US withholding tax

Is US tax withheld from the disposal of an interest in an LLP recoverable?

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I have a client who has a 12% holding in an LLP in the States. The business is about to be sold, and the client has been told that there will two rates of withholding tax applied to the proceeds: 37% from "income" assets such as goodwill, and 28% from the fixed assets. I have always understood that, under the double taxtion agreement, capital gains are only taxed in the country of residence, not where the gain arose. But the accountants in the US, handling the sale, are adamant that these rates will apply.

Has anyone any experience of this? And if the tax is withheld, can it be reclaimed from the IRS?

Many thanks

Nick

 

 

 

Replies (3)

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By Matrix
19th Feb 2024 11:50

Have you checked the treaty?

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By richard thomas
19th Feb 2024 12:03

The US will apply its domestic law to income and gains arising from US sources to a non-resident whether or not a treaty provides for exemption, in the same way as the UK and probably every other country does.

Where an exemption may apply to a resident of the other state, the source state will have procedures that allow for either clearance in advance that the non-resident qualifies for the exemption or for reclaiming the tax deducted - see eg SI 1970/488 in the UK. You will know, or should soon find out, that the UK/US treaty has an immensely lengthy limitation of benefits article, complex exemptions from exemption or reduction and many other conditions. No payer of income and gains can be or indeed is expected to make a judgment on qualification.

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By David Ex
19th Feb 2024 13:03

If the amounts are material, the obvious thing to do is to pay for some US tax advice. (If they had a business interest in the US, did they not have a US adviser already?)

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