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Limitation on benefits

The IRS tax treaty tables describe limitation on benefits as a treaty article that sets conditions for certain entities seeking treaty benefits.

Meaning in the IRS tables

The IRS tax treaty tables describe limitation on benefits as an article that sets conditions for an entity resident in a treaty country to qualify for certain treaty benefits. The IRS characterizes the article as addressing residents of third countries receiving benefits not intended for them under a treaty.[4]

The article is relevant to entities that are residents of a country whose U.S. income tax treaty contains an LOB article.

Where the term appears

The IRS tax treaty tables include a dedicated Table 4 for limitation on benefits. Tables 1 and 2 cite treaty articles relevant to categories of income, while Table 4 identifies major tests within LOB articles that matter when documenting an entity's treaty benefit claim.

The IRS says Table 4 can assist taxpayers completing Form W-8BEN-E and Form 8833 when filing is required. It also says the table is not the final source for deciding whether an entity meets a test. That determination depends on the particular requirements in the relevant treaty's LOB article.[4]

Scope and exceptions in the tables

Table 4 applies to entities resident in a country whose U.S. income tax treaty contains an LOB article. An entity resident in a treaty country without such an article does not need to use Table 4.

Table 1 concerns treaty rates for specified income categories, and its introductory text says all treaty requirements must be met before an item of income is exempt from U.S. income tax. The LOB test is one subject addressed in Table 4; the applicable treaty text supplies the detailed requirements. The IRS treaty list provides links to treaties with particular countries and identifies the United States Model as a separate listing.[4]

In more detail

Table 4 identifies major tests in limitation on benefits articles that are relevant when documenting an entity's treaty benefit claim. It identifies the treaty or protocol article describing each test, while the applicable treaty text supplies the particular requirements.[4]

Key points

An entity resident in a country whose U.S. income tax treaty contains an LOB article is eligible for Table 1 benefits only if it satisfies an objective test in that article or obtains a favorable discretionary determination from the U.S. competent authority for the specific benefits.[4]

Related reading

Income tax treaty provides context on treaty benefits by income type. Tax residence connects treaty treatment to residence. Withholding tax covers treaty rates on income payments. U.S. person defines a term relevant to U.S. reporting.

Questions and answers

What does limitation on benefits mean in the IRS tables?

It refers to a treaty article that sets eligibility conditions for certain entities seeking treaty benefits. The IRS says an entity covered by such an article must satisfy an objective test or obtain a discretionary determination for the specific benefits.[4]

Which entities does Table 4 address?

The table addresses entities resident in a country whose U.S. income tax treaty contains an LOB article. An entity resident in a treaty country without an LOB article does not need to use Table 4.[4]

Does Table 4 list every requirement for an LOB test?

No. It identifies major tests, while the IRS directs readers to the specific LOB article to determine the requirements of those tests.[4]

Which forms do the tables mention?

Table 4 can assist taxpayers completing Form W-8BEN-E and Form 8833 when filing is required. The IRS says the table is not the final source for deciding whether an entity meets a test.[4]

How does this relate to the saving clause?

The IRS treaty overview describes the saving clause as limiting treaty use by U.S. citizens or residents, because the United States generally keeps its right to tax them as if the treaty had not come into effect.

When does Table 1 matter in this context?

Table 1 provides treaty rates for income categories, and the IRS says entities covered by an LOB article qualify for its benefits only by meeting an objective test or obtaining a discretionary determination. The full treaty article supplies the specific test requirements.[4]

  • Tax residence: Tax residence describes a person's status in a country for tax purposes. Treaty texts address how it affects income items and applicable treaty requirements.
  • Treaty-based return position: A treaty-based position claims that a U.S. treaty overrides or reduces U.S. tax. The IRS discusses the term in Publication 901 and in the title of Form 8833.
  • Income tax treaty: An income tax treaty may provide reduced U.S. tax rates or exemptions for specified U.S.-source income. Rules vary by country and income type under each treaty.
  • Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties.

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Sources and data notes
  1. Internal Revenue Service, Publication 901, U.S. Tax Treaties. https://www.irs.gov/publications/p901. Retrieved .
  2. OECD, OECD Model Tax Convention. https://www.oecd.org/en/topics/oecd-model-tax-convention-on-income-and-on-capital.html. Retrieved .
  3. Internal Revenue Service, United States income tax treaties A to Z. https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z. Retrieved .
  4. Internal Revenue Service, Tax treaty tables. https://www.irs.gov/individuals/international-taxpayers/tax-treaty-tables. Retrieved .

Dates in this block record when each source was read for this page.