[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: 26CFR521.101]
[Page 141-146]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 521--DENMARK--Table of Contents
Subpart--General Income Tax
Sec. 521.101 Introductory.
Source: Treasury Decision 5777, 15 FR 1595, Mar. 22, 1950, unless
otherwise noted. Redesignated at 25 FR 14022, Dec. 31, 1960.
Taxation of Nonresident Aliens Who Are Residents of Denmark and of
Danish Corporations
The income tax convention between the United States and the Kingdom
of Denmark, signed May 6, 1948, proclaimed (with reservations thereto)
by the President of the United States on December 8, 1948, and effective
for taxable years beginning on and after January 1, 1948 (referred to in
this subpart as the convention), provides in part as follows:
Article I
(1) The taxes referred to in this Convention are:
(a) In the case of the United States of America: The Federal income
tax, including surtaxes.
(b) In the case of Denmark:
The national income tax, including the war profits tax.
The intercommunal income tax.
The communal income tax.
(2) The present Convention shall also apply to any other taxes of a
substantially similar character imposed by either contracting State
subsequently to the date of signature of the present Convention.
Article II
(1) As used in this Convention:
(a) The term ``United States'' means the United States of America,
and when used in a geographical sense includes only the States, the
Territories of Alaska and Hawaii, and the District of Columbia.
(b) The term ``Denmark'' means the Kingdom of Denmark; the
provisions of the Convention shall not, however, extend to the Faroe
Islands; nor do they apply to Greenland.
(c) The term ``permanent establishment'' means a branch office,
factory, warehouse or other fixed place of business, but does not
include the casual and temporary use of merely storage facilities, nor
does it include an agency unless the agent has and exercises a general
authority to negotiate and conclude contracts on behalf of an enterprise
or has a stock of merchandise from which he regularly fills orders on
its behalf. An enterprise of one of the contracting States shall not be
deemed to have a permanent establishment in the other State merely
because it carries on business dealings in such other State through a
bona fide commission agent, broker or custodian acting in the ordinary
course of his business as such. The fact that an enterprise of one of
the contracting States maintains in the other State a fixed place of
business exclusively for the purchase of goods or merchandise shall not
of itself constitute such fixed place of business a permanent
establishment of such enterprise. The fact that a corporation of one
contracting State has a subsidiary corporation which is a corporation of
the other State or which is engaged in trade or business in the other
State shall not of itself constitute that subsidiary corporation a
permanent establishment of its parent corporation.
(d) The term ``enterprise of one of the contracting States'' means,
as the case may be,
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``United States enterprise'' or ``Danish enterprise''.
(e) The term ``enterprise'' includes every form of undertaking
whether carried on by an individual, partnership, corporation, or any
other entity.
(f) 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.
(g) The term ``Danish enterprise'' means an enterprise carried on in
Denmark by a resident of Denmark or by a Danish corporation or other
entity; the term ``Danish corporation or other entity'' means a
partnership, corporation, or other entity created or organized in
Denmark or under Danish laws.
(h) The term ``competent authorities'' means, in the case of the
United States, the Commissioner of Internal Revenue or his authorized
representative; and in the case of Denmark, the Chief of the Taxation
Department of the Ministry of Finance (Generaldirektoren for
Skattevaesenet) or his authorized representative.
(2) In the application of the provisions of the present Convention
by one of the contracting States any term not otherwise defined, shall,
unless the context otherwise requires, have the meaning which such term
has under its own tax laws.
Article III
(1) An enterprise of one of the contracting States shall not be
subject to taxation in the other contracting State in respect of its
industrial and commercial profits unless it is engaged in trade or
business in such other State through a permanent establishment situated
therein. If it is so engaged such other State may impose its tax upon
the entire income of such enterprise from sources within such other
State.
(2) In determining the industrial or commercial profits from sources
within the territory of one of the contracting States of an enterprise
of the other contracting State, no profits shall be deemed to arise from
the mere purchase of goods or merchandise within the territory of the
former contracting State by such enterprise.
(3) Where an enterprise of one of the contracting States is engaged
in trade or business in the territory of the other contracting State
through a permanent establishment situated therein, there shall be
attributed to such permanent establishment the industrial or commercial
profits which it might be expected to derive if it were an independent
enterprise engaged in the same or similar activities under the same or
similar conditions and dealing at arm's length with the enterprise of
which it is a permanent establishment and the profits so attributed
shall, subject to the law of such other contracting State, be deemed to
be income from sources within the territory of such other contracting
State.
Article IV
Where an enterprise of one of the contracting States, by reason of
its participation in the management or the financial structure of an
enterprise of the other contracting State, makes with 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 would normally have accrued to one of the enterprises but
by reason of those conditions have not so accrued, may be included in
the profits of that enterprise and taxed accordingly.
Article V
(1) Income which an enterprise of one of the contracting States
derives from the operation of ships or aircraft registered in that State
shall be exempt from taxation in the other contracting State.
