*EPF207 09/30/2003
Text: U.S. Treasury Issues Tax Rate Guidance on Foreign Dividends
(Dividends paid to U.S. taxpayers may qualify for lower rates) (540)

Dividends paid by foreign companies to U.S. taxpayers may qualify for recently reduced tax rates, the U.S. Treasury Department and the Internal Revenue Service (IRS) have announced.

Treasury and the IRS have issued a notice covering the taxation of dividends paid by foreign corporations under the U.S. law known as the "Jobs and Growth Tax Relief Reconciliation Act of 2003," according to a September 30 Treasury news release,

The agencies have concluded that foreign dividends are subject to reduced tax rates if the firms are based in one of 55 countries that have a tax treaty with the United States and if the firms are eligible for the benefits of the tax treaty. Treasury and the IRS are working on further guidance regarding the eligibility requirements for such firms, according to the news release.

Dividends paid by a foreign corporation also may qualify for the reduced tax rates under an alternative test based on whether the stock of the corporation is "readily tradable on an established U.S. securities market," Treasury said, adding that it planned to issue guidance on this alternative test "shortly."

The text of the joint Treasury/IRS notice is available on the Treasury website at: http://www.treas.gov/press/releases/reports/n200369.htm

Following is the text of the news release:

(begin text)

U.S. Department of the Treasury
Office of Public Affairs
September 30, 2003

TREASURY AND IRS ISSUE TREATY LIST
FOR NEW REDUCED TAX RATE ON DIVIDENDS

Today, the Treasury Department and the IRS issued a Notice covering the taxation of dividends paid by foreign corporations under the provisions of The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "2003 Act"). By reducing the rates of tax for individuals on certain dividends, the 2003 Act reduces the double tax on dividends. The Notice provides guidance on the application of the reduced rates of tax to dividends paid by a foreign corporation.

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.

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.

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.

(end text)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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