such interest is,
therefore, not subject to the
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withholding of United States tax at source.
(3) The provisions of subparagraph (2) of this paragraph shall have
no application to interest on debts secured by mortgages on farms,
timberlands, or real property used wholly or partly for housing
purposes.
(b) 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
resident of the Federal Republic of Germany or the Germany company
shall, for each issue of bonds, file Form 1001-GER 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 neither a citizen nor a resident of the United
States but is a resident of the Federal Republic of Germany, or, in the
case of a company, the owner is a German company (other than a United
States corporation), and (ii) that the owner has no permanent
establishment in the United States.
(2) The exemption from United States tax contemplated by Article VII
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-GER, shall be executed.
(3) The original and duplicate of Form 1001-GER shall be forwarded
by the withholding agent to the District Director of Internal Revenue,
Audit Division, Alien Returns Section, Baltimore 2, Maryland, with the
quarterly return on Form 1012. Form 1001-GER 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 resident of the Federal Republic of
Germany or the German company shall notify the withholding agent by
letter in duplicate that such income is exempt from United States tax
under the provisions of Article VII 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 the Federal Republic of Germany, or, in the
case of a company, the owner is a German company (other than a United
States corporation), and (ii) that the owner has at no time during the
current taxable year had a permanent establishment in the United States.
(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 3-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. 503.6(a)(3), 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 derived 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 the Federal Republic
of Germany, or, in the case of a company, the owner was a German company
(other than a
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United States corporation), and (ii) that the owner at no time during
the taxable year in which such interest was derived had a permanent
establishment in the United States.
(7) 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 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.