[Code of Federal Regulations]
[Title 26, Volume 18, Parts 500 to 599]
[Revised as of April 1, 2000]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR520.101]
[Page 121-127]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 520--SWEDEN--Table of Contents
Subpart--General Income Tax
Sec. 520.101 Introductory.
(a) The tax convention and protocol between the United States and
Sweden, referred to in this subpart as the convention, proclaimed by the
President of the United States on December 12, 1939, and effective
January 1, 1940, provides as follows:
Article I
The taxes referred to in this Convention are:
(a) In the case of the United States of America:
(1) The Federal income taxes, including surtaxes and excess-profits
taxes.
(2) The Federal capital stock tax.
(b) In the case of Sweden:
(1) The National income and property tax, including surtax.
(2) The National special property tax.
(3) The communal income tax.
It is mutually agreed that the present Convention shall also apply
to any other or additional taxes imposed by either contracting State,
subsequent to the date of signature of this Convention, upon
substantially the same bases as the taxes enumerated herein.
The benefits of this Convention shall accrue only to citizens and
residents of the United States of America, to citizens and residents of
Sweden and to United States or Swedish corporations and other entities.
Article II
An enterprise of one of the contracting States is not subject to
taxation by the other contracting State in respect of its industrial and
commercial profits except in respect of such profits allocable to its
permanent establishment in the latter State. The income thus taxed in
the latter State shall be exempt from taxation in the former State.
No account shall be taken, in determining the tax in one of the
contracting States, of the mere purchase of merchandise effected therein
by an enterprise of the other State.
The competent authorities of the two contracting States may lay down
rules by agreement for the apportionment of industrial and commercial
profits.
Article III
When an enterprise of one of the contracting States, by reason of
its participation in the management or capital of an enterprise of the
other contracting State, makes or imposes on the latter in their
commercial or financial relations conditions different from those which
would be made with an independent enterprise, any profits which should
normally have appeared in the balance sheet of the latter enterprise but
which have been in this manner diverted to the former enterprise may,
subject to applicable measures of appeal, be incorporated in the taxable
profits of the latter enterprise. In such case consequent rectifications
may be made in the accounts of the former enterprise.
Article IV
Income which an enterprise of one of the contracting States derives
from the operation of ships or aircraft registered in that State is
taxable only in the State in which registered. Income derived by such an
enterprise from the operation of ships or aircraft not so registered
shall be subject to the provisions of Article II.
Article V
Income of whatever nature derived from real property, including
gains derived from the sale of such property, but not including interest
from mortgages or bonds secured by real property, shall be taxable only
in the contracting State in which the real property is situated.
Article VI
Royalties from real property or in respect of the operation of
mines, quarries, or other natural resources shall be taxable only in the
contracting State in which such property, mines, quarries, or other
natural resources are situated.
Other royalties and amounts derived from within one of the
contracting States by a resident or by a corporation or other entity of
the other contracting State as consideration for the right to use
copyrights, patents, secret processes and formulas, trademarks and other
analogous rights, shall be exempt from taxation in the former State.
Article VII
1. Dividends shall be taxable only in the contracting State in which
the shareholder is resident or, if the shareholder is a corporation or
other entity, in the contracting State
[[Page 122]]
in which such corporation or other entity is created or organized;
provided, however, that each contracting State reserves the right to
collect and retain (subject to applicable provisions of its revenue
laws) the taxes which, under its revenue laws, are deductible at the
source, but not in excess of 10 per centum of the amount of such
dividends. For the purposes of this Article the National income and
property tax imposed by Sweden shall be deemed to be a tax deducted at
the source.
2. Notwithstanding the provisions of Article XXII of this
Convention, the provisions of this Article may be terminated by either
of the contracting States at the end of two years from the date upon
which this Convention enters into force or at any time thereafter,
provided at least six months' prior notice of termination is given, such
termination to become effective on the first day of January following
the expiration of such six-month period. In the event the provisions of
this Article are terminated, the provisions of--
(1) Article XIII (2), in so far as they relate to the special
property tax imposed by Sweden upon shares in a corporation;
(2) Article XIV(b)(2), relating to the allowance of an additional
deduction from taxes on dividends; and
(3) Article XVI, in so far as they relate to exchange of information
with respect to dividends,
will likewise terminate.
Article VIII
Interest on bonds, notes, or loans shall be taxable only in the
contracting State in which the recipient of such interest is a resident
or, in the case of a corporation or other entity, in the State in which
the corporation or other entity is created or organized; Provided,
however, That each contracting State reserves the right to collect and
retain (subject to applicable provisions of its revenue laws) the taxes
which, under its revenue laws, are deductible at the source.
