Rev. Proc. 79-40

Section 1. Introduction.

The purpose of this Revenue Procedure is to provide rules that will supplement the treaty withholding regulations set forth in Treasury Decision 6153, 1955-2 C.B. 777, (26 CFR sections 505.301 through 505.310, as renumbered) governing the withholding of United States tax at the source from dividends, interest, and royalties paid to a Netherlands Antilles corporation (an Antilles corporation). These rules are applicable to dividends, interest, and royalties paid to an Antilles corporation and reflect the modifications to the income tax convention between the United States and the Kingdom of the Netherlands, as extended to the Netherlands Antilles, (the convention) which were made by a protocol signed on October 23, 1963, and proclaimed by the President of the United States on September 30, 1964, 1965-1 C.B. 624 (the protocol).

Sec. 2. Withholding of United States Tax at Source on Dividends Paid to an Antilles Corporation.

.01 In general. -- Except as provided in subsection .02 of this section, dividends paid to an Antilles corporation shall be subject to withholding of United States tax at the source at the 30-percent rate prescribed by section 1442 of the Internal Revenue Code.

.02 Dividends subject to United States tax at the rate prescribed in article VII. -- Dividends paid to an Antilles corporation shall be subject to withholding of United States tax at the source at either the 15-percent rate or the 5-percent rate prescribed by article VII of the convention if --

(1) the withholding agent receives, prior to the payment of the dividend --

(a) a certificate of status under article I(1) of the protocol, described in section 4.01 of this Revenue Procedure, which has not expired or been revoked;

(b) a certificate of status under article I(2)(b) of the protocol, described in section 4.02 of this Revenue Procedure, which has not expired or been revoked; or

(c) a copy of a favorable ruling, described in section 5 of this Revenue Procedure, which has not been revoked; and

(2) the requirements of section 505.302 of the treaty withholding regulations are satisfied.

Sec. 3. Withholding of United States Tax at Source on Interest or Royalties Paid to an Antilles Corporation.

.01 In general. -- Except as provided in subsection .02 of this section, interest or royalties paid to an Antilles corporation shall be subject to withholding of United States tax at source at the 30-percent rate prescribed by section 1442 of the Code.

.02 Interest or royalties exempt from United States tax. -- Interest or royalties paid to an Antilles corporation shall be exempt from United States tax if --

(1) the withholding agent receives, prior to payment of the interest or royalty, --

(a) a certificate of status under article I(1) of the protocol, described in section 4.01 of this Revenue Procedure, which has not expired or been revoked; or

(b) a certificate of status under article I(2)(b) of the protocol, described in section 4.02 of this Revenue Procedure, which has not expired or been revoked; or

(c) a copy of a favorable ruling, described in section 5 of this Revenue Procedure, which has not expired or been revoked; and

(2) the requirements of section 505.304 or 505.305 of the treaty withholding regulations, as the case may be, are satisfied with the exception that the Antilles corporation files Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) with the withholding agent as prescribed by section 1.1441-6(b) and (c) of the Income Tax Regulations in lieu of filing Form 1001-NA or a letter of notification.

Sec. 4. Certificates.

.01 Certificates of status under article I(1) of the protocol. --

(1) Contents. -- The certificate referred to in sections 2.02(1)(a) and 3.02(1)(a) of this Revenue Procedure is a certificate issued by the Office of the Inspector of Taxes of the Netherlands Antilles, addressed to the withholding agent, and stating that the Antilles corporation to which dividends, interest, or royalties are to be paid is not entitled, with respect to its United States source income, to any of the special Netherlands Antilles tax benefits described in article I(1) of the protocol.

(2) Period of effectiveness. -- The certificate described in subsection .01(1) of this section shall be effective for a period of 1 year from the date indicated thereon, unless the withholding agent receives a notice of revocation of such certificate prior to the expiration of such period.

