Rev. Proc. 77-16

Section 1. Purpose and Scope.

The purpose of this Revenue Procedure is to prescribe the procedures of the Internal Revenue Service with regard to requests by taxpayers for the assistance of the United States competent or taxation authority (competent authority) in order to resolve issues arising under an income tax treaty between the United States and a foreign country (hereinafter referred to as the treaty country). Such issues involve the availability to a United States taxpayer of credits against foreign tax, exemptions from foreign tax, reduced rates of foreign tax, and other benefits and safeguards provdied under income tax treaties. For competent authority procedures involving the allocation of income and deductions, under section 482 of the Internal Revenue Code of 1954, between a person subject to the income tax jurisdiction of the United States and a related person subject to the income tax jurisdiction of a foreign country with which the United States has an income tax treaty, see Rev. Proc. 70-18, 1970-2 C.B. 493.

Sec. 2. Background

.01 The United States has in force with various countries income tax treaties that provide for consultation between the competent authority of the United States and the competent authority of the treaty country to resolve questions of interpretation or application of the treaty.

.02 When a United States taxpayer considers that the action of a treaty country has resulted or will result in taxation contrary to the provisions of their income tax treaty the taxpayer may request competent authority consideration. Taxpayers are urged to examine the specific mutual agreement provisions of the treaty under which they seek relief. If the taxpayer's request for competent authority consideration provides a basis for competent authority assistance, the competent authority will consult with the appropriate foreign competent authority for the purpose of avoiding taxation contrary to the provisions of the treaty.

.03 The Assistant Commissioner (Compliance) acts as the United States competent authority under income tax treaties of the United States with respect to the interpretation or application of income tax treaties, but only after the concurrence of the Assistant Commissioner (Technical). See Delegation Order 114 (Rev. 1) 1976-2 C.B. 623.

.04 Request for competent authority consideration should be addressed to the Assistant Commissioner (Compliance), Internal Revenue Service, P. O. Box 7799, Washington, D. C. 20044.

.05 Taxpayers

A United States taxpayer is (a) a citizen or resident of the United States, (b) a domestic partnership, (c) a domestic corporation, or (d) an estate or trust (other than a foreign estate or a foreign trust, within the meaning of section 7701(a)(31) of the Internal Revenue Code of 1954).

Sec. 3. General Conditions Under Which Procedure Is Applicable

.01 In General.

The procedures prescribed in this section and sections 4 through 6 of this Revenue Procedure shall apply when:

1 a treaty country has taxed or proposes to tax the income of a United States taxpayer in a manner that results or will result in an unintended double taxation;

2 a treaty country has taxed or proposes to tax the income of a United States taxpayer in a manner that denies or improperly restricts or will deny or improperly restrict a tax benefit to which it appears such taxpayer is entitled under the terms of a tax treaty;

3 a treaty country has subjected or proposes to subject a United States taxpayer to more burdensome taxation than the tax imposed by the treaty country on its own taxpayers under the same conditions; or

4 a treaty country has interpreted provisions of a tax treaty to restrict in any manner an exclusion, exemption, deduction, credit, refund or other allowance that it appears a United States taxpayer should be otherwise accorded.

.02 Restrictions on Treaty Benefits and Safeguards.

The exclusions, exemptions, deductions, credits, reductions in rate, and other benefits and safeguards provided by income tax treaties are subject to conditions and restrictions that vary in different treaties. Taxpayers should examine carefully the specific treaty articles that may apply in their case to determine if they are in fact entitled to such treaty benefits or safeguards.

.03 Periods of Limitation, Closing Agreements, and Other Procedural Barriers to Credit or Refund of Tax.

1 When, in conjunction with a request for assistance under this Revenue Procedure, a taxpayer seeks relief in the form of a credit or refund of either treaty country or United States tax, the allowance of such relief is subject to the applicable tax laws and procedural rules of the treaty country and the United States. Taxpayer claims for credit or refund of either a treaty country or a United States tax are subject to disallowance when the claims do not meet such requirements.

2 In those cases where the mutual agreement articles of certain income tax treaties contain provisions that waive or remove these procedural barriers to credit or refund of tax, taxpayers may be allowed a credit or refund of either treaty country or United States tax even though the otherwise applicable period of limitation has expired, or prior closing agreements have been entered into or other actions have been taken or omitted that would ordinarily foreclose relief in the form of a credit or refund of tax.

Sec. 4. Procedures to be Followed

.01 Request for Competent Authority Assistance

If a United States taxpayer desires competent authority assistance in a case where a treaty country has taxed, or proposes to tax, income of the taxpayer in a manner that denies or improperly restricts or will deny or will improperly restrict a benefit or safeguard to which it appears the taxpayer is entitled under the terms of the treaty, the taxpayer should file a written request for competent authority consideration with the Assistant Commissioner (Compliance).