Article IX
Gains derived in one of the contracting States from the sale or
exchange of capital assets by a resident or a corporation or other
entity of the other contracting State shall be exempt from taxation in
the former State, provided such resident or corporation or other entity
has no permanent establishment in the former State.
Article X
Wages, salaries and similar compensation and pensions paid by one of
the contracting States or by the political subdivisions or territories
or possessions thereof to individuals residing in the other State shall
be exempt from taxation in the latter State.
Private pensions and life annuities derived from within one of the
contracting States and paid to individuals residing in the other
contracting State shall be exempt from taxation in the former State.
Article XI
(a) Compensation for labor or personal services, including the
practice of the liberal professions, shall be taxable only in the
contracting State in which such services are rendered.
(b) The provisions of paragraph (a) are, however, subject to the
following exceptions:
A resident of Sweden shall be exempt from United States tax upon
compensation for labor or personal services performed within the United
States of America if he fails within either of the following
classifications:
1. He is temporarily present within the United States of America for
a period or periods not exceeding a total of one hundred eighty days
during the taxable year and his compensation is received for labor or
personal services performed as an employee of, or under contract with, a
resident or corporation or other entity of Sweden; or
2. He is temporarily present in the United States of America for a
period or periods not exceeding a total of ninety days during the
taxable year and the compensation received for such services does not
exceed $3,000.00 in the aggregate.
In such cases Sweden reserves the right to the taxation of such income.
(c) The provisions of paragraph (b) of this Article shall apply,
mutatis mutandis, to a resident of the United States of America deriving
compensation for personal services performed within Sweden.
(d) The provisions of paragraphs (b) and (c) of this Article shall
have no application to the professional earnings of such individuals as
actors, artists, musicians and professional athletes.
(e) The provisions of this Article shall have no application to the
income to which Article X relates.
Article XII
Students or business apprentices from one contracting State residing
in the other contracting State exclusively for purposes of study or for
acquiring business experience shall not be taxable by the latter State
in respect of remittances received by them from within the former State
for the purposes of their maintenance or studies.
Article XIII
(1) If the property consists of:
(a) Immovable property and accessories appertaining thereto;
In the case of taxes on property or increment of property the
following provisions shall be applicable:
[[Page 123]]
(b) Commercial or industrial enterprises, including maritime
shipping and air transport undertakings;
the tax may be levied only in that contracting State which is entitled
under the preceding Articles to tax the income from such property.
(2) In the case of all other forms of property, the tax may be
levied only in that contracting State where the taxpayer has his
residence or, in the case of a corporation or other entity, in the
contracting State where the corporation or other entity has been created
or organized.
The same principles shall apply to the United States capital stock
tax with respect to corporations of Sweden having capital or other
property in the United States of America.
Article XIV
It is agreed that double taxation shall be avoided in the following
manner:
(a) Notwithstanding any other provision of this Convention, the
United States of America in determining the income and excess-profits
taxes, including all surtaxes, of its citizens or residents or
corporations may include in the basis upon which such taxes are imposed
all items of income taxable under the revenue laws of the United States
of America as though this Convention had not come into effect. The
United States of America shall, however, deduct the amount of the taxes
specified in Article I (b) (1) and (3) of this Convention or other like
taxes from the income tax thus computed but not in excess of that
portion of the income tax liability which the taxpayer's net income
taxable in Sweden bears to his entire net income.
(b)(1) Notwithstanding any other provision of this Convention,
Sweden, in determining the graduated tax on income and property of its
residents or corporations or other entities, may include in the basis
upon which such tax is imposed all items of income and property subject
to such tax under the taxation laws of Sweden. Sweden shall, however,
deduct from the tax so calculated that portion of such tax liability
which the taxpayer's income and property exempt from taxation in Sweden
under the provisions of this Convention bears to his entire income and
property.
(2) There shall also be allowed by Sweden from its National income
and property tax a deduction offsetting the tax deducted at the source
in the United States of America, amounting to not less than 5 per centum
of the dividends from within the United States of America and subject to
such tax in Sweden. It is agreed that the United States of America shall
allow a similar credit against the United States income tax liability of
citizens of Sweden residing in the United States of America.
