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26 C.F.R. 1.1441-1:  Withholding of tax on nonresident aliens and foreign corporations and Tax Free Covenant Bonds

Title 26: Internal Revenue
PART 1—INCOME TAXES
Withholding of Tax on Nonresident Aliens and Foreign Corporations and Tax-Free Covenant Bonds

(c) Definitions—

(6) Beneficial owner

(i) General rule.

This paragraph (c)(6) defines the term beneficial owner for payments of income other than a payment for which a reduced rate of withholding is claimed under an income tax treaty. The term beneficial owner means the person who is the owner of the income for tax purposes and who beneficially owns that income. A person shall be treated as the owner of the income to the extent that it is required under U.S. tax principles to include the amount paid in gross income under section 61 (determined without regard to an exclusion or exemption from gross income under the Internal Revenue Code). Beneficial ownership of income is determined under the provisions of section 7701(l) and the regulations under that section and any other applicable general U.S. tax principles, including principles governing the determination of whether a transaction is a conduit transaction. Thus, a person receiving income in a capacity as a nominee, agent, or custodian for another person is not the beneficial owner of the income. In the case of a scholarship, the student receiving the scholarship is the beneficial owner of that scholarship. In the case of a payment of an amount that is not income, the beneficial owner determination shall be made under this paragraph (c)(6) as if the amount were income.

(ii) Special rules—(A) General rule. The beneficial owners of income paid to an entity described in this paragraph (c)(6)(ii) are those persons described in paragraphs (c)(6)(ii)(B) through (D) of this section.


IRS Website: Beneficial Owners and Documentation

Beneficial Owners and Documentation

Generally, you (the Withholding Agent) must withhold 30 percent from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following.

  1. The payee is a U.S. person
  2. The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding.

 

Generally, you must obtain the documentation before you make the payment. The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. See Standards of Knowledge .

If you cannot reliably associate a payment with valid documentation, you must use the presumption rules. For example, if you do not have documentation or you cannot determine the portion of a payment that is allocable to specific documentation, you must use the presumption rules.

Joint Owner

If you (the Withholding Agent) makes a payment to joint owners, you need to get documentation from each owner.

Form W-9

Generally, you can treat the payee as a U.S. person if the payee gives you a Form W-9. The Form W-9 can only be used by a U.S. person and must contain the payee's Taxpayer Identification Number (TIN). If there is more than one owner, you may treat the total amount as paid to a U.S. person if any one of the owners gives you a Form W-9. U.S. persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding.

Form W-8

Generally, a foreign person that is a beneficial owner of the income should give you (the Withholding Agent) a Form W-8.
There are various forms in the W-8 series. The form to use depends on the type of certification being made. As used in this discussion, the term Form W-8 refers to the appropriate document. See Forms for Foreign Beneficial Owners for more details.

The following describe the specific types of documentation.

If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8.

Other Documentation

Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. The nonresident alien individual may have to give you a Form W-4, Employee's Withholding Allowance Certificate or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. These forms are discussed in Pay for Personal Services Performed.
Special rules apply to Forms for Foreign Beneficial Owners.
Refer to Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for more information on these forms and documentary evidence.

References/Related Topics

 

Page Last Reviewed or Updated: 24-Nov-2015

[IRS Website: Beneficial Owners and Documentation; SOURCE https://www.irs.gov/individuals/international-taxpayers/beneficial-owners