Do foreign (non-US) owned companies owe U.S. federal income tax on income from holdings of U.S. Treasury bonds? For context, the foreign company has no U.S. citizen or resident ownership (not a CFC or PFIC). If yes, - Does the U.S. Treasury withholding some or all of the expected tax? - Under what scenario could the foreign company file to recover any withholding tax?
Do foreign owned companies owe U.S. federal income tax on income from holdings of U.S. Treasury bonds?
Answers
Just got this from a colleague:
US debt instruments, including Treasuries issued on or after 3/18/2012 , are eligible for the so-called “portfolio interest exemption” if they are in registered form and the foreign owner is not (1) a CFC, (2) a bank, or (3) a 10% or more shareholder of the issuer.
The foreign owner gives the paying agent an IRS Form W-8 BEN.
If the instrument was issued earlier than 3/18/2012, the portfolio interest exemption provides a second way for the holder to claim it, but again, only if the instrument is in registered form.
Since the contemplated company is not a CFC, it doesn’t have to worry withholding should not be an issue as I believe Treasuries are always issued in registered form.
Agree with Andreas.
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Tax