USA Witholding Tax

[BobDee]

I receive a small pension from the USA. Before it is paid the US Gov deduct 30% "witholding tax". For the past few years I have been declaring the net amount, (as paid into my UK bank account), on my French tax return as there is no way that I know of that the tax can be reclaimed. (I am not an American citizen). There is no double taxation treaty between the US and France, so I am effectively taxed twice on this small amount. Enquiries to the US Embassy have not been helpful to say the least and the local French tax office dosnt seem to have a clue. Any ideas anyone?

[Anton Redman II]

I thought there was a US France double taxation treaty. Link is about half way down the page :

http://www.ubs.com/1/e/ubs_ch/bb_ch/custody/custody_account/double_taxation.html

In any case I thought the default was declare 100 % and be allowed against tax the 30% you have already suffered but not repaid. If French tax would be 25% receive no rebate. If French tax 35% only pay extra 5 %

[BobDee]

Hi Anton, Thanks for that. I hadnt seen that document before, but under Pensions it seems to imply that tax should be applied only in one State but it also mentions being a Citizen of the US. So I guess I dont qualify for this consideration. Whilst I lived in Tthe UK, the pension was paid without being taxed, As soon as we moved to France tax got deducted.

[Araucaria]

[quote user="BobDee"]Hi Anton, Thanks for that. I hadnt seen that document before, but under Pensions it seems to imply that tax should be applied only in one State but it also mentions being a Citizen of the US. So I guess I dont qualify for this consideration. Whilst I lived in Tthe UK, the pension was paid without being taxed, As soon as we moved to France tax got deducted.[/quote]

Bob:

Anton's link didn't work for me (edit - later - working now) but this one did and it takes you straight there:

USA double taxation treaty with France

Article 18, which deals with pensions, doesn't say anything about citizenship (though the US does have rather a bee in its bonnet about taxing its citizens even if they have been living for years elsewhere), but what it does mean is that pensions that have their "source" in the US will only be taxable in the US, and in that sense the treaty doesn't help you. It explains that it applies to pensions paid by the US under its own social security legislation, or pensions paid by US pension funds in respect of previous employment. It's the exact opposite of the US treaty with the UK, which says that pensions are taxable in the country where the pensioner lives.

It's sometimes possible that a pension doesn't fall within the definition in the pensions article - for example, because it isn't paid in respect of past service (e.g. an annuity you had paid for yourself). If that were the case, the treaty's "sweeping-up" article would apply. That is Article 22, which deals with "other income", and which says that income of that type is taxable only in France.

If you feel like telling us what kind of pension you get there might be a chance of getting away from the withholding tax. Not much chance, though.

[pachapapa]

I'll be concise on this one as I am facing a COMPLETE RUBBISH RAP at the moment.[:)]

Previously you would have been able to use a W8-BEN FORM to get relief from deduction of income tax at source in the states, this is no longer the case.

[Araucaria]

PPP

One of things I didn't say is that I have no idea whether the withholding tax is right under US tax law, as opposed to being allowed under the treaty.

However the fact that the US tax treaty with France says the pension won't be taxed in France makes me think that the US intends to get its pound of flesh from people like Bob, and the easiest way is a withholding tax.

[Payrac-man]

Hi

Have you completed your W-8BEN cert of foreign status of benificial owner for US tax witholding form?

[pachapapa]

Every so often I have to complete the W-8BEN; last time last week due to the change of admin from Wells Fargo to American Stock Transfer in respect of stock with Massey Energy. The pdf form is available on the IRS website at;

http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

You can also get the 7 page spread of instructions if necessary.

[BobDee]

Many thanks for the responses folks. Firstly the pension is my wife's widows pension. She lived in the US for many years and her first husband (an American citizen) was in receipt of a disability pension when he died.

I have read through the notes re formW-8BEN and it does seem that we can claim an exemption to the withholding tax. When we first moved to France, four years ago, we spoke to the US embassy in Paris and also to the tax authorities in Maryland. Nobody mentioned this form and assuming that no tax would be reclaimable, I have been showing this income at the received, (net) value. If sucessful with the claim, obviously I would show the gross value and be happy to be taxed here at the more beneficial rate. Maybe even a retrospective refund would be available! It all seems a little too good to be true at the mo. Another call to the Embassy may be in order Monday morning.