.02 Protective Claims for Credit or Refund of Federal Tax

1 In addition to the request for competent authority consideration, the taxpayer should file a claim for credit or refund of any overpayment of Federal tax that was paid on the income in question, provided the limitation period under section 6511 of the Code with respect to claims for credit or refund has not expired or, in the event of such expiration, provided the applicable treaty has a provision waiving the period of limitations. Claims should be made on Form 1040X, Amended U. S. Individual Income Tax Return, on Form 1120X, Amended U. S. Corporation Income Tax Return, or on Form 1041, U. S. Fiduciary Income Tax Return. The taxpayer should indicate on the appropriate form that a request for competent authority assistance has been filed pursuant to this Revenue Procedure and should attach a copy of such request to that form. In addition, the taxpayer should include a statement to the effect that a credit or refund of Federal tax should be allowed in the event that there is a subsequent determination that the taxpayer does not qualify for the treaty benefit in question and thus owes a greater treaty country tax. Such a determination may result in an overpayment of Federal tax and, as a result, the taxpayer may be entitled to receive a credit for foreign taxes that reflects the amount of the increase in the treaty country tax caused by failure to qualify for the treaty benefit.

2 With respect to the computation of the foreign tax credit, either Form 1116, Computation of Foreign Tax Credit, Individuals, Fiduciaries, or Nonresident Alien Individuals, which also covers credits for foreign tax on income received from foreign partnerships and other business organizations, or Form 1118, Computation of Foreign Tax Credit, Corporation, shall be attached to the Form 1040X, Form 1120X, or Amended Form 1041, as appropriate. The foreign tax credit shall be recomputed on the assumption that the taxpayer does not qualify for the treaty benefit in question. If the taxpayer's return has been filed with the Office of International Operations, Form 1040X, Form 1120 X, or Amended Form 1041 with attachments, should be filed with the Director, Internal Revenue Service Center, 11601 Roosevelt Boulevard, Philadelphia, Pennsylvania 19155. If the taxpayer's return was not filed with the Office of International Operations, Form 1040X, Form 1120X, or Amended Form 1041 should be filed where the tax return was filed. A copy of Form 1040X and Form 1116, Form 1120X and Form 1118, or Amended Form 1041 and Form 1116, as appropriate, should be attached to the request submitted to the United States competent authority. The request should indicate where the original claim for credit or refund is being filed. Timely filing of Form 1040X, Form 1120X, or Amended Form 1041 under this procedure permits only the allowance of credits or refunds in accordance with the United States Internal Revenue Code.

3 If any of the actions described in section 3.01 of this Revenue Procedure are expected to occur in the future and if the period for filing Form 1040X, Form 1120X, or Amended Form 1041 is about to expire, the taxpayer should, before the expiration of the statute of limitations for the taxable year involved, file a protective claim on Form 1040X, Form 1120X, or Amended Form 1041 and transmit a copy to the United States competent authority. The claim should describe the expected treaty country action and state that the taxpayer plans to file a request for competent authority assistance. If the taxpayer later decides not to file the request, the United States competent authority should be promptly informed.

.03 Timely Filing of Requests

In order (1) to assure consideration while the facts are more easily obtainable, (2) to assure adequate time for the competent authorities to consult and attempt to arrive at an agreement prior to the imposition of any procedural barrier under foreign law, and (3) to avoid unnecessary delay in the final determination of tax liability, the taxpayer should file a request for competent authority assistance as soon as the issues are sufficiently developed to permit such assistance, whether or not adjustments to the taxpayer's liability have been formally proposed by the treaty country. The written request for competent authority assistance should ordinarily be filed not later than 90 days after the proposed adjustments by the treaty country are first formally communicated to the taxpayer.

.04 Information to be Submitted with Requests.

A written request for competent authority assistance filed under this procedure shall include the items of information described in 1, 2, 3, 4, and 6 below, and should also include the items described in 5 and 7 below, if these are available to the taxpayer at the time of filing the request:

1 the name, address, and taxpayer identification number of the taxpayer;

2 the taxable year or years in question and the office where the taxpayer filed a Federal income tax return for the same year or years or, if no return was filed, a statement to such effect;

3 the identity of the income tax treaty, and the particular provisions therein, upon which the request for competent authority consideration is based;

4 the type of income involved (such as salary, dividends, etc.), a description of the transactions, activities or other circumstances involved in the issues raised by the treaty country, and the respective positions taken by the treaty country and the taxpayer on the issues raised;

5 the total amount of treaty country tax (if any) originally paid or reported by the taxpayer for the taxable year, the amount of the particular item involved in the issues raised by the treaty country (with such amount stated both in the treaty country's currency and in United States dollars); and the amount of the treaty country tax assessed or proposed for assessment.

6 a statement as to whether a foreign tax credit was claimed in the taxpayer's Federal income tax return (if any) for the taxable year in question and, if a credit was claimed, whether it was claimed for all or part of a treaty country tax paid or accrued with respect to the particular item that is the subject of the request for competent authority consideration;

7 copies of any correspondence from the treaty country and copies of any briefs, protests, etc. submitted in response to the action proposed by the treaty country. If such copies are in a foreign language, English translations must be supplied. The guidelines set forth in Rev. Rul. 67-308, 1967-2 C.B. 254, which are designed to be used in determining the acceptability of documents as evidence that the "income tax" and "similar credit" requirements of section 901 of the Code have been satisfied, will be applied.

