Beware of Errors in Limitations on Benefits Table on IRS Website When Vetting Treaty Claims on Forms W-8BEN-E

Earlier this year, the IRS changed the Form W-8BEN-E to require beneficial owners to identify the applicable limitation on benefits (“LOB”) test under the LOB article (if an LOB exists under the treaty) to claim tax treaty benefits. Income tax treaties often contain LOB articles to prevent treaty shopping by residents of a third country by limiting treaty benefits to residents of the treaty country that satisfy one of the tests specified in the LOB article. The form change requires additional complexity on the part of beneficial owners and additional due diligence on the part of withholding agents when vetting treaty claims. In the revised Instructions to the Form W-8BEN-E, the IRS includes a URL to an IRS table that summarizes the major tests within the LOB articles of U.S. tax treaties (“IRS LOB Table”) to document an entity’s claim for treaty benefits. The table can be found here.  After reviewing a recent treaty claim on Form W-8BEN-E, we discovered that the table contains some errors and misleading information with respect to several countries.

The new requirement to report the LOB provision on Form W-8BEN-E is onerous because it essentially requires withholding agents to pull the income tax treaty and protocols for each treaty claim submitted on a Form W-8BEN-E to validate that the appropriate LOB test is accurately reflected by the box checked on the form. There are two potential pitfalls for withholding agents reviewing these claims using information found on the IRS website. First, withholding agents must carefully review the U.S. income tax treaties and protocols made available to the public on the IRS website, which is a challenge for many Form W-8BEN-E reviewers who may be untrained or inexperienced regarding these documents. Many withholding agents are sure to either skip or struggle with this validation approach. Second, the table provided by the IRS is essentially incomplete and contains errors, so in certain cases it cannot be relied upon. This is particularly concerning in light of the “reason to know” standard as it applies to treaty claims set forth under Temp. Treas. Reg. §1.1441-6T(b) and the Instructions for the Requester of Forms W-8, which require diligence on the part of withholding agents with respect to treaty claims.

The IRS should be more careful before it releases informal guidance to the public, but it has repeatedly warned taxpayers over the years that the public relies upon informal guidance at its own peril. In fact, courts have upheld penalties assessed against taxpayers for relying on such guidance, holding that administrative guidance contained in IRS publications is not binding on the government. Accordingly, prudent withholding agents are best served to “trust but verify” when relying on the IRS LOB Table.

The errors we discovered in the IRS LOB Table are described below.

U.S. – Australia Treaty

The Australia entry should cite to Section 16(2)(h) (rather than Section 16(1)(h)) as the provision that permits a recognized company headquarters to claim treaty benefits.

U.S. – Bulgaria Treaty

The IRS LOB Table also fails to reflect a 2008 protocol modifying the 2007 U.S. – Bulgaria income tax treaty, which added a triangular provision that provides a safe harbor for certain companies resident in a partner state that derive income from the other partner state attributable to a permanent establishment located in a third jurisdiction. This triangular provision is set forth in new Section 21(5) of the treaty. The Bulgaria entry in the IRS LOB Table also contains the wrong citation for the provision permitting discretionary determinations of treaty eligibility. Because the 2008 protocol set forth a new Section 21(5), the discretionary provision was relocated to Section 21(6).

U.S. – China Treaty

The China entry does not specify the correct protocol in which certain LOB tests are located. The United States and China entered into protocols in 1984 and 1986, both of which are still in effect and neither of which actually supplement or modify the text of the U.S. – China income tax treaty—in other words, the text of the original treaty is left as-is and the protocols simply layer on top of it. This is a unique scenario, since protocols generally supplement or modify the original text of the treaty. In fact, we are only aware of one other country (Italy) with which the United States has entered into protocols that did not supplement or modify the original treaty text. The two China protocols, which do not contain provisions titled “Limitations on Benefits” and instead require a careful reading to identify the presence of LOB provisions, must therefore be read in tandem with the underlying treaty. The existence of multiple protocols, the second of which was solely created to modify a provision in the first protocol, serves as the cause of the errors in the IRS LOB Table. Specifically, the citations for the publicly traded company and stock ownership and base erosion test provisions should read “P2(1)(b)” and “P2(1)(a),” respectively.

