Today the IRS published the following Chief Counsel Advice relating to international taxation.
CCA 201434021 - A withholding agent made interest payments to two nonresident aliens, A and B, without withholding 30% as required by Code §1441. The withholding agent treated the payments as portfolio interest not subject to withholding, but did not have the required documentation from the payees to support a claim for the portfolio interest. The withholding agent would be liable for the tax if it was required to withhold but did not. Code §1461.
The CCA provided that a reduced rate of withholding on portfolio interest can be established after payments are made if a withholding certificate or documentary evidence is provided before the expiration of the period of limitation for claiming a refund of tax with respect to such interest. Treas. Reg. §1.871-14(c)(3)(i).
Because A did not file a U.S. tax return, A's period of limitation could not have started, so the documentation can be obtained at any time. However, because B did file a U.S. tax return, the withholding agent generally has three years from the date the return was filed to obtain documentation supporting the portfolio interest.