Article XV
With a view to the more effective imposition of the taxes to which
the present Convention relates, each of the contracting States
undertakes, subject to reciprocity, to furnish such information in the
matter of taxation, which the authorities of the State concerned have at
their disposal or are in a position to obtain under their own law, as
may be of use to the authorities of the other State in the assessment of
the taxes in question and to lend assistance in the service of documents
in connection therewith. Such information and correspondence relating to
the subject matter of this Article shall be exchanged between the
competent authorities of the contracting States in the ordinary course
or on demand.
Article XVI
1. In accordance with the preceding Article, the competent
authorities of the United States of America shall forward to the
competent authorities of Sweden as soon as practicable after the close
of each calendar year the following information relating to such
calendar year:
(a) The names and addresses of all addresses within Sweden deriving
from sources within the United States of America dividends, interest,
royalties, pensions, annuities, or other fixed or determinable annual or
periodical income, showing the amount of such income with respect to
each addressee;
(b) Any particulars which the competent United States authorities
may obtain from banks, savings banks or other similar institutions
concerning assets belonging to individuals resident in Sweden or to
Swedish corporations or other entities;
(c) Any particulars which the competent United States authorities
may obtain from inventories in the case of property passing on death
concerning debts contracted with individuals resident in Sweden or
Swedish corporations or other entities.
2. The competent authorities of Sweden shall forward to the
competent authorities of the United States of America as soon as
practicable after the close of each calendar year the following
information relating to such calendar year:
(a) The particulars contained in the forms delivered to the Swedish
authorities in connection with the payment to individuals or
corporations or other entities whose addresses are within the United
States of America of dividends on shares in a corporation or
participation certificates in cooperative societies, and interest on
bonds or other similar securities;
(b) The particulars contained in permits accorded to individuals
resident in the United State of America or to United States corporations
or other entities to enable them
[[Page 124]]
to acquire for business purposes immovable property situated in Sweden;
(c) Any particulars which the central Swedish authorities may obtain
from banks, savings banks or other similar institutions concerning
assets belonging to individuals resident in the United States of America
or to United States corporations or other entities;
(d) Any particulars which the central Swedish authorities may obtain
from inventories in the case of property passing on death, concerning
debts contracted with individuals resident of the United States of
America, or United States corporations or other entities;
(e) A list of the names and addresses of all United States citizens
resident in the United States of America who have made declarations to
the Central Committee in Stockholm in charge of the taxation of
taxpayers not resident in Sweden for purposes of the Swedish tax on
income and property;
(f) Particulars concerning annuities and pensions, public or
private, paid to individuals resident in the United States of America.
Article XVII
Each contracting State undertakes, in the case of citizens or
corporations or other entities of the other contracting State, to lend
assistance and support in the collection of the taxes to which the
present Convention relates, together with interest, costs, and additions
to the taxes and fines not being of a penal character. The contracting
State making such collection shall be responsible to the other
contracting State for the sums thus collected.
In the case of applications for enforcement of taxes, revenue claims
of each of the contracting States which have been finally determined
shall be accepted for enforcement by the other contracting State and
collected in that State in accordance with the laws applicable to the
enforcement and collection of its own taxes. The State to which
application is made shall not be required to enforce executory measures
for which there is no provision in the law of the State making the
application.
The applications shall be accompanied by such documents as are
required by the laws of the State making the application to establish
that the taxes have been finally determined.
If the revenue claim has not been finally determined the State to
which application is made may at the request of the other contracting
State, take such measures of conservancy as are authorized by the
revenue laws of the former State.
Article XVIII
The competent authority of each of the contracting States shall be
entitled to obtain, through diplomatic channels, from the competent
authority of the other contracting State, particulars in concrete cases
relative to the application to citizens or to corporations or other
entities of the former State, of the taxes to which the present
Convention relates. With respect to particulars in other cases, the
competent authority of each of the contracting States will give
consideration to requests from the competent authority of the other
contracting State.
Article XIX
In no case shall the provisions of Article XVII, relating to mutual
assistance in the collection of taxes, or of Article XVIII, relating to
particulars in concrete cases, be construed so as to impose upon either
of the contracting States the obligation.
(1) to carry out administrative measures at variance with the
regulations and practice of either contracting State, or
(2) to supply particulars which are not procurable under its own
legislation or that of the State making application.
The State to which application is made for information or assistance
shall comply as soon as possible with the request addressed to it.
Nevertheless, such State may refuse to comply with the request for
reasons of public policy or if compliance would involve violation of a
business, industrial or trade secret or practice. In such case it shall
inform, as soon as possible, the State making the application.