[pachapapa]

The responsibility for the admistration of the W-8BEN and indeed the W-9 rests with the "witholding agent", broadly speaking the administrator of the pension scheme, in the past this was often done by large companies themselves but in recent years this service has normally been outsourced to somebody like Northern Trust in Chicago, there are lots of these companies around. Your wife due to previous residence in the states may have an SSN Social Security Number and a TIN Tax Identification Number; if she ever had a W-9 then likely she would have had them.

 I used to get pension payment in full gross but this changed sometime about the time Sarkozy visited Bush in New England; the americans on the basis that PPP was swinging the lead[:)]proposed that to avoid widespread tax evasion that tax should be deducted at source; Sarkozy agreed with this as he is a tough guy;etc,etc. Of course Sarko is not blessed with a lot of grey matter and the Americans win hands down in the tax collection stakes.

[allanb]

BobDee: If your wife's pension is paid by the Social Security Administration, I believe it is treated as a "social security benefit", exactly like the national retirement pension.

If this is the case, assuming that you and your wife are resident in France (and not US citizens), then the treaty applies to it, and only the US can tax it.  But the treaty does not determine how the US may tax it, nor at what rates; this is a matter for US law.

Unfortunately social security benefits fall into a category known as "income not effectively connected with a US trade or business", which means that as a non-resident alien you are liable to US tax at a standard rate of 30%, with no relief for personal exemptions or lower-rate tax bands.  

(In the case of a retirement pension, only 85% of the gross amount is taxable, so the effective tax rate is 25.5%, i.e. 85% of 30%).

Unless there is an exception for your wife's particular kind of pension, the tax withheld will normally be at exactly the 30% or 25.5%, as the case may be, and I don't think you have any basis for getting any of it back.  It's a grossly unfair piece of discrimination against foreigners, but that's the US for you; there's nothing you can do about it.  No doubt I'm biased, because I suffer from the same thing on my retirement pension.    

However, you should at least make sure you don't pay French tax on it as well; I mention this because you didn't say where you declared it on your French return.  It should go in "revenu exonéré" (section VII on the pink form and 8TI on the blue form) so that it's not included with your taxable income (though it does play a small part in the tax computation.)

[BobDee]

Hi Allan, Thanks for the input. Monday was a National Hol in USA so I sent the Fed Benefits Office in Paris an Email, to which, I still await a response.

The only thing that gives me some hope is that I did receive the benefit untaxed in the UK, and it was only when we moved here, that the 30% tax was deducted.

Anyway, we wait and see, results will be posted here as and when.

[allanb]

[quote user="BobDee"]The only thing that gives me some hope is that I did receive the benefit untaxed in the UK, and it was only when we moved here, that the 30% tax was deducted.[/quote]

I don't like to depress your hopes but I think this is simply because the UK/France treaty treats this kind of pension in the opposite way, i.e. it's taxable in the country in which you're resident, not the country that is its source.

Anyway, I wish you luck.  This is one of those occasions when it would be nice to be wrong.

[pachapapa]

It used to be the case in france, I had many years of 0% deduction when the greenback was strong against the nascent €uro. But as I mentioned earlier this changed shortly after the Sarkozy/Cecilia visit to the States. Sarko wished to ingratiate himself to his hero Bush. Of course I did the interview with the Head Honcho at the local Centre de Finance on the basis that I should be able to claim back the 30% in tax relief, the honcho and his acolytes did not enthuse. The thread is of interest to me as it may pursue to some tangible result the situation of  a french resident with an assessed income tax liability and the possibility of getting relef on that liability in respect of income tax deducted at source in the States.

The fact that the situation in the UK is different from France is in my opinion a reflection of the disparity in basic intelligence of the administrative class in the two countries. The UK realises that they would loose tax revenue, the french rarely realise anything useful. 

[BobDee]

Have just received a not too helpful reply from Fed Benefits Office in Paris QUOTE;

There are 2 ways to avoid the taxation:

1 – you are a US citizen

2 – you have/had a green card

This is for Social Security purposes only. For purely tax purposes, and if the 2 cases above do not apply, you should address your question to the IRS office. END QUOTE>>

Well my wife did have a green card, so not clear why the witholding tax is being applied. I guess now we write to Baltimore with all the info we can muster and complete the W8-Ben form etc. Isnt life exciting!

[pachapapa]

Thanks for updating. Keep it coming. Even if it at the end I just have the solidarity of a fellow sufferer.[:)]

I have taken some trouble to defiscalise my situation so that I rest below the taxable threshold (abatement) in respect of a french income tax return; so the introduction of 30% deduction on income from the USA is irritating. Oh! I have no desire to relocate to the USA, more likely to go to Cuba.

