Effect of treaties
(3) Effect of treaties(i) General rule. The rate of tax imposed on the excess interest of a foreign corporation that is a resident of a country with which the United States has an income tax treaty shall not exceed the rate provided under such treaty that would apply with respect to interest paid by a domestic corporation to that foreign corporation if the foreign corporation meets, with respect to the excess interest, the requirements of the limitation on benefits provision, if any, in the treaty and either (A) The corporation is a qualified resident (as defined in 1.884-5(a)) of that foreign country for the taxable year in which the excess interest is subject to tax; or (B) The limitation on benefits provision, or an amendment to that provision, entered into force after December 31, 1986. (ii) Provisions relating to interest paid by a foreign corporation. Any provision in an income tax treaty that exempts or reduces the rate of tax on interest paid by a foreign corporation does not prevent imposition of the tax on excess interest or reduce the rate of such tax. (4) Example. The application of paragraphs (c)(2) and (3) of this section is illustrated by the following example.