Article XX
Where a taxpayer shows proof that the action of the revenue
authorities of the contracting States has resulted in double taxation in
his case in respect of any of the taxes to which the present Convention
relates, he shall be entitled to lodge a claim with the State of which
he is a citizen or, if he is not a citizen of either of the contracting
States, with the State of which he is a resident, or, if the taxpayer is
a corporation or other entity, with the State in which it is created or
organized. Should the claim be upheld, the competent authority of such
State may come to an agreement with the competent authority of the other
State with a view to equitable avoidance of the double taxation in
question.
Article XXI
The competent authorities of the two contracting States may
prescribe regulations necessary to interpret and carry out the
provisions of this Convention. With respect to the provisions of this
Convention relating to
[[Page 125]]
exchange of information, service of documents and mutual assistance in
the collection of taxes, such authorities may, by common agreement,
prescribe rules concerning matters of procedure, forms of application
and replies thereto, conversion of currency, disposition of amounts
collected, minimum amounts subject to collection and related matters.
Article XXII
The present Convention shall be ratified, in the case of the United
States of America, by the President, by and with the advice and consent
of the Senate, and in the case of Sweden, by His Majesty the King, with
the consent of the Riksdag. The ratifications shall be exchanged at
Stockholm.
This Convention shall become effective on the first day of January
following the exchange of the instruments of ratification and shall
apply to income realized and property held on or after that date. The
Convention shall remain in force for a period of five years and
indefinitely thereafter but may be terminated by either contracting
State at the end of the five-year period or at any time thereafter,
provided at least six months' prior notice of termination has been
given, the termination to become effective on the first day of January
following the expiration of the six-month period.
In witness whereof the respective Plenipotentiaries have signed this
Convention and have affixed their seals hereto.
Done in duplicate, in the English and Swedish languages, both
authentic, at Washington, this twenty-third day of March, nineteen
hundred and thirty-nine.
For the President of the United States of America:
Sumner Welles [seal]
For His Majesty the King of Sweden:
W. Bostrom [seal]
Protocol
At the moment of signing the Convention for the avoidance of double
taxation, and the establishment of rules of reciprocal administrative
assistance in the case of income and other taxes, this day concluded
between the United States of America and Sweden, the undersigned
Plenipotentiaries have agreed that the following provisions shall form
an integral part of the Convention:
1. As used in this Convention:
(a) The term ``permanent establishment'' includes branches, mines
and oil wells, plantations, factories, workshops, warehouses, offices,
agencies, installations, and other fixed places of business of an
enterprise but does not include the casual or temporary use of merely
storage facilities. A permanent establishment of a subsidiary
corporation shall not be deemed to be a permanent establishment of the
parent corporation. When an enterprise of one of the contracting States
carries on business in the other State through an employee or agent,
established there, who has general authority to contract for his
employer or principal, it shall be deemed to have a permanent
establishment in the latter State. But the fact that an enterprise of
one of the contracting States has business dealings in the other State
through a bona fide commission agent, broker or custodian shall not be
held to mean that such enterprise has a permanent establishment in the
latter State.
(b) The term ``enterprise'' includes every form of undertaking
whether carried on by an individual, partnership, corporation, or any
other entity.
(c) The term ``enterprise of one of the contracting States'' means,
as the case may be, ``United States enterprise'' or ``Swedish
enterprise''.
(d) The term ``United States enterprise'' means an enterprise
carried on in the United States of America by a resident of the United
States of America or by a United States corporation or other entity; the
term ``United States corporation or other entity'' means a partnership,
corporation or other entity created or organized in the United States of
America or under the law of the United States of America or of any State
or Territory of the United States of America.
(e) The term ``Swedish enterprise'' is defined in the same manner,
mutatis mutandis, as the term ``United States enterprise''.
2. The term ``corporation'' includes associations, joint-stock
companies, and insurance companies.
3. A citizen of one of the contracting States not residing in either
shall be deemed, for the purpose of this Convention, to be a resident of
the contracting State of which he is a citizen.
When doubt arises with respect to residence or with respect to the
taxable status of corporations or other entities, the competent
authorities of the two contracting States may settle the question by
mutual agreement.
4. The provisions of Swedish law concerning the taxation of the
undivided estates of deceased persons shall not apply where the
beneficiaries are directly liable to taxation in the United States of
America.
5. The term ``life annuities'' referred to in Article X of this
Convention means a stated sum payable periodically at stated times
during life, or during a specified number of years, under an obligation
to make the payments in consideration of a gross sum paid for such
obligation.
