Proposed Changes to U.S. Portfolio Interest Exception
September 24, 2021

Proposed changes to 10% shareholder definition

The U.S. portfolio interest exception is a tax incentive to make investments in the United States more attractive to non-U.S. investors. The portfolio interest exemption provides relief from the default withholding tax rate of 30% on U.S.-sourced interest income in certain circumstances.


One of the requirements for a valid portfolio interest exception is that the beneficial owner of the interest income is not a 10% shareholder of the borrower. Under current law, a 10% shareholder includes any person who owns 10% or more of the total combined voting power of all classes of stock of a corporate borrower.


In connection with Build Back Better Act tax proposals, there is a proposed change to the 10% shareholder definition. According to the proposal, a 10% shareholder includes any person who owns 10% or more of the total combined voting power of all classes of stock or 10% or more of the total value of the stock of a corporate borrower. The proposal would be effective after the date of enactment of the law.


The proposal may have a significant impact on investment funds with U.S. assets. In particular, the proposal is most likely to impact investors who do not qualify for U.S. income tax treaty benefits.


Do you have questions regarding applying the portfolio interest exception to a payment of interest to a non-U.S. person, U.S. withholding tax reporting, or U.S. withholding tax documenation? Contact International Capital Associates, LLC to discuss.

U.S.-Russia Tax Treaty Suspension

June 18, 2024
The U.S. Department of the Treasury announced on June 17, 2024, that the United States has formally notified the Russian Federation about the suspension of certain articles and provisions of the Convention between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed at Washington, June 17, 1992. This suspension will take effect on August 16, 2024, and will continue until otherwise decided by the two governments. This decision is in response to the Russian Federation's notification on August 8, 2023, expressing its desire to suspend specific articles and provisions of the Convention and the Protocol. The announcement can be seen at United States’ Notification of Suspension, By Mutual Agreement, of the 1992 Tax Convention with Russia | U.S. Department of the Treasury . Taxpayers who rely on the U.S.-Russia income tax treaty should plan for this suspension. Please contact International Capital Associates, LLC if you need help planning for the treaty suspension or if you need other U.S. tax services .

U.S. Internal Revenue Service Releases Updated Form W-8EXP With Updates for Qualified Foreign Pension Funds

December 11, 2023
In November 2023, the U.S. Internal Revenue Service released an updated Form W-8EXP. The Form W-8EXP is a U.S. withholding tax certificate for foreign governments or other foreign organizations. Confusingly, the words “qualified foreign pension fund” do not appear on the Form W-8EXP. However, the updates to the Form W-8EXP are intended to allow a non-U.S. pension fund (or qualifying entity) to certify its Qualified Foreign Pension Fund status. A non-U.S. pension fund may certify that it is a “Withholding Qualified Holder Under Section 1445” provided it meets the requirements of Section 897(l) and Treas. Reg. 1.897(l)-1 as a Qualified Foreign Pension Fund. A “Qualified Holder” includes certain wholly-owned entities that meet the requirements of Treas. Reg. 1.897(l)-1(d)(2) or (3). A “Withholding Qualified Holder” also consists of a non-U.S. partnership wholly owned by Qualified Holders. Unfortunately, Form W-8EXP still does not contain sections to allow the taxpayer to claim the benefits of a U.S. income tax treaty. Non-U.S. pension funds and governments will still need to complete Form W-8BEN-E to claim U.S. income tax treaty benefits with a U.S. withholding agent, such as reduced dividend and interest withholding rates. The release of the updated Form W-8EXP does not invalidate any prior Qualified Foreign Pension Funds certifications. In the future, U.S. withholding agents may request a valid Form W-8EXP instead of other Qualified Foreign Pension Fund certifications. A Withholding Qualified Holder should ensure that the Form W-8EXP is complete and valid to make a Qualified Foreign Pension Fund certification using the Form W-8EXP. Please contact International Capital Associates, LLC if you need help determining if the entity is considered a Withholding Qualified Holder, if you need assistance completing Form W-8EXP , or if you need other U.S. tax services .