Notice 2015-35 [PDF 19 KB] provides a list of qualified income tax treaties that exempt all nationals of that country from the tax imposed under section 5000C.
Section 5000C imposes on any “foreign person” a 2% tax on certain payments received from the U.S. government for goods and services, and applies to payments received under contracts entered into on and after January 2, 2011.
Section 6114 generally requires reporting when a taxpayer takes the position that a treaty of the United States overrules (or otherwise modifies) an internal revenue law, but also provides that the Treasury Secretary may waive the reporting requirement with respect to instances when the Secretary determines that the waiver will not impede assessment or collection of the tax.
The Treasury Department and IRS, late April 20, released for publication in the Federal Registerproposed regulations under section 5000C relating to the 2% tax on payments made by the U.S. government to foreign persons pursuant to certain contracts. There are also proposed regulations provided under section 6114, with respect to foreign persons claiming an exemption from the tax under an income tax treaty.
Notice 2015-35 explains that the tax imposed under section 5000C applies only to specified federal procurement payments made to foreign persons, regardless of their residence, and does not apply to U.S. persons.
The definition of “national” in U.S. income tax treaties generally includes citizens or nationals of a contracting state as well as legal persons, such as corporations, whose status as such is derived from the laws of that country. The tax imposed by section 5000C would not apply to payments to nationals resident in the United States.
Notice 2015-35 continues to explain that not all treaty nondiscrimination articles cover taxes of every kind and description, such as the tax imposed by section 5000C. Some treaty provisions apply only to federal income taxes, in which case, the treaty article would not cover the tax imposed under section 5000C.
In one table, Notice 2015-35 provides a list of the following countries that have qualified income tax treaties that exempt all nationals of that country from the tax imposed under section 5000C.
|Netherlands||Portugal||Slovak Republic||Slovenia||South Africa|
A second table provides a list of the following countries that have qualified income tax treaties that exempt only individual nationals of that treaty country.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.