Limitation on Benefits Treaty Provisions
If you are a resident of a foreign country that has entered into an income tax treaty with the United States that contains a Limitation on
Benefits (LOB) article, you must complete one of the checkboxes in Section B. You may only check a box if the LOB article in that treaty
includes a provision that corresponds to the checkbox on which you are relying to claim treaty benefits. A particular treaty might not include
every type of test for which a checkbox is provided.
You must check the relevant treaty LOB article for the particular requirements associated with each test. In general, only one LOB checkbox
is required to claim a treaty exemption, even if more than one checkbox would suffice to claim the benefits of the treaty for that item of
income.
Each of the tests is summarized below for the general convenience of taxpayers but may not be relied upon for making a final determination
that you meet an LOB test. Rather, you must check the LOB article itself to determine which tests are available under that treaty and the
particular requirements of those tests. Refer to Table 4, Limitation on Benefits, at
www.irs.gov/Individuals/International-Taxpayers/Tax-Treaty-Tables.
Definitions of Limitation on Benefits Test
Government - this test is met if the entity is the Contracting State, political subdivision, or local authority.
Tax-exempt pension trust or pension fund - this test generally requires that more than half the beneficiaries or participants in the trust or
fund be residents of the country of residence of the trust or fund itself.
Other tax-exempt organization - this test generally requires that more than half the beneficiaries, members, or participants of religious,
charitable, scientific, artistic, cultural, or educational organizations be residents of the country of residence of the organization.
Publicly-traded Corporation - this test generally requires the corporation's principal class of shares to be primarily and regularly traded on
a recognized stock exchange in its country of residence, while other treaties may permit trading in either the U.S. or the treaty country, or in
certain third countries if the primary place of management is the country of residence.
Subsidiary of publicly-traded corporation - this test generally requires that more than 50% of the vote and value of the company's shares
be owned, directly or indirectly, by five or fewer companies that are publicly-traded corporations and that themselves meet the
publicly-traded corporation test, as long as all companies in the chain of ownership are resident in either the U.S. or the same country of
residence as the subsidiary.
Company that meets the ownership and base erosion test - this test generally requires that more than 50% of the vote and value of the
company's shares be owned, directly or indirectly, by individuals, governments, tax-exempt entities, and publicly-traded corporations
resident in the same country as the company, as long as all companies in the chain of ownership are resident in the same country of
residence, and less than 50% of the company's gross income is accrued or paid, directly or indirectly, to persons who would not be good
shareholders for purposes of the ownership test.
Company that meets the derivative benefits test - this test is generally limited to NAFTA, EU, and EEA country treaties, and may apply
to all benefits or only to certain items of income (interest, dividends, and royalties). It generally requires that more than 95% of the
aggregate vote and value of the company's shares be owned, directly or indirectly, by seven or fewer equivalent beneficiaries (ultimate
owners who are resident in an EU, EEA, or NAFTA country and are entitled to identical benefits under their own treaty with the U.S. under
one of the ownership tests included within the LOB article (other than the stock ownership and base erosion test)). In addition, this test
requires that less than 50% of the company's gross income be paid or accrued, directly or indirectly, to persons who would not be equivalent
beneficiaries.
Company with an item of income that meets the active trade or business test - this test generally requires that the company be engaged
in an active trade or business in its country of residence, that its activities in that country be substantial in relation to its U.S. activities, if the
payer is a related party, and the income be derived in connection to or incidental to that trade or business.
Favorable discretionary determination received - this test requires that the company obtain a favorable determination granting benefits
from the U.S. competent authority that, despite the company's failure to meet a specific objective LOB test in the applicable treaty, it may
nonetheless claim the requested benefits. Note: Unless a treaty or technical explanation specifically provides otherwise, you may not claim
discretionary benefits while your claim for discretionary benefits is pending.
Other - for other LOB tests that are not listed above (e.g., a headquarters test). Identify the other test relied upon, or enter N/A if the treaty
has no LOB article. For example, if you meet the headquarters test under the U.S.-Netherlands income tax treaty, you should write
"Headquarters test, Article 26(5)" in the space provided.
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