8 any other material the taxpayer wishes to submit.

If the items described in 5 and 7 above are not submitted with the request for competent authority assistance, they should be submitted as soon as available.

.05 Protective Action with Treaty Country Tax Authorities

The taxpayer should take timely action to protect the right to the review of the case by the competent authorities and to the granting of such relief as may be appropriate, by taking all effective and practicable legal measures to resist liability to the treaty country tax authorities, by filing a timely protest, request for review, or claim for refund with such tax authorities, and by taking all other necessary measures under the procedures of the treaty country to avoid the lapse or termination of the taxpayer's right of appeal.

Sec. 5. Cases Received From, and Referred to, Foreign Competent Authorities.

The United States competent authority will not act for foreign individuals, partnerships, estates, trusts, corporations, associations, or other entities of a treaty country, who claim that they are being taxed by the United States in contravention of a tax treaty, except in the one instance where the foreign government denies a foreign tax credit in respect of income taxed by the United States and only after such taxpayer has exhausted all legal remedies within the taxpayer's own country. Requests addressed to the United States competent authority in cases described in this section in which the United States competent authority will not act will be referred to the competent authority of the treaty country. When a case is referred to the United States competent authority by the competent authority of a treaty country, the taxpayer involved will be asked to follow the procedures set forth herein.

Sec. 6. Action by Competent Authority.

.01 Notification to taxpayer.

The taxpayer will be notified whether the facts of the taxpayer's case provide a basis for competent authority assistance. Assistance from the United States competent authority will not be granted when:

1 after careful consideration of the facts and circumstances of the taxpayer's case by the United States competent authority, it is clear that under the terms of the treaty the taxpayer is not entitled to the treaty benefit or safeguard in question;

2 the taxpayer does not furnish, upon the request of the competent authority, sufficient information to provide a basis for determining the application of treaty provisions to the facts and circumstances of the taxpayer's case, except in instances when the tax authorities of the treaty country refuse to disclose such information to the taxpayer; or

3 the request is from a taxpayer under the jurisdiction of another competent authority (see Section 5 of this Revenue Procedure).

.02 Taxpayer Cooperation.

If a request for competent authority assistance is accepted for consideration, the continuing cooperation of the taxpayer is essential. The taxpayer shall supply to the United States competent authority any additional information that may be needed to resolve the issues raised in or by the request for competent authority consideration and should keep the United States competent authority informed as to proceedings in the treaty country or any other developments that may affect the outcome of the case. Failure to cooperate with the United States competent authority, or to supply the material or to take the actions required herein, will be grounds for rejection of further competent authority assistance.

.03 Review of Certain Cases When Competent Authority Assistance is Denied

If the United States competent authority determines at any time that a case is unsuitable for assistance the taxpayer may submit a request to the Commissioner of Internal Revenue for a review of this determination by a panel designated by the Commissioner. The decision of the review panel as to whether competent authority assistance should be provided is not further reviewable within the Service. (However, the taxpayer may pursue all rights to judicial review of the review panel's decision under the laws of the United States.) The United States competent authority will notify the taxpayer of the decision reached by the review panel and, if the decision is that the case is suitable for competent authority assistance, will provide assistance to the taxpayer in accordance with the procedures set forth herein.

.04 Notification of Competent Authority Agreements and Alternative Action Open to Taxpayer.

The United States competent authority will notify a taxpayer requesting assistance under this procedure of any agreement or partial agreement that the United States and foreign competent authorities reach with respect to the taxpayer's request. If such agreement or partial agreement is not acceptable to the taxpayer, the taxpayer may pursue all rights to administrative and judicial review otherwise available under the law of the treaty country and the United States.

Sec. 7. Requests for Rulings.

1 United States taxpayers may request an advance ruling involving the interpretation or application of the treaty. These requests are to be distinguished from requests for competent authority assistance described in this Revenue Procedure. Requests for advance rulings involving the interpretation or application of a United States tax treaty are appropriate where the question concerns taxation by the United States, as opposed to taxation by a treaty country. Such requests are made by taxpayers entitled by the treaty to Federal income tax benefits or by their withholding agents. A request for an advance ruling should be submitted directly to the Assistant Commissioner (Technical) in accordance with Rev. Proc. 72-3, 1972-1 C.B. 698. In addition, the Statement of Procedural Rules (26 CFR Part 601) published in the Federal Register on November 5, 1976, (41 FR 48740), requires a taxpayer requesting a ruling to make proposals concerning the deletions that section 6110(c) of the Code (as enacted by section 1201(a) Pub. U. No. 94-455, 94th Cong. 2d. Sess., (October 4, 1976) of the Tax Reform Act of 1976 [1976-3 C.B. (Vol. 1) 136]) requires the Secretary of the Treasury to make in the documents open to public inspection and requires the taxpayer to sign, under penalties of perjury, a declaration that the facts in the request are accurate and complete.

2 The Service will not issue advance rulings with respect to what effect the treaty has on the tax laws of the treaty country.

Sec. 8. Effective Date.

This Revenue Procedure is effective immediately.