| COMPETENT
AUTHORITY MUTUAL AGREEMENT |
| The Competent Authorities of the United
States of America and Spain hereby enter into the following agreement (“the
Agreement”) regarding the treatment of limited liability companies (“LLCs”),
S corporations, and other business entities treated as partnerships or disregarded
entities for U.S. tax purposes, under the Convention Between the United States
of America and the Kingdom of Spain for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on Income, Together
with a Related Protocol, signed at Madrid on February 22, 1990 (“the
Treaty”). The Agreement is entered into under paragraph 3 of Article
26 (Mutual Agreement Procedure).
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| 1.) Definition of "any other
body of persons” under Article 3(1)(d) |
| Under paragraph 4 of the Protocol the
term “any other body of persons” contained within Article 3(1)(d)
(General Definitions) is understood to include an estate, a trust, or a partnership.
The Competent Authorities agree that the term “any other body of persons,”
is also understood to include an LLC or other entity, whether organized within
or without the United States, that for U.S. federal tax purposes is treated
either as a partnership or is disregarded as an entity separate from its owners.
|
| Consistent with the agreement regarding
paragraph 4 of the Protocol, the Competent Authorities agree that paragraph
5(b) of the Protocol will be interpreted to reflect that income received by
an LLC, or other entity, whether organized within or without the United States,
that is treated for U.S. federal tax purposes as a partnership or disregarded
as an entity separate from its owner, will be treated as income derived by
a resident of the United States to the extent that income received by the
LLC or other entity is subject to U.S. tax as the income of a U.S. resident.
Similarly, the Competent Authorities agree that income received by an S corporation
will be treated as derived by a resident of the United States to the extent
that the income received by the S corporation is subject to U.S. tax as the
income of a U.S. resident.
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| For example, if a U.S. LLC that is treated
for U.S. federal tax purposes as a partnership receives a royalty payment
from Spain, and the U.S. LLC has two members with equal interest in the LLC,
one Spanish resident and one U.S. resident, the LLC may claim treaty benefits
as a U.S. resident with respect to 50% of the royalty payment because 50%
of the payment is subject to tax in the United States in the hands of a U.S.
resident member.
|
| 2.) Appropriate procedure for
claiming treaty benefits |
| a.) A U.S. LLC that is treated as a partnership
for U.S. tax purposes may request a certificate of residence on Form 6166
in the same manner as a partnership. The Form 6166 will confirm the filing
of Form 1065, U.S. Return of Partnership Income, by the LLC and include an
attachment that lists the members of the LLC that are residents of the United
States according to Internal Revenue Service records. The LLC, in turn, is
expected to provide information concerning the percentage ownership of the
LLC represented by the listed members from its internal records directly to
the foreign withholding agent. For example, if a U.S. resident owns a 50%
interest in the LLC, and a Canadian resident owns the remainder, the attached
list obtained from the Internal Revenue Service will identify the U.S. resident,
and the LLC will represent to the Spanish withholding agent that such resident
owns a 50% interest in the LLC.
|
| b.) In the case of tiered U.S. LLCs treated
as partnerships for U.S. tax purposes, treaty benefits and certification rules
that are similar to those for tiered partnerships will apply.
|
| c.) In the case of a U.S. LLC disregarded
as an entity separate from its owner for U.S. tax purposes, the LLC may request
a Form 6166 that states that it is a branch, division, or business unit of
its single member owner and that such single member owner is a resident of
the United States.
|
| d.) In the case of an LLC or other entity
organized outside the United States, similar rules apply, provided that the
LLC or other entity is treated as a partnership or is disregarded as an entity
separate from its owner for U.S. tax purposes. The LLC may request a Form
6166 that confirms it files Form 1065, U.S. Return of Partnership Income,
and that the attached list of members of the LLC are residents of the United
States, or that the LLC is a branch, division or business unit of its single
member owner and that such single member owner is a resident of the United
States.
|
| e.) In the case of a U.S. corporation
that has made an election to be treated as an S Corporation for U.S. tax purposes,
such S corporation may request a Form 6166 in a manner similar to that of
a partnership. The Form 6166 will confirm that the corporation has filed Form
1120S, U.S. Income Tax Return for an S Corporation, and will attach a list
of all the shareholders who are U.S. residents for purposes of the Treaty.
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| Under special circumstances when the facts
warrant further inquiry and upon a specific request from Spain, the United
States will seek to verify the truthfulness of the LLC’s representation
as to the allocation of income with respect to a particular payment.
|
| 3.) Effective date |
| Upon signature by both competent authorities,
this Agreement is effective retroactive to January 1, 1998.
|
| This Agreement will not be effective in
relation to periods barred by statute of limitations.
|
| |
|
|
| Agreed to by the undersigned competent
authorities:
|
| Frank Y. Ng U.S. competent authority |
José Manuel de Bunes Spain competent authority |
| Date |
Date |
