[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: 26CFR520.104]

[Page 128-129]
 
                       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. 520.104  Scope of convention with respect to determination of ``industrial and commercial profits'' of a nonresident alien individual resident of Sweden or

          of a Swedish corporation or other entity carrying on a Swedish 
          enterprise in the United States.

    (a) General. Article II of the convention adopts the principle that 
an enterprise of one of the contracting States shall not be taxable in 
the other contracting State in respect of its industrial and commercial 
profits unless it has a permanent establishment in the latter State. 
Hence, a Swedish enterprise is subject to tax upon its industrial and 
commercial profits from

[[Page 129]]

sources within the United States only if it has a permanent 
establishment within the United States. From the standpoint of Federal 
income taxation, the article has application only to a Swedish 
enterprise and to the industrial and commercial income thereof from 
sources within the United States. It has no application, for example, to 
compensation for labor or personal services performed in the United 
States nor to income derived from real property located in the United 
States nor to any interest in such property, including rentals and 
royalties therefrom, nor to gains from the sale or disposition thereof 
nor to dividends and interest. Such latter items of income are treated 
separately elsewhere in the regulations in this subpart and are subject 
to the rules laid down in the sections having specific reference to the 
respective items of income: As to what is a ``Swedish enterprise'', a 
``permanent establishment'' and ``industrial and commercial profits,'' 
see Sec. 520.103.
    (b) No United States permanent establishment. A nonresident alien 
individual resident in Sweden or a Swedish corporation or other entity, 
carrying on a Swedish enterprise but having no permanent establishment 
in the United States is not subject to United States income tax upon 
industrial and commercial profits from sources within the United States. 
For example, if such Swedish corporation sells stock in trade such as 
iron ore or wood pulp through a bona fide commission agent or broker in 
the United States, the resulting profit is, under the terms of Article 
II of the convention, exempt from United States income tax. Such Swedish 
corporation, however, remains subject to tax upon all other items of 
income from sources within the United States and not expressly exempted 
from such tax under the convention. However, see Secs. 520.109, 520.111, 
520.112 and 520.113.
    (c) United States permanent establishment. A nonresident alien 
individual resident in Sweden or a Swedish corporation or other entity, 
carrying on a Swedish enterprise having a permanent establishment in the 
United States is subject to tax upon his or its industrial and 
commercial profits from sources within the United States. In the 
determination of the income of such resident of Sweden or Swedish 
corporation or other entity from sources within the United States, all 
industrial and commercial profits from sources within the United States 
shall be deemed to be allocable to the permanent establishment within 
the United States. The net income from sources within the United States, 
including the industrial and commercial profits, shall be determined in 
accordance with the provisions of section 119, Internal Revenue Code, 
and regulations thereunder. In determining such income, no account shall 
be taken of the mere purchase of merchandise effected in the United 
States by such Swedish enterprise.