Written by: Rita M. Ryan and Gautam Chopra
In Notice 2024-11, released on January 8th, the IRS provided an updated list of countries whose treaties meet the requirements under the IRC so that dividends from corporations in those countries received by U.S. taxpayers obtain qualified dividend treatment for U.S. reporting purposes.
Background
Section 1(h)(1) of the Internal Revenue Code generally provides that a taxpayer’s qualified dividend income for any taxable year will be subject to a maximum tax rate of 20 percent (or 15 percent in the case of certain taxpayers) so long as the dividends received are either from domestic corporations or a “qualified foreign corporation.”
A qualified foreign corporation is any foreign corporation that is:
- incorporated in a possession of the United States; or
- eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for the purposes of this provision and that includes an exchange of information program (The Treaty Test); or
- the stock of which is readily tradable on an established securities market in the United States.
For purposes of the Treaty Test noted above, the IRS maintains a list of such “qualified treaties.” As of January 8th, the IRS has made the following adjustments:
- Removal of Hungary from the treaty list due the termination of the treaty in January 2023;
- Removal of Russia from the treaty list due to the pause on the exchange of information between Russia and the United States;
- Addition of Chile to the treaty list, with which the tax treaty has come into force with effect from December 19, 2023;
- Removal of the S.S.R., Bermuda, and the Netherlands Antilles from the treaty list, noting that while the treaties remain in effect, they no longer meet the requirements under Section 1(h)(11) of the IRC.
Wolf’s Comment
Changes to the list of such qualified treaties, and therefore, of applicable tax rates on dividends received, is of keen interest to U.S. investors as it has a direct impact on the tax calculated by U.S. taxpayers. We expect to see current-year adjustments to broker reporting statements to account for these “qualified treaty” list adjustments and would expect to see further adjustments as treaties continue to terminate.
Wolf continues to monitor changes in the international tax space, and the resulting impacts on U.S. shareholders and their tax structures.
Questions?
The International Tax Services Team at Wolf & Company can help. We specialize in international tax reporting and can guide you on the right path to compliance – reach out today.
