Definition:
The Portfolio Interest Exemption applies to interest and original issue discount that qualifies as portfolio interest. These types of income are exempt from Chapter 3 withholding, but they are not exempt from Chapter 4 or FATCA withholding, unless a different exemption from Chapter 4 withholding applies. In order to qualify as portfolio interest, see portfolio interest. In order for the portfolio interest exemption to apply to a payment made to a non-U.S. person, that person must provide to the withholding agent a statement (usually on Form W-8) indicating that the beneficial owner of the obligation is a non-U.S. person.
Citations: IRC § 871(h). Tax on nonresident alien individuals IRC § 881(c). Tax on income of foreign corporations not connected with United States business Treas. Reg. § 1.1441-1 – Requirement for the deduction and withholding of tax on payments to foreign persons.