Internal Revenue Bulletin: 2015-5
February 2, 2015
Table of Contents
The following is a copy of the Competent Authority Agreement (“the Agreement”) that was released to the public on February 2, 2015, by the Competent Authorities of the United States and Kazakhstan regarding the eligibility of entities that are treated as fiscally transparent under the laws of either Contracting State to benefits under the Convention Between the Government of the United States of America and the Government of the Republic of Kazakhstan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed on October 24, 1993 (the “Treaty”).
The text of the Agreement is as follows:
The competent authorities of the United States and of Kazakhstan hereby enter into the following mutual agreement (the “Agreement”) regarding the eligibility of entities that are treated as fiscally transparent under the laws of either Contracting State to benefit under the Convention between the Government of the United States of America and the Government of the Republic of Kazakhstan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, along with a Protocol, signed on October 24, 1993. The Agreement specifies the cases where fiscally transparent entities are entitled to treaty benefits and clarifies the procedure for claiming treaty benefits from one of the Contracting States. The Agreement is entered into under paragraph 3 of Article 25 (Mutual Agreement Procedure).
1) Eligibility of fiscally transparent entities for treaty benefits
Article 4(1)(b) of the Convention provides:
For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature.
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b) In the case of income derived by a partnership, trust, or estate, residence is determined in accordance with the residence of the person liable to tax with respect to such income.
The competent authorities agree that, in applying Article 4(1)(b) of the Convention, it is understood that income from sources within one of the Contracting States received by an entity, wherever organized, that is treated as fiscally transparent under the laws of either Contracting State will be treated as income derived by a resident of the other Contracting State to the extent that such income is subject to tax as the income of a resident of the other Contracting State.
For example, if a resident of the United States is a member of a limited liability company (“LLC”) that is treated for U.S. federal tax purposes as a partnership, the resident of the United States would be afforded benefits of the Convention on the income that the resident derives from Kazakhstan through the LLC to the extent of the resident’s share of that income. Similar rules would apply to a resident of the United States that is a partner of a partnership, a shareholder of a subchapter S Corporation, an owner of an LLC that is disregarded as an entity separate from its owner, or an owner of a grantor trust.
Similarly, if a resident of Kazakhstan is a member of a simple partnership, a consortium, or other joint venture that is treated as fiscally transparent under the laws of Kazakhstan, the resident of Kazakhstan would be afforded benefits of the Convention on the income that the resident derives from the United States through such an arrangement to the extent of the resident’s share of that income.
2) Appropriate procedures for confirming U.S. residence
Any fiscally transparent entity, such as a general or limited partnership, shall request a certificate of residence on behalf of its owners that are residents of the United States. Accordingly, a U.S. LLC or other entity organized within or without the United States that is treated as a partnership for U.S. federal tax purposes shall obtain a certificate of residence on Form 6166 in the same manner as a partnership. For partnerships that are required to file Form 1065, U.S. Return of Partnership Income, generally domestic partnerships and foreign partnerships with U.S. source income, the Form 6166 confirms the filing of such form and includes a list of partners who have filed tax returns as U.S. residents. Form 6166 will inform the withholding agent to contact the partnership directly to provide information regarding the allocation of a particular payment to a specific partner. If a foreign partnership with U.S. partners is not required to file a Form 1065, the Form 6166 will confirm that position and otherwise contain the same information regarding its U.S. partners.
A U.S. LLC or other entity organized within or without the United States that is disregarded as an entity separate from its owner for U.S. tax purposes shall obtain a Form 6166 that provides that the LLC or such other entity 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.
A U.S. resident deriving income through a U.S. corporation that has made an election to be treated as an S Corporation for U.S. tax purposes shall also be certified in a manner similar to a partner in a partnership. The S corporation obtains a Form 6166 certificate of residence that confirms the filing of an information return, Form 1120S, U.S. Income Tax Return for an S Corporation, as required for a domestic S corporation, and includes a list of shareholders that are residents of the United States for purposes of U.S. taxation.
The competent authorities have agreed that U.S. persons providing original Forms 6166 to claim treaty benefits from Kazakhstan are not required to obtain apostils to authenticate such forms.
Agreed to by the undersigned competent authorities:
Douglas W. O’Donnell
U.S. Competent Authority
State Revenue Committee
Ministry of Finance
Republic of Kazakhstan
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