Rev. Rul. 55-106

Rev. Rul. 55-106

Advice has been requested whether a letter of notification of exemption from withholding of United States income tax filed with a withholding agent by a nonresident alien pursuant to a tax convention is required to be renewed and filed every three calendar years.

Section 1441 of the Internal Revenue Code of 1954 requires that all persons, in whatever capacity acting, having the control or payment of certain items of income, to the extent that such items constitute gross income from sources within the United States, of any nonresident alien individual, shall deduct and withhold from such items a tax equal to 30 percent thereof.

Pursuant to reciprocal income tax, conventions between the United States and various foreign countries, certain items of income are exempt from United States tax and the withholding rate on certain other items of income is less than 30 percent thereof. In order to stop the withholding of United States income tax at source on exempt income, it is necessary for the nonresident alien to file with the withholding agent a letter of notification of exemption. See, for example, Treasury Decision 5499, C.B. 1946-1, 134, section 7.418, with regard to regulations prescribed for the convention between the United States and France. These letters of notification of exemption are used in the place of forms prescribed in regulations governing some conventions.

Where forms are prescribed, as in the administration of the convention between the United States and the Kingdom of Denmark, Treasury Decision 5692, C.B. 1949-1, 104, it is required that they be filed for each 3-calendar-year period. However, it is not stated whether the letters of exemption prescribed in Treasury Decision 5499, supra , and in some other cases, cover an indefinite period of exemption or must be renewed every 3 years as in the case of the forms.

It will be noted that after the use of forms became general under later conventions, regulations prescribing the use of letters instead of forms followed the pattern established with respect to forms generally and made the same provisions as to the effective period applicable to both. In this regard, Treasury Decision 5897, C.B. 1952-1, 89, prescribing withholding regulations under the convention between the United States and the Republic of Ireland, provides that the letter of notification there prescribed, in section 7.1002(b), must be renewed for each 3-calendar-year period.

Accordingly, it is held that letters of notification of exemption from withholding tax, used where forms are not prescribed, filed with a withholding agent, by a nonresident alien, as an authorization for the payment of income without withholding of United States income tax at source, pursuant to a tax convention, shall be renewed and filed with the withholding agent for each successive 3-calendar-year period during which the income is payable