Document Type

Article

Publication Date

1993

Abstract

When the U.S. terminated its income tax treaty with the Netherlands Antilles in 1984, there was criticism from U.S. corporations that they were being unfairly kept out of the competitive Eurobond financing market. In order to provide access to the Eurobond market, Congress enacted Section 871(h) to provide an exemption (the “portfolio interest exemption”) from the 30% withholding tax on U.S.-source income earned by a nonresident alien individual or foreign corporation that is not effectively connected with the conduct of a U.S. trade or business. Portfolio interest, under Sections 871(h) and 163(f), is any U.S.-source interest (including original issue discount) that is not effectively connected with the conduct of a trade or business and (1) is paid on an obligation that satisfies certain registration requirements or specified exceptions contained in Section 163(f), or for which the U.S. payor (or U.S. person whose duty it would otherwise be to withhold tax) obtains a statement that the beneficial owner is not a U.S. person, and (2) which is not received by a 10% owner or issuer of the obligation taking into account shares owned by attribution.

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