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Foreword

HIS booklet is designed to give briefly and

THIS

clearly the requirements of the law and regulations, relating to withholding and information at the source, and the use of the various forms prescribed by the Treasury Department. When preparing certificates to accompany coupons presented for payment, the chart on page 21 will be found of much assistance in selecting the proper form to be used and line and column on the form in which the amount of the interest or dividend is to be entered.

GUARANTY TRUST COMPANY OF NEW YORK

Withholding of Tax at Source

Classes of Income Subject to Withholding

Under the Revenue Law of 1918, income subject to withholding of the tax at the source may be divided into three classes:

(1) Miscellaneous fixed or determinable, annual or periodical gains, profits and income, payable to nonresident alien individuals and foreign corporations not engaged in business in the United States and not having an office or place of business therein; (2) Interest on bonds of domestic corporations not containing a "tax-free" covenant clause, payable to nonresident alien individuals and foreign corporations not engaged in business in the United States and not having an office or place of business therein;

(3) Interest on bonds of domestic corporations containing a "tax-free" covenant clause, payable to nonresident alien individuals, to foreign corporations not engaged in business in the United States and not having an office or place of business therein, to citizens of the United States, to alien residents of the United States, or to domestic or foreign partnerships, or personal service corporations (see page 6).

Other payments of income are not subject to withholding of the tax at the source and in no case is there any withholding of tax at the source on income payable to domestic corporations or to foreign corporations having an office or place of business in the United States.

Income Other Than "Tax-Free" Covenant

Bond Interest

Individuals and Fiduciaries

Under the Revenue Act of 1918, payments of interest, rent, salaries, wages, and all other fixed or determinable annual or

periodical income made to nonresident alien individuals and to nonresident alien fiduciaries, except

(a) income derived from dividends on stocks of corporations subject to income tax;

(b) interest on bonds or similar obligations of corporations, containing a "tax-free" covenant clause; or

(c) items upon which personal exemption is claimed,

is subject to withholding of tax at the source at the rate of 8 per centum.

Corporations

Fixed or determinable annual or periodical income, with the exceptions stated in the foregoing paragraph, payable to foreign corporations not engaged in trade or business in the United States and not having an office or place of business therein, is subject to withholding of tax at the source at the rate of 10 per centum.

Domestic banks are now required to withhold tax on interest on bank deposits of foreign corporations, not having an office or place of business in the United States, including foreign banks, and such withholding applies to interest credited on and after February 25, 1919.

Partnerships and Personal Service Corporations

Withholding is required at the rate of 2 per centum in the case of interest payable to a partnership, whether resident or nonresident, upon bonds or obligations of domestic or resident corporations containing a "tax-free" covenant clause, which is also the case with respect to a corporation which has received notice from the Income Tax Unit of the Treasury Department that its return as a personal service corporation has been approved. Other fixed or determinable annual or periodical income payable to resident or nonresident alien partnerships is not subject to withholding of tax at the source.

Exemption from Withholding on Salaries of Nonresident Alien Individuals

A nonresident alien individual who receives salaries, wages, or other fixed or determinable annual or periodical compensa

tion from sources within the United States, is permitted to claim the personal exemption or exemption for dependents, if the country of which he is a citizen or subject allows a similar credit for personal exemption or exemption for dependents to citizens of the United States not residing in such country. This exemption may be claimed by filing with the employer, Form 1115 (page 55), duly filled out and executed under oath. If it appears that such employee is entitled to the credit and that such credit has not yet been exhausted, the employer need not, until such credit is in fact exhausted, withhold any tax from payments of salary, wages, or other compensation made to such employee.

A nonresident alien individual, who is a citizen or subject of the following countries, is entitled, for the purpose of the normal tax, to such credit for personal exemption and for dependents as his family status may warrant:

Roumania
Russia (including
Poles owing alle-

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giance to Russia)

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A nonresident alien individual, who is a citizen or subject of the following countries, is entitled to a credit for personal exemption, but is not entitled to a credit for dependents:

Salvador
India

Bachka

Banat of Temesvar

Croatia

Italy

Slavonia

Slovakia

Transylvania.

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