(2) The present Convention shall not be deemed to affect the
arrangement between the United States and Denmark providing for relief
from double income taxation on shipping profits, effected by exchanges
of notes dated May 22, August 9 and 18, October 24, 25, and 28, and
December 5 and 6, in the year 1922.
Article VI
(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 in which such
corporation or other entity is incorporated or organized.
(2) Each of the contracting States reserves, however, the right to
collect and retain the tax which, under its revenue laws, is deductible
at the source with respect to such dividends, but the tax shall not
exceed 15 percent of the amount of dividends derived from sources within
such State by a resident, corporation or other entity of the other
State, if the recipient has no permanent establishment in the
contracting State from which the dividends are derived.
(3) It is agreed, however, that the rate of dividend tax at the
source shall not exceed five percent if the shareholder is a corporation
controlling, directly or indirectly, at least 95 percent of the entire
voting power in the corporation paying the dividend, and if not more
than 25 percent of the gross income of such paying corporation is
derived from interest and dividends, other than interest
[[Page 143]]
and dividends received from its own subsidiary corporations. Such
reduction of the rate to five percent shall not apply if the
relationship of the two corporations has been arranged or is maintained
primarily with the intention of securing such reduced rate.
Article VII
Interest on bonds, securities, notes, debentures, or on any other
form of indebtedness derived from sources within one of the contracting
States by a resident or corporation or other entity of the other
contracting State not having a permanent establishment in the former
State shall be exempt from tax by such former State.
Article VIII
Royalties and other amounts derived as consideration for the right
to use copyrights, patents, designs, secret processes and formulas,
trade-marks and other like property (including rentals and like payments
in respect of motion picture films) derived from sources within one of
the contracting States by a resident or corporation or other entity of
the other contracting State not having a permanent establishment in the
former State shall be exempt from taxation in such former State.
Article IX
(1) Income from real property (not including interest derived from
mortgages and bonds secured by real property) and royalties 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.
(2) A resident or corporation of one of the contracting States
deriving any such income from sources within the other contracting State
may, for any taxable year, elect to be subject to the tax of such other
contracting State, on a net basis, as if such resident or corporation
were engaged in trade or business within such other contracting State
through a permanent establishment therein during such taxable year.
Article X
(1) Wages, salaries, and similar compensation and pensions paid by
one of the contracting States or by any other public authority within
that State to individuals residing in the other State shall be taxable
only in the former State.
(2) 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.
(3) The term ``life annuities'' as used herein 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.
Article XI
(1) 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.
(2) The provisions of paragraph (1) are, however, subject to the
following exceptions:
(a) A resident of Denmark shall be exempt from United States tax
upon compensation for labor or personal services if he is temporarily
present in the United States 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 in the aggregate. If,
however, 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 Denmark, he will be exempt from United
States tax if his stay in the United States does not exceed a total of
180 days during the taxable year.
(b) The provisions of paragraph (2)(a) of this Article shall apply
mutatis mutandis, to a resident of the United States with respect to
compensation for personal services otherwise subject to income tax in
Denmark.
(3) The provisions of this Article shall have no application to the
income to which Article X (1) relates.
Article XII
Gains derived in one of the contracting States from the sale or
exchange of capital assets by a resident or corporation or other entity
of the other contracting State shall be exempt from taxation in the
former State if such resident or corporation or other entity is not
engaged in trade or business in such former State. [This Article deleted
by reservation, see President's Proclamation hereinafter.]
Article XIII
Students or apprentices, citizens of one of the contracting States,
residing in the other contracting State exclusively for purposes of
study or for acquiring business experience, shall not be taxable in the
latter State in respect of remittances (other than their own income)
received by them from abroad for the purposes of their maintenance or
studies.
Article XIV
A professor or teacher, a resident of one of the contracting States,
who temporarily visits the territory of the other contracting State for
the purpose of teaching for a period not exceeding two years at a
university, college, school or other educational institution
[[Page 144]]
in the other contracting State, shall be exempted in such other
contracting State from tax on his remuneration for such teaching for
such period.
Article XV
It is agreed that double taxation shall be avoided in the following
manner:
(a) The United States in determining the income taxes, including
surtaxes, of its citizens, residents or corporations may, regardless of
any other provision of this Convention, include in the basis upon which
such taxes are imposed all items of income taxable under the revenue
laws of the United States as if this convention had not come into
effect. The United States shall, however, subject to the provisions of
section 131, Internal Revenue Code, deduct from its taxes the amount of
Danish taxes specified in Article I of this Convention.
(b) Denmark, in determining its taxes specified in Article I of this
Convention, may regardless of any other provision of this Convention,
include in the basis upon which such taxes are imposed all items of
income subject to such taxes under the taxation laws of Denmark. Denmark
shall, however, deduct from the taxes so calculated the United States
tax on income coming within the provisions of Articles III, IX, X (1),
XIII and XIV of this Convention and on earned income earned within the
United States, but in an amount not exceeding that proportion of the
Danish taxes which such income bears to the entire income subject to tax
by Denmark. Denmark will also allow as a deduction from its taxes an
amount equal to 15 percent (five percent in the case of dividends
covered by Article VI (3)) of the gross amount of dividends (reduced by
the United States tax applicable to such dividends) from sources within
the United States.
