What are four FDAP and withholding issues for the following scenario citing regulation: Dorie is a successful samba musician in her native country of Brazil. She recently released an album of samba covers of Taylor Swift songs, which she licensed to Spotify to stream in the US . Pursuant to the deal, Dorie receives $0.01 each time a song of hers is streamed. Her album has been fairly successful on Spotify (which is loved by the general public but derided by Swifty purists) and earns her $10, 000 a month in royalties.
Dorie’s cousin, Mac, reaches out to her to invest in his new business opportunity. Mac lives in the US and has started a company, For The Birds, Inc., which will manufacture custom birdhouses that are miniature replicas of the buyer’s own home. Dorie is unsure but wants to support her cousin, so she makes a small investment and acquires 8% of the common stock in For The Birds, Inc. The company has only issued one class of stock with proportionate voting rights.
One of Oprah’s assistants stumbles across Mac’s website and buys a birdhouse as a present for her boss’s birthday. Oprah LOVES the birdhouse and lists it as one of her favorite things. With that publicity, Mac’s company takes off and becomes wildly successful. Flush with cash, For The Birds, Inc. issues a dividend to its shareholders. Dorie’s share of the dividend is $200, 000 .
After the dividend was issued, Mac decides to raise new funds to pay for new birdhouse manufacturing equipment. Not wanting to dilute out his current shareholders, he decides to raise the additional funds through debt. Again, he reaches out to Dorie, who agrees to lend him the funds for the new equipment. They have agreed in principle to a $120, 000 loan. However, Dorie knows that since Brazil does not have a treaty with the US, she is not entitled to reduced withholding tax rates on payments from the US . Before entering into the loan, she would like to know if there are any planning opportunities (with respect to the loan only) to reduce the US taxes on the interest payments, but would also like to understand the US tax consequences of her US activities.
