What are the seven factors not supporting recognition as a beneficial owner?
In addition to providing a general description of the type of person who would be entitled to recognition as a beneficial owner Circular 601 identifies the following seven factors as not supporting recognition of an applicant’s status as a beneficial owner.
1.The applicant is obliged to pay or distribute all or the great majority (e.g., at least 60 percent) of the income to residents of a third country (or region) during a specified period of time (e.g., within 12 months of receipt of the income).
2.The applicant has no or almost no business activities other than holding the property or rights from which the income is derived.
3.Where the applicant is a company or other such entity, its assets, scale and staffing are small (or few) and are out of proportion to the amount of income.
4.The applicant has no or almost no control over, or right to dispose of, the income or the property or rights from which the income is derived, and bears no risk thereof or rarely bears risk.
5.The contracting state (region) does not tax or exempts tax on income or, although it does levy tax, the actual tax rate is very low.
6.In addition to the loan contract on the basis of which interest is generated and paid, there is another loan contract or deposit contract between the creditor and a third party that is similar in amount, interest rate and time of execution.
7.In addition to the contract for the transfer of the right to use a copyright, patent, technology, etc. on the basis of which royalties arise and are paid, there is another contract concerning the transfer of the right to use, or the ownership of, the relevant copyright, patent, technology, etc. between the applicant and a third party.
The Circular provides that a taxpayer applying for beneficial treatment under a Tax Agreement must submit documentation evidencing its status as a beneficial owner with reference to the factors set forth above.
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