Q. (cont.) The software is downloaded and used on our local server in the U.S. The vendor has provided a W-8BEN-E and completed all appropriate sections except listing a treaty benefit on Part III section 15.
The company resides in Germany and does not have a business association in the U.S. I have asked them to complete the treaty information on the form in order for us not to withhold on future software purchases.
They have stated they think that part of the form should remain empty and told me not to withhold or they would be double-taxed. They completed part XXV on the form since they are an active NFFE.
Does the completion of that section entitle them to no withholding, or do they still need to list the article of the treaty for which they are claiming a benefit?
A. The vendor should complete Part III. It is quite simple, and it surprises us that having wrestled with the rest of the form, they did not complete it.
Completion of Part XXV has to do with Chapter 4, and does not exempt a vendor from withholding under Chapter 3, which is what applies to the payments in this case. Part III of the W-8BEN-E needs to be completed to avoid withholding.