(3) Filing of certificate. -- One copy of each certificate described in subsection .01(1) of this section shall be forwarded to the Internal Revenue Service Center, 11601 Roosevelt Boulevard, Philadelphia, Pennsylvania, 19155, by the withholding agent together with Form 1042 and Forms 1042S, U.S. Annual Information Statement of Income Paid to Nonresident Aliens, etc. (under chapter 3, Internal Revenue Code), filed for any year in which dividends, interest, or royalties are paid to the Antilles corporation with respect to which such certificate has been issued

.02 Certificate of status under article I(2)(b) of the protocol. --

(1) Contents. -- The certificates referred to in sections 2.02(1)(b) and 3.02(1)(b) of this Revenue Procedure is a certificate issued by the Office of the Inspector of Taxes of the Netherlands Antilles, addressed to the withholding agent, and stating that all of the stock of the Antilles corporation to which dividends, interest, or royalties are to be paid is owned --

(a) solely by one or more individual residents of the Netherlands Antilles in their individual capacities;

(b) solely by one or more individual residents of the Netherlands in their individual capacities; or

(c) solely by one or more corporations of the Netherlands.

(2) Period of effectiveness. -- The certificate described in subsection .02(1) of this section shall be effective for a period of 3 years from the date indicated thereon unless the withholding agent receives a notice of revocation of such certificate prior to the expiration of such period.

(3) Filing of certificate. -- One copy of the certificate described in subsection .02(1) of this section shall be forwarded to the Internal Revenue Service Center, 11601 Roosevelt Boulevard, Philadelphia, Pennsylvania, 19155, by the withholding agent with Form 1042 and Forms 1042S filed for any year in which dividends, interest, or royalties are paid to the Antilles corporation with respect to which such certificate has been issued unless a copy of such certificate which is effective, under subsection .02(1) of this section, for such year has been filed in a previous year.

Sec. 5. Ruling Procedure.

.01 Any domestic corporation that claims that an Antilles corporation to which such domestic corporation has paid or is to pay dividends, interest, or royalties qualifies under article I(2)(a) of the protocol shall file with the Commissioner of Internal Revenue, Washington, D.C. 20224, Attention: T:C:C:3, a full statement of all the facts pertinent to a ruling on the question and shall comply with the provisions of Rev. Proc. 72-3, 1972-1 C.B. 698.

(1) The information supplied should include:

(a) the date and place of its organization;

(b) the number of outstanding shares of stock of the domestic corporation having voting power and the voting power thereof;

(c) the person or persons beneficially owning such stock of the domestic corporation and their relationship to the Antilles corporation;

(d) the amounts by years (for the three-year period immediately preceding the taxable year in which the dividends, interest, or royalties are paid) of the gross income of the domestic corporation, of the interest, dividends, royalties, rents from real property, or gain from the sale or other disposition of stock, securities or real property included in such gross income, and of the interest and dividends received by the domestic corporation from its own subsidiary corporations, if any;

(e) the relationship between the domestic corporation and the Antilles corporation deriving the dividend; and

(f) the identity of the person or persons beneficially owning the stock of the Antilles corporation receiving dividends, interest, or royalties from the domestic corporation including a statement of their country of residence and country of citizenship, or place of incorporation.

.02 As soon as practicable after the ruling request is filed, the Commissioner will rule whether the Antilles corporation qualifies under article I(2)(a) of the protocol and will notify the domestic corporation. A favorable ruling will apply until the Antilles corporation ceases to qualify under article I(2)(a). If any of the facts upon which the favorable ruling was based subsequently change, the domestic corporation shall promptly notify the Commissioner of such change.

Sec. 6. Release of Excess United States Tax Withheld at Source.

.01 If, with respect to dividends, interest, or royalties paid to an Antilles corporation, --

(1) United States tax has been withheld at the source at a rate in excess of that which would have been withheld if one of the certificates described in section 4 of this Revenue Procedure and Form 1001, or a ruling described in section 5 of this Revenue Procedure, had been received prior to such payment; and

(2) Such certificate and Form 1001, or such ruling which is effective as of the date of payment, is later received, the withholding agent shall release and pay over to the Antilles corporation from the tax withheld an amount equal to the difference between the tax withheld and the tax that would have been withheld had a certificate and Form 1001, or a ruling, been received prior to the withholding of tax. The provisions of this section shall not apply to excess United States tax withheld at the source that has been paid by the withholding agent to the Internal Revenue Service. In such cases, the Antilles corporation may file a claim for refund for any excess tax withheld.

Sec. 7. Effect on Other Documents.

Rev. Proc. 66-40, 1966-2 C.B. 1245, is superseded.