Treasury Issues Treaty List for New Reduced Tax Rate on Dividends

[2] Dividends paid by a foreign corporation are subject to the reduced tax rates if the corporation is a qualified foreign corporation. With certain exceptions, a "qualified foreign corporation" for this purpose includes a foreign corporation that is eligible for benefits of a U.S. income tax treaty if the treaty meets three requirements. To qualify, the treaty must be comprehensive, the Secretary must determine it is satisfactory, and it must provide for the exchange of tax information. The Notice issued today contains the current list of the U.S. tax treaties that meet these three requirements.

[3] Corporations incorporated in one of the countries included in this treaty list must also be eligible for benefits of the U.S. income tax treaty in order to qualify for the reduced tax rates for dividends. Treasury and the IRS are working on further guidance regarding the eligibility requirements for foreign corporations.

[4] Dividends paid by a foreign corporation also may qualify for the reduced rates of tax under an alternative test based on whether the stock of the corporation is readily tradable on an established U.S. securities market. Treasury and the IRS will issue guidance relating to this alternative test shortly.