Which payments fall inside Chapter 3 withholding?
The regime covers US-source payments made to foreign persons, so three questions decide it rather than one. Is the payment from a US source; what is the character of the payment; and is the recipient a foreign person for US purposes. A payment can fall outside the regime on any one of the three, which is why a blanket instruction to withhold on everything paid abroad is as wrong as withholding on nothing. Work on a payer's file usually means classifying each payment stream once, documenting the conclusion, then applying it consistently.
How does a foreign recipient get a reduced treaty rate?
By certifying foreign status and treaty eligibility to the payer before the payment is made. The regime is operated through those certificates and the recipient statements that follow them: the payer applies the rate its documents support at the time of payment, not the rate the recipient believes it is entitled to. A certificate that is missing, stale, or inconsistent with what the payer knows about the recipient leaves the payer applying the full rate. Where a reduction has been missed, the recipient's route is a return for the year, not a request to the payer to unwind it.
What is the recipient statement for and why do I need it?
It is the payer's account to you of what it paid and what it withheld, and it is what makes a claim for credit evidenced rather than merely asserted. Without it you are asking a revenue authority to accept your own figures for tax paid by somebody else. Statements arrive late and sometimes with the wrong payee details, so they are worth chasing while the payer's accounts team still remembers the payments. Where a statement disagrees with your own record of receipts, resolve that before filing; a return built on a statement you dispute invites a query.
Why was withholding applied to the whole payment and not my profit?
Because the regime applies to the payment as made. The costs you incurred to earn it play no part at the moment of withholding, since the payer has no way to know them and no authority to take them into account. That is why the amount withheld can exceed the tax you eventually owe, sometimes by a wide margin, and why a business working on thin margins finds its cash tied up. Relief for expenses, where it is available at all, is obtained on a return that computes the real liability and credits what was withheld against it.
Is this the same withholding my bank asks status questions about?
They are different regimes, and both can be considered on one payment. This one turns on where a payment originates in, what kind of payment it is, and whether the recipient is a foreign person. The questions your bank is asking belong to a separate regime that turns on how an entity is classified rather than on the character of the income it receives. Answering one set does not answer the other, and a file that is well documented for one can be undocumented for the other. Treat them as two separate documentation exercises.
Can the payer simply refund an amount it over-withheld?
Sometimes, if the error is caught before the payer has remitted and reported for the period, which is a narrow window. After that the money has gone to the revenue and the payer cannot return what it no longer holds. The recipient's route is then a return for the year, claiming the withheld amount against the tax actually due on the income. Ask the payer early, accept the answer quickly when it is no, and put the effort into the recipient statement and the return instead of into the correspondence.
How do I report the sale of a foreign property?
On your residence-country return, as a disposition, with proceeds and cost base converted at the rates for their own dates. Separately, the country where the property sits may require its own return and may hold back tax at closing until a clearance or certificate is issued — Canada does this for a non-resident vendor, and the United States withholds on a foreign seller of US real property. Those steps have their own deadlines, often before closing. See clearance certificates on a property sale.
Why are corporations double taxed?
Corporate double taxation happens because the company and its owners are separate taxpayers. The company pays tax on its profit; when the after-tax profit is distributed, the shareholder pays tax on the dividend. Canada softens this with the dividend gross-up and credit, which is meant to leave a shareholder roughly where they would have been earning the income directly. The United States taxes the C corporation and then the dividend, with no equivalent integration. See dividends to a foreign parent.