6. The Swedish so-called ``fees tax'' (bevillingsavgift for vissa
offentliga forestallningar) based on gross income in so far as it
affects such individuals as actors, artists, musicians and professional
athletes
[[Page 126]]
shall be deemed to be an income tax for the purposes of Article XIV (a).
The credit for taxes provided in Article XIV shall have no
application to taxes deducted at the source from dividends and interest
except to the extent provided in paragraph (b)(2) of that Article.
In the application of the provisions of this Convention the benefits
of section 131 of the United States Revenue Act of 1938, relating to
credits for foreign taxes shall be accorded but the credit provided for
in Article XIV(a) shall not extend to United States excess-profits taxes
nor to the surtax imposed on personal holding companies.
7. Citizens of each of the contracting States residing within the
other contracting State shall not be subjected in the latter State to
other or higher taxes than are imposed upon the citizens of such latter
State.
8. The provisions of this Convention shall not be construed to deny
or affect in any manner the right of diplomatic and consular officers to
other or additional exemptions now enjoyed or which may hereafter be
granted to such officers, nor to deny to either of the contracting
States the right to subject to taxation its own diplomatic and consular
officers.
9. The provisions of the present Convention shall not be construed
to restrict in any manner any exemption, deduction, credit or other
allowance accorded by the laws of one of the contracting States in the
determination of the tax imposed by such State.
10. In the administration of the provisions of this Convention
relating to exchange of information, service of documents, and mutual
assistance in collection of taxes, fees and costs incurred in the
ordinary course shall be borne by the State to which application is made
but extraordinary costs incident to special forms of procedure shall be
borne by the applying State.
11. Documents and other communications or information contained
therein, transmitted under the provisions of this Convention by one of
the contracting States to the other contracting State shall not be
published, revealed or disclosed to any person except to the extent
permitted under the laws of the latter State with respect to similar
documents, communications or information.
12. As used with respect to revenue claims in Article XVII of this
Convention the term ``finally determined'' shall be deemed to mean:
(a) In the case of Sweden, claims which have been finally
established, even though still open to revision by exceptional
procedure;
(b) In the case of the United States of America, claims which are no
longer appealable, or which have been determined by decision of a
competent tribunal, which decision has become final.
13. As used in this Convention the term ``competent authority'' or
``competent authorities'' means, in the case of the United States of
America, the Secretary of the Treasury and in the case of Sweden, the
Finance Ministry.
14. The term ``United States of America'' as used in this Convention
in a geographical sense includes only the States, the Territories of
Alaska and Hawaii, and the District of Columbia.
15. Should any difficulty or doubt arise as to the interpretation or
application of the present Convention, or its relationship to
Conventions between one of the contracting States and any other State,
the competent authorities of the contracting States may settle the
question by mutual agreement.
16. The present Convention and Protocol shall not be deemed to
affect the exchange of notes between the United States of America and
Sweden providing relief from double income taxation on shipping profits,
signed March 31, 1938.
Done at Washington, this twenty-third day of March, nineteen hundred
and thirty-nine.
Sumner Welles [seal]
W. Bostrom [seal]
And where the said convention and the said protocol have been duly
ratified on both parts and the ratifications of the two Governments were
exchanged at Stockholm on the fourteenth day of November, one thousand
nine hundred and thirty-nine;
And whereas, as is provided in Article XXII, the said convention
shall become effective on the first day of January following the
exchange of the instruments of ratification;
Now, therefore, be it known that I, Franklin D. Roosevelt, President
of the United States of America, have caused the said convention and the
said protocol to be made public to the end that the same and every
article, clause and part thereof may be observed and fulfilled with good
faith by the United States of America and the citizens thereof on and
from the first day of January, one thousand nine hundred and forty.
In testimony whereof, I have hereunder set my hand and caused the
Seal of the United States of America to be affixed.
Done at the city of Washington this twelfth day of December, in the
year of our Lord one thousand nine hundred and thirty-nine, and of the
Independence of the United States of America the one hundred and sixty-
fourth.
[seal]
Franklin D Roosevelt
By the President:
Cordell Hull
Secretary of State.
(b) The Internal Revenue Code provides in part as follows:
[[Page 127]]
Sec. 22. Gross Income.
* * * * *
(b) Exclusions from gross income. The following items shall not be
included in gross income and shall be exempt from taxation under this
chapter:
* * * * *
(7) Income exempt under treaty. Income of any kind, to the extent
required by any treaty obligation of the United States:
Sec. 62. Rules and Regulations.
The Commissioner, with the approval of the Secretary, shall
prescribe and publish all needful rules and regulations for the
enforcement of this chapter.