Jeffrey Rubinger has published his article, Qualifying for Treaty Benefits Under the Derivative Benefits Article. His article begins as follows:
Foreign persons are subject to U.S. federal income tax on a limited basis. Unlike U.S. persons who are subject to U.S. federal income tax on their worldwide income, foreign persons generally are subject to U.S. taxation on two categories of income: 1) certain types of passive U.S.-source income (e.g., interest, dividends, royalties, and other types of “fixed or determinable annual or periodical income,” collectively known as FDAP), which are subject to a 30 percent gross basis withholding tax; and 2) income that is effectively connected to a U.S. trade or business (ECI), which is taxed at graduated tax rates applicable to U.S. persons.1
Although the statutory rate of withholding on U.S.-source payments of FDAP income to a foreign person is 30 percent, most, if not all, income tax treaties concluded by the United States reduce or even eliminate the U.S. withholding tax on payments of dividends, interest, royalties, and certain other types of income.