Rev. Proc. 66-40

SECTION 1. INTRODUCTION.

The purpose of this Revenue Procedure is to provide interim rules which will supplement the withholding regulations set forth in Treasury Decision 6153, C.B. 1955-2, 777, [26 CFR sections 505.301 through 505.310, as renumbered] governing the withholding of United States tax at source from dividends, interest, and royalties paid to a Netherlands Antilles corporation (hereinafter referred to as an Antilles corporation). For rules governing such payments made during calendar year 1965 see Revenue Procedure 65-2, C.B. 1965-1, 715. The rules set forth herein are applicable to dividends, interest, and royalties paid on or after January 1, 1966, 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, (hereinafter referred to as 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 (hereinafter referred to as the protocol). Conforming amendments to the regulations will be made at a later date.

SEC. 2. WITHHOLDING OF UNITED STATES TAX AT SOURCE ON DIVIDENDS PAID TO AN ANTILLES CORPORATION.

(a) In general.--Except as provided in paragraph (b) or (c) of this section, dividends 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 Internal Revenue Code of 1954.

(b) Dividends subject to United States tax at the rate prescribed in article VII.--Dividends paid on or after January 1, 1966, to an Antilles corporation shall be subject to withholding of United States tax at 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--

(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under article I(1) of the protocol, described in section 4(a) of this Revenue Procedure, which has not expired or been revoked;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under article I(2)(b) of the protocol, described in section 4(b) of this Revenue Procedure, which has not expired or been revoked; or

(iii) A copy of a favorable ruling, described in section 5 of this Revenue Procedure, which has not been revoked; and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 requirements of section 505.302 are satisfied.

(c) Dividends paid during calendar year 1966 to Antilles corporation described in article III(4) of the protocol.--Dividends paid during the calendar year 1966 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 20-percent rate if--

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

(2) The requirement of section 505.302 are satisfied.

SEC. 3. WITHHOLDING OF UNITED STATES TAX AT SOURCE ON INTEREST OR ROYALTIES PAID TO AN ANTILLES CORPORATION.

(a) In general.--Except as provided in paragraph (b) or (c) 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.

(b) Interest or royalties exempt from United States tax.--Interest or royalties paid on or after January 1, 1966, 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--

(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 requirements of section 505.304 or 505.305, as the case may be, are satisfied.

(c) Interest paid during calendar year 1966 to Antilles corporation described in article III(4) of the protocol.--Interest paid during the calendar year 1966 to an Antilles corporation described in article III(4) shall be exempt from United States tax if--

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

(2) The requirements of section 505.304 are satisfied.

SEC. 4. CERTIFICATES.

(a) Certificate of status under article I(1) of the protocol.--(1) Contents.--The certificate referred to in sections 2(b)(1)(i) and 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 U.S. 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 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 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. (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.

(b) Certificate of status under article I(2)(b) of the protocol.--(1) Contents.--The certificate referred to in sections 2(b)(1)(ii) and 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 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 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 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 subparagraph (2) of this paragraph, for such year has been filed in a previous year.

(c) Certificate of status under article III(4) of the protocol.--(1) Contents.--The certificate referred to in sections 2(c)(1) and 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.--The certificate described in subparagraph (1) of this paragraph shall have no effect after December 31, 1966.

(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 1966 unless a copy of such certificate has been filed with the form 1042S for the year 1965.

SEC. 5. RULING PROCEDURE.

Any domestic corporation which claims or contemplates claiming that 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, 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 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.