[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: 26CFR521.108]
[Page 149-150]
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. 521.108 Exemption from, or reduction in rate of, United States tax in the case of dividends, interest and royalties.
(a) Dividends--(1) General. The tax imposed by the Internal Revenue
Code in the case of dividends received from sources within the United
States by (i) a nonresident alien (including a nonresident alien
individual, fiduciary and partnership) who is a resident of Denmark, or
(ii) a Danish corporation is, for taxable years beginning on and after
January 1, 1948, limited to 15 percent under the provisions of Article
VI (relating to dividends) if such alien or corporation, at no time
during the taxable year in which such dividends were so derived, had a
permanent establishment within the United States. Thus, if a nonresident
alien who is a resident of Denmark, performs personal services within
the United States during the calendar year 1948 but has at no time
during such year a permanent establishment within the United States, he
is entitled to the reduced rate of tax with respect to such dividends
derived in that year from United States sources, as provided in Article
VI of the convention, even though by reason
[[Page 150]]
of his having rendered personal services within the United States he is
engaged in trade or business therein in that year within the meaning of
section 211(b) of the Internal Revenue Code. If, for example, A, a
nonresident alien who is a resident of Denmark, derives in 1948, $5,000
compensation for such personal services and his only other income from
sources within the United States consists of dividends, the dividends
are subject to tax at a rate not to exceed 15 percent and his earned
income is subject to normal tax and surtax without taking the dividends
into account in determining the tax on such earned income.
(2) Dividends paid by a United States subsidiary corporation. Under
the provisions of Article VI(3) of the convention, dividends paid by a
domestic corporation to a Danish corporation are subject to tax at the
rate of only 5 percent if (i) such Danish corporation controls, directly
or indirectly, at the time the dividend is paid 95 percent or more of
the voting power in such domestic corporation, (ii) not more than 25
percent of the gross income of the domestic corporation for the three-
year period immediately preceding the taxable year in which the dividend
is paid consists of dividends and interest (other than dividends and
interest paid to such domestic corporation by its own subsidiary
corporations, if any), and (iii) the relationship between such domestic
corporation and such Danish corporation has not been arranged or
maintained primarily with the intention of securing such reduced rate of
5 percent.
(b) Interest and royalties. (1) Interest, whether on bonds,
securities, notes, debentures, or any other form of indebtedness
(including interest on obligations of the United States and on
obligations of instrumentalities of the United States), and royalties
for the right to use copyrights, patents, designs, secret processes and
formulae, trade-marks, and other analogous property and royalties
(including rentals and like payments in respect of motion picture films)
received from sources within the United States by (i) a nonresident
alien (including a nonresident alien individual, fiduciary, and
partnership) who is a resident of Denmark, or (ii) a Danish corporation,
are, for taxable years beginning on and after January 1, 1948, exempt
from United States tax under the provisions of Articles VII and VIII of
the convention if such alien or corporation at no time during the
taxable year in which such interest or royalty was so derived had a
permanent establishment situated within the United States.
(2) Such interest and royalties are, therefore, not subject to the
withholding provisions of the Internal Revenue Code.
(c) Beneficiaries of an estate or trust. (1) A nonresident alien who
is a resident of Denmark and who is a beneficiary of a domestic estate
or trust shall be entitled to the exemption, or reduction in the rate of
tax, as the case may be, provided in Articles VI, VII and VIII of the
convention with respect to dividends, interest and royalties to the
extent that such item or items are included in his distributive share of
income of such estate or trust if he at no time during the taxable year
had a permanent establishment in the United States. In such case such
beneficiary must, in order to be entitled to the exemption or reduction
in the rate of tax execute Form 101-D or Form 1001A-D (modified to show
dividends where applicable) and file such form with the fiduciary of
such estate or trust in the United States.
(2) In any case in which dividends, interest or royalties are
derived from United States sources by a Danish estate or trust, any
beneficiary of such estate or trust who is not a resident of Denmark, or
who has a permanent establishment in the United States, is not entitled
to any exemption under the convention with respect to such income
included in his distributive share of the income of the estate or trust.