U.S. – France Treaty

The IRS LOB Table makes several mistakes with respect to the 1994 U.S. – France income tax treaty, one of which relates to a 2009 protocol to the treaty. The 2009 protocol added new Section 30(3) to the treaty, which sets forth a provision on derivative benefits that allows a company to claim treaty benefits if a percentage of its shares is owned by persons who would be entitled to treaty benefits had they received the income directly. However, the IRS LOB Table currently states that Section 30(3) permits a recognized headquarters company to claim treaty benefits—the 2009 protocol eliminated the company headquarters safe harbor. In addition to this error, the U.S. – France treaty entry in the IRS LOB Table mistakenly points to Section 30(1)(c)–(f) as the location for three safe harbors (safe harbors for publicly traded companies or their subsidiaries, tax exempt organizations and pension funds, and persons satisfying the stock ownership and base erosion test), all of which are actually set forth in Section 30(2)(c)–(f).

U.S. – New Zealand Treaty

Yet another protocol not reflected in the IRS LOB Table is New Zealand’s 2008 protocol, which replaced the entire LOB article in the 1982 U.S. – New Zealand income tax treaty. The new LOB article still contains safe harbors for publicly traded companies and companies that satisfy the stock ownership and base erosion test, but the section references should be Section 16(2)(c) and 16(2)(e), respectively. The safe harbor categorized as “Other” in the IRS LOB Table, which required New Zealand and the United States to consult each other before denying benefits under the LOB article, no longer exists, so it should be removed from the table. However, the 2008 protocol added safe harbors for: (i) tax exempt organizations and pension funds, set forth in new Section 16(2)(d); (ii) certain active trades or businesses in new Section 16(3); (iii) persons that qualify under a triangular provision in new Section 16(5); and (iv) persons deemed to qualify under a discretionary determination made by the appropriate partner country in new Section 16(4).

U.S. – Tunisia Treaty

The provision in the Tunisia treaty permitting discretionary determinations is Article 25(7), not Article 25(5)(7).

Miscellaneous Issues with IRS LOB Table

The IRS LOB Table includes various non-substantive issues that signal that the document has not been subject to a final, careful review by the IRS. The footnotes set forth in the document are incomplete and, in certain cases, incorrect. The column headings for each LOB test refer to a footnote, but the footnotes at the end of the table seem to either merely restate the name of the LOB test or, in many cases, do not even align with the linked column headings. For example, the “Derivative Benefits” heading cites to footnote 8, which only states “Derivative benefits test –,”and the “Active Business” heading cites to footnote 9, which actually states “triangular provisions” (curiously, the “Triangular Provision” heading does not cite to a footnote). Most perplexing, however, are the blank footnotes. For example, the title of the chart, “Limitation on Benefits Tests (Safe Harbors)” cites to footnote 2, yet footnote 2 contains no text. A taxpayer might then turn to the “LOB Test Category Codes” to ease this confusion, which are located directly above the IRS LOB Table on the first page and appear to possibly correlate with the column headings. However, these Codes provide no detail beyond merely restating the headings themselves, or in the case of “01” and “02,” do not seem to correlate to anything in the Table.

Another non-substantive oversight relates to a lack of citations in the entry describing the LOB provisions for the U.S. – U.S.S.R. treaty (listed as “Comm. of Independent States”). Though the U.S. – U.S.S.R. treaty is no longer in effect, the LOB provisions are likely still relevant to many beneficial owners and withholding agents, as the IRS LOB Chart states that the U.S. – U.S.S.R. treaty still applies to nine former members of the Soviet Union.


The IRS LOB Table has the potential to be a helpful resource for withholding agents to use when reviewing new Forms W-8BEN-E submitted with treaty claims, but withholding agents should verify the information set forth in the table with the related treaties and protocols that are also available on the IRS website.