Article XVI
(1) The citizens of one of the contracting States shall not, while
resident in the other contracting State, be subjected therein to other
or more burdensome taxes than are the citizens of such other contracting
State residing in its territory. As used in this paragraph:
(a) The term ``citizens'' includes all legal persons, partnerships,
and associations created or organized under the laws in the respective
contracting States, and
(b) The term ``taxes'' means taxes of every kind or description
whether national, Federal, state, provincial or municipal.
(2) It is agreed that section 25, paragraph 5, of the Danish law No.
391 of July 12, 1946, prescribing an addition of 50 percent of the
capital increment tax on corporations in cases where more than 50
percent of the entire stock capital is owned by a single shareholder
residing outside Denmark, shall not be applicable when the shareholder
in question is a resident of the United States or a United States
corporation or other entity.
Article XVII
The competent authorities of the contracting States shall exchange
such information (being information available under the respective
taxation laws of the contracting States) as is necessary for carrying
out the provisions of the present Convention or for the prevention of
fraud or the administration of statutory provisions against tax
avoidance in relation to the taxes which are the subject of the present
Convention. Any information so exchanged shall be treated as secret and
shall not be disclosed to any person other than those concerned with the
assessment and collection of the taxes which are the subject of the
present Convention. No information shall be exchanged which would
disclose any trade secret or trade process.
Article XVIII
(1) The contracting States undertake to lend assistance and support
to each other in the collection of the taxes which are the subject of
the present Convention, together with interest, costs, and additions to
the taxes.
(2) In the case of application for enforcement of taxes, revenue
claims of each of the contracting States which have been finally
determined may be accepted for enforcement by the other contracting
State and may be collected in that State in accordance with the laws
applicable to the enforcement and collection of its own taxes.
(3) Any application shall include a certification that under the
laws of the State making the application the taxes have been finally
determined.
(4) The assistance provided for in this Article shall not be
accorded with respect to the citizens, corporations, or other entities
of the State to which application is made, except as is necessary to
insure that the exemption or reduced rate of tax granted under the
present Convention to such citizens, corporations, or other entities
shall not be enjoyed by persons not entitled to such benefits.
Article XIX
The State to which application is made for information or assistance
shall comply as soon as possible with the request addressed to it except
that such State may refuse to comply with the request for reasons of
public policy or if compliance would involve violation of a trade,
business, industrial or professional secret or trade process.
[[Page 145]]
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
(1) 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.
(2) 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.
(3) 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.
Article XXII
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 exchange of information 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 xxiii
(1) The present Convention shall be ratified and the instruments of
ratification shall be exchanged at Washington as soon as possible.
(2) Upon the exchange of instruments of ratification, the present
Convention shall have effect.
(a) In the case of United States tax, for the taxable years
beginning on or after the first day of January of the year in which such
exchange takes place;
(b) In the case of Danish tax, for the taxable years beginning on or
after the first day of April of the year in which such exchange takes
place.
(3) The present Convention shall continue effective for a period of
five years and indefinitely after that period, but may be terminated by
either of the contracting States at the end of the five-year period or
at any time thereafter, provided that at least six months' prior notice
of termination has been given and, in such event, the present Convention
shall cease to be effective.
(a) As respects United States tax, for the taxable years beginning
on or after the first day of January next following the expiration of
the six-month period;
(b) As respects Danish tax, for the taxable years beginning on or
after the first day of April next following the expiration of the six-
month period.
Done at Washington, in duplicate, in the English and Danish
languages, the two texts having equal authenticity, this 6th day of May
1948.
For the President of the United States of America:
[seal]
G. C. Marshall.
For his Majesty the King of Denmark:
[seal]
Henrik Kauffman.
Proclamation of the President of the United States Dated December 8,
1948
* * * * *
And whereas the Senate of the United States of America, by their
resolution of June 17, 1948, two-thirds of the Senators present
concurring therein, did advise and consent to the ratification of the
aforesaid convention subject to a reservation, as follows:
The Government of the United States of America does not accept
Article XII of the convention relating to gains from the sale or
exchange of capital assets.
And whereas the text of the aforesaid reservation was communicated
by the Government of the United States of America to the Government of
Denmark and thereafter the Government of Denmark gave notice of its
acceptance of the aforesaid reservation;
And whereas the aforesaid convention was duly ratified by the
President of the United States of America on November 24, 1948, in
pursuance of the aforesaid advice and consent of the Senate and subject
to the aforesaid reservation, and the said convention, with the
exception of Article XII thereof, was duly ratified on the part of
Denmark;
And whereas the respective instruments of ratification of the
aforesaid convention were duly exchanged at Washington on December
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1, 1948, and a protocol of exchange of instruments of ratification, in
the English and Danish languages, was signed on that date by the
respective Plenipotentiaries of the United States of America and
Denmark, the English text of which protocol reads in part: ``it is the
understanding of both Governments that Article XII of the convention
aforesaid shall be deemed to be deleted and of no effect.'';
* * * * *