Ezel / Tax Rulings / NY
NY TSB-A-06(1)C Corporation Tax 2006-03-03

Does a New York corporation have to apply a backup withholding tax on interest it pays to its foreign parent corporation?

Short answer: No. New York's Tax Law does not impose any backup withholding tax on a corporation for interest it pays to a foreign affiliate. So a New York subsidiary owes no backup withholding on interest paid to its foreign parent under Article 9-A or any other article of the Tax Law.
Currency note: this ruling is from 2006
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A New York corporation (Obzee New York) is a wholly owned subsidiary of a Korean parent corporation. It entered into loan agreements with the parent and paid interest to it. It asked whether it must apply a backup withholding tax under New York's Tax Law on that interest.

The Department's answer is short and clear: New York's Tax Law does not provide for any backup withholding tax on corporations with respect to interest payments made to foreign affiliates. Accordingly, the subsidiary is not subject to a backup withholding tax on interest paid to its parent under Article 9-A or any other article of the Tax Law.

What this means for you

New York subsidiaries of foreign parents

When you pay interest to a foreign parent or affiliate, New York imposes no backup withholding on that payment. (This addresses New York's tax law only; federal withholding and reporting rules, and any treaty provisions, are separate and may still apply.)

Inbound-investment structures

Intercompany loans from a foreign parent to its New York subsidiary do not trigger a New York backup-withholding obligation. Confirm the federal treatment independently.

Accountants and tax professionals

There is simply no New York analog to federal backup withholding on corporate interest paid to foreign affiliates. Keep the analysis focused on federal withholding/reporting and any applicable income-tax treaty.

Common questions

Q: Does New York require backup withholding on interest paid to a foreign parent?
A: No. New York's Tax Law imposes no backup withholding on a corporation for interest paid to a foreign affiliate, under Article 9-A or any other article.

Q: Does this cover federal withholding too?
A: No. The opinion addresses only New York's Tax Law; federal withholding and reporting requirements and any tax treaty are separate considerations.

Citations and references

Statutes, regulations, and authorities:
- Tax Law Article 9-A (franchise tax on business corporations)
- Obzee New York, Inc., TSB-A-06(1)C (Mar. 3, 2006)

Source

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(1)C
Corporation Tax
March 3, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C060127A

On January 27, 2006, a Petition for Advisory Opinion was received from Obzee
New York, Inc., 125 Green Street, New York, NY 10012.
The issue raised by Petitioner is whether it is subject to a backup withholding tax under
the New York State Tax Law on interest paid to its parent corporation.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner was incorporated in the state of New York on April 11, 2001. Petitioner is a
100% owned subsidiary of Obzee Co. Ltd., which is a foreign corporation domiciled in Korea.
Petitioner entered into loan agreements and paid interest to its parent corporation.
Opinion
The New York State Tax Law does not provide for a withholding tax imposed on
corporations with respect to interest payments made to foreign affiliates.
Accordingly, Petitioner is not subject to a backup withholding tax on interest paid to its
parent corporation under Article 9-A or any other article of the Tax Law.

DATED: March 3, 2006

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.