Advising on Withholding Issues
Caplin & Drysdale
Advising on Withholding Issues

If you are a foreign corporation or individual investing in the United States or a U.S. company making payments to foreign persons, chances are the recently-issued U.S. nonresident alien withholding regulations affect you. These new rules are voluminous and complex, and the consequences for failure to comply with their substantive or documentation requirements may be harsh. The withholding rules cannot be considered in a vacuum; you also need to understand how they interact with tax treaty provisions and with various anti-abuse rules, such as the "conduit" regulations.

Caplin & Drysdale attorneys were involved in the joint IRS banking industry task force and Treasury Department regulations project that overhauled the withholding rules. We have hands-on familiarity with all substantive and procedural aspects of the withholding rules. If you are a foreign corporation or individual investing in the United States, we can help you understand the rules, structure your investments to eliminate or minimize withholding tax, and satisfy the complicated documentation requirements. If you are a U.S. withholding agent, we can help you comply with your withholding obligations and avoid exposure to withholding liability.

Representative Engagements

  1. The IRS sought to collect more than $50 million in withholding taxes and penalties from our client, a U.S. subsidiary of a foreign bank that had acted as custodian for a group of foreign mutual funds.

    Result: Caplin & Drysdale orchestrated a referral of the issue to the IRS National Office, which agreed with our attorneys that the international examiner had misinterpreted the rules and that the funds were entitled to benefits under the applicable tax treaty, resulting in a complete IRS concession.

  2. A foreign bank engaged in a tax-advantaged cross-border leasing transaction that was susceptible to a variety of different U.S. tax characterizations. 

    Result: Caplin & Drysdale attorneys structured and documented the transaction in a manner that minimized exposure to U.S. withholding tax no matter which characterization was ultimately adopted.

  3. A foreign corporation invested in a U.S. company through a variety of foreign partnerships and hybrid entities, some of which were organized in countries with which the United States has a tax treaty.

    Result: Caplin & Drysdale analyzed the complicated withholding rules applicable to partnerships and the interaction of those rules with all pertinent treaty provisions. We advised the client on the documentation that would be necessary to establish entitlement to a reduced rate of withholding.

Our Services

  • Analyze how the withholding rules apply to your facts;
  • Structure your investments so as to eliminate or minimize withholding;
  • Analyze how treaties impact your withholding obligations;
  • Determine whether and how the conduit rules may affect your withholding obligations;
  • Ensure that you comply with relevant regulation requirements; and
  • Negotiate Qualified Intermediary agreement with the IRS on your behalf.
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