Internal Revenue Bulletin:  2006-45 

November 6, 2006 

Announcement 2006-80

Supplemental Tables of Income Tax Rates Under New Income Tax Convention With Bangladesh and Protocol With Sweden


Table of Contents

The United States recently exchanged instruments of ratification for a new income tax treaty with Bangladesh and a new protocol with Sweden.

Bangladesh. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after October 1, 2006. For other taxes, the treaty is effective for tax periods beginning on or after January 1, 2007.

Sweden. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after October 1, 2006. For other taxes, the protocol is effective for tax years beginning on or after January 1, 2007.

Tables 1 and 2. The following tables can be used to supplement Tables 1 and 2 in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and Publication 901, U.S. Tax Treaties. The footnotes in those publications that relate to the column headings in these tables generally apply to these entries.

The protocol with Sweden affects only the footnotes in columns 6 and 7 of Table 1. These are the only columns shown for Sweden. The tables in Publication 515 and Publication 901 for Sweden can be used for the other columns of Table 1 and for Table 2.

Table 1.Withholding Tax Rates on Income Other Than Personal Service Income
Income code number 1 2 3 6 7 9 10 11 12 13 14 21
Country/Code                        
Bangladesh BG 10 a,g,i 10 a,f,g,i 10 a,g,i 15 a,j 10 a,b,j 0 a,h 10 a 10 a 10 a 30 0 c,d,e 30
Sweden SW       15 a,k,l 5 a,b,k,l,m              
Income Codes
1 Interest paid by U.S. obligors — General 10 Industrial royalties
2 Interest on real property mortgages 11 Copyright royalties — Motion pictures and Television
3 Interest paid to controlling foreign corporations 12 Copyright royalties — Other
6 Dividends paid by U.S. corporations — General 13 Real property income and Natural resources royalties
7 Dividends qualifying for direct dividend rate 14 Pensions and annuities
9 Capital gains 21 Social security payment
Footnotes
a The reduction in rate does not apply if the recipient has a permanent establishment in the United States and the property giving rise to the income is effectively connected with this permanent establishment. The reduction in rate also does not apply if the property producing the income is effectively connected with a fixed base in the United States from which the recipient performs independent personal services.
b The reduced rate applies to dividends paid by a subsidiary to a foreign parent corporation that has the required percentage of stock ownership.
c Exemption does not apply to U.S. Government (federal, state, or local) pensions and annuities; a 30% rate applies to these pensions and annuities. U.S. Government pensions paid to an individual who is both a resident and national of Bangladesh are exempt from U.S. tax.
d Does not apply to an annuity received for services rendered.
e Includes alimony.
f Reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
g The rate is 5% for interest (a) beneficially owned by a bank or other financial institution (including an insurance company) or (b) paid due to a sale on credit of any industrial, commercial, or scientific equipment, or of any merchandise to an enterprise.
h Exemption does not apply to gains on the sale of real property.
i The rate is 15% for contingent interest that does not qualify as portfolio interest.
j The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (a) an individual holding not more than a 10% interest in the REIT, (b) a person holding not more than 5% of any class of the REIT’s stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not more than a 10% interest in the REIT and the REIT is diversified.
k Amounts paid to a pension fund that are not derived from the carrying on of a business by the fund or through an associated enterprise are exempt. To be entitled to the exemption, the pension fund must not sell or make a contract to sell the holding from which such dividend is derived within two months of the date such pension fund acquired such holding.
l The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (a) an individual or a pension fund holding not more than a 10% interest in the REIT, (b) a person holding not more than 5% of any class of the REIT’s stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not more than a 10% interest in the REIT and the REIT is diversified. Dividends paid to a pension fund from a RIC, or a REIT that meets the above conditions, are exempt if the pension fund satisfies the requirements described in footnote (k).
m Dividends paid by an 80%-owned corporate subsidiary are exempt if certain conditions are met.

Table 2.Compensation for Personal Services Performed in United States Exempt from Withholding and U.S. Income Tax Under Income Tax Treaties
  Category of Personal Services Maximum Presence in U.S. Required Employer or Payer Maximum Amount of Compensation Treaty Article Citation
Country Code1 Purpose        
Bangladesh 15 Scholarship or fellowship grant2 2 years5 Any U.S. or foreign resident 3 No limit 21(2)
  16 Independent personal services6,8 183 days Any contractor No limit 15
  20 Public entertainment8 No limit Any contractor $10,0007 18
  17 Dependent personal services4 183 days Any foreign resident No limit 16
  20 Public entertainment8 No limit Any contractor $10,0007 18
  18 Teaching or research2 2 years Any U.S. or foreign resident No limit 21(1)
  19 Studying and training:2 Remittances or allowances 2 years5 Any foreign resident No limit 21(2)
    Compensation during study or training 2 years5 Any U.S. or foreign resident $8,000 p.a. 21(2)
Footnotes
1 Refers to income code numbers under which the income is reported on Forms 1042-S. Personal services must be performed by a nonresident alien individual who is a resident of the specified treaty country.
2 Does not apply to compensation for research work primarily for private benefit.
3 Grant must be from a nonprofit organization. The exemption also applies to amounts from either the U.S. or foreign government.
4 The exemption does not apply if the employee’s compensation is borne by a permanent establishment or a fixed base that the employer has in the United States.
5 The time limit pertains only to an apprentice or business trainee.
6 Exemption does not apply to the extent income is attributable to the recipient’s fixed U.S. base.
7 Exemption does not apply if gross receipts, including reimbursements, exceed this amount during the year. Income is fully exempt if visit to the United States is substantially supported by public funds of the treaty country or its political subdivisions or local authorities.
8 Withholding at 30% may be required because the factors on which the treaty exemption is based may not be determinable until after the close of the tax year.

More Internal Revenue Bulletins