How much is the tax deduction for income enjoyed in Cuba?[:D]

[BobDee]

No good news to report. Had a long conversation with a very helpful chap at Benefits office in Paris. It is true that if you have or had, a Green Card, then the 30% should not be deducted. But the Green Card has to be valid. This card, also called Alien Registration, varies according to when it was issued . Some old ones had an unlimited time stamp, others had to be renewed every year. My wife's is apparently not valid anymore, and therefore we cant avoid the witholding tax. However the chap we spoke to is still on the case and really is doing his best to help us out. The UK has a different type of treaty it seems and tax is not deducted at source in any circumstance. France is not the same. and thats how it is., As was helpfully suggested earlier, we will change the catagory for our Impots reorting, and that will save a little but overall, we still seem to pay less tax in France than in the UK, so its all swings and roundabouts.

[pachapapa]

You have my sympathies, likewise for me residency in UK is not high on my agenda. But I wonder if there is not perhaps a Club Med country lurking further south in which the tax may not be deducted. France under sarko is beginning to lose it's charm.[:)]If you have the chance could you enquire of your contact, if it is not too much trouble. Cheers.

[BobDee]

PP, From other info I have., No Tax deduction treaties exist between US and Canada, Egypt, (Now there's a thing!), Germany,, Ireland, Israel, Italy, Japan, Romania, Switzerland (15%), and UK. Check Publication SSA 05-10143.

Regs BobD

[allanb]

[quote user="BobDee"]PP, From other info I have., No Tax deduction

treaties exist between US and Canada, Egypt, (Now there's a thing!),

Germany,, Ireland, Israel, Italy, Japan, Romania, Switzerland (15%), and

UK. Check Publication SSA 05-10143.

Regs BobD[/quote]

It may be a bit misleading to say that "no tax deduction treaties exist..."  I don't think there's really such a thing as a tax deduction treaty.

I haven't checked the whole list but I think the US has tax treaties

with all of them.  The difference between (for instance) the UK and

France, for a non-US national, is simply that if you are resident in the

UK the treaty says that your SSA pension is taxable only by the UK, so the US has no right to deduct any tax; but if you are resident in France, it is taxable only by the US - which therefore deducts withholding tax to make sure you don't get away with anything.  As far as I know that is purely a US decision; the treaty says it has the right to tax the pension, but it doesn't say it must withhold, or at what rate.

As has been said before, there's nothing wrong with this in principle; the problem is the US practice of not allowing "aliens" to get any relief from the standard rate.  There must be people whose income is high enough for them to pay the French marginal rate of 30%, and for them the treaty makes no significant difference.  Unfortunately I'm not one of them.

And of course if you're paying the French marginal rate of 40%, I suppose you're better off under the treaty.

[pachapapa]

Perhaps arrangement, agreement or imposition might be better. But there is no doubt that there is a treaty with france. Just fill in W-8BEN!!

But all interesting, keep it coming; it could be a move to Sicilly, Calabria or the Abruzzi is on the cards. Now that my 4 children are grown up proximity is no longer a reason to put up with sarko. How about Central and South America; could I live with the Monarch Butterflies in Mexico.

[allanb]

[quote user="pachapapa"]But there is no doubt that there is a treaty with france. Just fill in W-8BEN!![/quote]

Nobody has doubted that there is a treaty with France.  But it needs to be understood that W-8BEN is not a magic wand that makes withholding tax go away.  It requires you to state why you are claiming exemption, and under which article of the treaty.  If the paying agent isn't satisfied that you are correct, he will continue to withhold the tax.

As I've said before, in the US/France treaty there is no exemption for a "normal" SSA retirement pension. So as far as that particular income is concerned, the W-8BEN won't achieve anything.  (But I believe the paying agent can ask for it anyway, to certify the taxpayer's "non-resident alien" status.)

[pachapapa]

Hopefully will result in simplification of my Massey Energy W-8BEN situation.

http://www.bloomberg.com/news/2011-01-29/alpha-natural-agrees-to-buy-massey-energy-for-8-5-billion-in-cash-stock.html

[pachapapa]

As a result of working for St Joe Minerals and Fluor I have about a 1000 shares of Massey stock worth close to $ 70,000.

Will I have any problems with the $ 10 cash payment per share? Will I have to fill in yet again a new W-8BEN in respect of the consideration of Alpha stock?