Status
The United States has no income tax treaty with Guernsey. Payments to residents of Guernsey are withheld under the Code with no treaty reduction. The United States and Guernsey signed a tax information exchange agreement in Washington on September 19, 2002, amended by a protocol that Treasury lists with the date December 13, 2013.
What to withhold
- U.S.-source fixed or determinable income (dividends, royalties, rents, interest that is not otherwise exempt, pay for services performed in the United States) is withheld on at 30% of the gross payment.
- The Code's own exemptions still apply: portfolio interest, bank deposit interest, and income effectively connected with a U.S. trade or business documented on Form W-8ECI.
- Pay for services performed entirely outside the United States is foreign-source: no withholding and no Form 1042-S.
- A W-8BEN or W-8BEN-E that claims treaty benefits for Guernsey cannot be relied on for the claim, but still documents foreign status. A nonresident working in the U.S. has no treaty exemption to claim on Form 8233.
- Payments are reported on Form 1042-S with the payee's country code, whether or not tax was withheld.
The information exchange agreement
A tax information exchange agreement lets the IRS and the other jurisdiction's tax authority ask each other for, and share, information needed to enforce their own tax laws. It is not an income tax treaty: it sets no withholding rates, has no residence, permanent establishment or business profits rules, and gives a payee nothing to claim on a W-8BEN or W-8BEN-E. The 2013 protocol adds automatic and spontaneous exchange to the 2002 agreement. Guernsey is a Crown Dependency, not part of the United Kingdom, so the U.S.-U.K. treaty does not apply to its residents.
Where payers go wrong
- Treating the agreement as a treaty. A W-8BEN or W-8BEN-E that claims a treaty rate for Guernsey cannot be relied on. The form still documents foreign status.
- Withholding on services performed abroad. Pay for work done outside the U.S. is foreign-source: nothing is withheld and no Form 1042-S is filed.
- Missing the Code exemptions. Portfolio interest, bank deposit interest and income effectively connected with a U.S. business (documented on Form W-8ECI) are not withheld on, treaty or not.
Documents
Questions payers ask
Is there a U.S.-Guernsey tax treaty?
No income tax treaty. The United States and Guernsey have a tax information exchange agreement, which provides for sharing tax information but sets no withholding rates.
Does the U.S.-U.K. tax treaty cover Guernsey?
No. Guernsey is a Crown Dependency, not part of the United Kingdom. Payments to residents of Guernsey are withheld under the Code with no treaty reduction.
Do we withhold on a contractor in Guernsey who works only there?
No. Pay for services performed outside the United States is foreign-source income. Keep the contractor's W-8BEN or W-8BEN-E on file.