Rev. Proc. 65-2

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to provide interim rules which will supplement the withholding regulations set forth in Treasury Decision 6153 26 CFR sections 505.301 through 505.310, as renumbered , C.B. 1955-2, 777, governing the withholding of United States tax at source from dividends, interest, and royalties paid during the calendar year 1965 to a Netherlands Antilles corporation (hereinafter referred to as an Antilles corporation). Conforming amendments will be made to the regulations at a later date.

SEC. 2. BACKGROUND.

On October 23, 1963, a protocol ² (hereinafter referred to as the protocol) modifying and supplementing the tax convention between the United States and the Kingdom of the Netherlands, as extended to the Netherlands Antilles (hereinafter referred to as the convention) was signed at The Hague. Article I of the protocol provides that, with certain exceptions, Articles VII, VIII, and IX of the convention relating to the taxation of dividends, interest, and royalties, shall not apply to United States source income derived by any corporation or other entity entitled to any of the special tax benefits provided under Article 13, Article 14, or Article 14A of the Netherlands Antilles National Ordinance on Profit Tax of 1940, as in effect on September 1, 1963, or to substantially similar tax benefits granted under any law of the Netherlands Antilles enacted after that date. Thus, the reductions in the rate of United States tax provided by the convention with respect to dividends and the exemption from United States tax provided by the convention with respect to interest and royalties will not apply when such income is derived by certain corporations of the Netherlands Antilles. The protocol became effective on September 28, 1964, the date of the exchange of instruments of ratification, and will apply with respect to dividends, interest, and royalties paid on or after various subsequent dates, the earliest being January 1, 1965.

SEC. 3. WITHHOLDING OF UNITED STATES TAX AT SOURCE ON DIVIDENDS, INTEREST, OR ROYALTIES.

(a) In general .-Except as provided in paragraph (b) or (c) of this section, dividends, interest, or royalties paid during the calendar year 1965 to an Antilles corporation shall be subject to withholding of United States tax at source at the statutory rate prescribed by section 1442 of the Internal Revenue Code of 1954.

(b) Amounts subject to rates of tax prescribed in Article VII, VIII, or IX .-Dividends, interest, or royalties paid during the calendar year 1965 to an Antilles corporation shall be subject to withholding of United States tax at source at the rates of tax prescribed in Article VII, VIII, or IX of the convention, as the case may be, if-

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

(i) A certificate of status under Article I(1) of the protocol, described in section 4(a) of this Revenue Procedure, which has not expired or been revoked;

(ii) A certificate of status under Article I(2)(b) of the protocol, described in section 4(b) of this Revenue Procedure, which has not expired or been revoked; or

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

(2) The applicable requirements of sections 505.302, 505.304, or 505.305, as the case may be, are satisfied.

(c) Amounts paid to Antilles corporation described in Article III(4) of the protocol .-Dividends or interest paid during the calendar year 1965 to an Antilles corporation described in Article III(4) of the protocol shall be subject to withholding of United States tax at source at the rates of tax prescribed in Article VII or VIII of the convention if-

(1) The withholding agent receives, prior to the payment of the dividend or interest, a certificate described in section 4(c) of this Revenue Procedure; and

(2) The applicable requirements of section 505.302 or 505.304, as the case may be, are satisfied.

SEC. 4. CERTIFICATES.

(a) Certificate of status under Article I(1) of the protocol -(1) Contents .-The certificate referred to in section 3(b)(1)(i) of this Revenue Procedure is a certificate issued by the Office of the Inspectorate 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 tax benefits described in Article I(1) of the protocol.

(2) Period of effectiveness .-The certificate described in subparagraph (1) of this paragraph shall be effective for a period of one 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 the certificate described in subparagraph (1) of this paragraph shall be forwarded to the Director of International Operations, Internal Revenue Service, Washington, D.C., 20225, by the withholding agent with his Form 1042S, U.S. Annual Information Statement of Income Paid to Nonresident Aliens, etc., filed for the year 1965.

(b) Certificate of status under Article I(2)(b) of the protocol -(1) Contents .-The certificate referred to in section 3(b)(1)(ii) of this Revenue Procedure is a certificate issued by the Office of the Inspectorate 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-

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

(ii) Solely by one or more individual residents of the Netherlands in their individual capacities; or

(iii) Solely by one or more corporations of the Netherlands.

(2) Period of effectiveness .-The certificate described in subparagraph (1) of this paragraph shall be effective for a period of three 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 subparagraph (1) of this paragraph shall be forwarded to the Director of International Operations, Internal Revenue Service, Washington, D.C., 20225, by the withholding agent with his Form 1042S filed for the year 1965.

(c) Certificate of status under Article III(4) of the protocol -(1) Contents .-The certificate referred to in section 3(c)(1) of this Revenue Procedure is a certificate issued by the Office of the Inspectorate of Taxes of the Netherlands Antilles stating that the Antilles corporation to which dividends or interest are to be paid was organized in the Netherlands Antilles under a notarial deed of incorporation dated on or before May 14, 1963, and that the corporation is entitled to at least one of the special tax benefits described in Article I(1) of the protocol.

(2) Period of effectiveness .-For the period of effectiveness of the certificate described in subparagraph (1) of this paragraph, see the provisions of Article III(4) of the protocol.

(3) Filing of certificate .-A copy of the certificate described in subparagraph (1) of this paragraph shall be forwarded to the Director of International Operations, Internal Revenue Service, Washington, D.C., 20225, by the withholding agent with his Form 1042S filed for the year 1965.

SEC. 5. RULING PROCEDURE.

Any domestic corporation which claims or contemplates claiming that an Antilles corporation to which such domestic corporation has paid or is to pay dividends, interest, or royalties during the calendar year 1965 qualifies under Article I(2)(a) of the protocol shall file with the Commissioner of Internal Revenue, Washington, D.C., 20224, a full statement of all the facts pertinent to a ruling on the question. The information supplied should be comparable to that referred to in paragraph (c)(2)(i) through (iv) of section 505.302. As soon as practicable after such statement is filed, the Commissioner will rule as to whether the Antilles corporation qualifies under Article I(2)(a) of the protocol and notify the domestic corporation of his ruling. A favorable ruling will apply until the Antilles corporation ceases to qualify under Article I(2)(a). If any of the facts upon which such 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.

If, with respect to dividends, interest, or royalties paid during the calendar year 1965 to an Antilles corporation-

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

(2) Such certificate or ruling, which is effective as of the date of payment, is later received; and

(3) With respect to coupon bond interest, the applicable requirements of section 505.308 are satisfied

the withholding agent shall release and pay over to the Antilles corporation from which tax was withheld an amount equal to the difference between the tax so withheld and the tax which would have been withheld had such certificate or ruling been received prior to such payment. The provisions of this section shall not apply to excess United States tax withheld at source which has been paid by the withholding agent to the Internal Revenue Service. In such cases, the Antilles corporation may file a claim for refund of such excess tax withheld on Form 843.

¹ Also released as Technical Information Release 672, dated Dec. 30, 1964.

² Page 624, this Bulletin.