DTAA applicability on income of NRI, resident in 3rd country

[Roger Pinto]

Can a NRI (who is neither a resident of US nor India) claim DTAA benefits on royalty income earned from an entity in US. This NRI pays taxes on his Indian income and hence has a 'Foreign tax identifying number (PAN number)'.

Note that on filing of successful W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)' form, the withholding tax rate gets reduced to 15% (from 30%) on the royalty income earned from US entity.

Further what is the position, if this NRI is resident of a 3rd country (say UAE) which does not have a DTAA treaty with US. This could be because UAE does not have income taxes.

What happens to the witheld tax by US, at whichever rate applicable (15% or 30%). Is the NRI required to file returns in US.

Also (if eligible for DTAA) as this income would qualify for 'Exemption method', would disclosing it under 'Exempt Income' suffice for that NRI's Indian tax returns compliance.

AI Summary

DTAA applicability on cross-border royalties may affect withholding and filing obligations for nonresident taxpayers abroad Whether a nonresident Indian, resident of a third country, may claim DTAA relief for US-sourced royalty income is questioned; the note observes that filing Form W-8BEN can reduce US withholding if treaty benefits are claimed, asks how withholding is treated where the third country lacks a US treaty, queries whether the withheld tax can be recovered via US return filing, and whether reporting the income as 'Exempt Income' in Indian returns suffices when relief is claimed under an exemption method.