[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: 26CFR521.2]
[Page 136-137]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 521--DENMARK--Table of Contents
Subpart--Withholding of Tax
Sec. 521.2 Dividends.
(a) General. The rate of tax imposed by section 211(a) of the
Internal Revenue Code (relating to nonresident alien individuals not
engaged in trade or business within the United States) and by section
231(a) of the Internal Revenue Code (relating to foreign corporations
not engaged in trade or business within the United States) is 30
percent. Such rate is reduced under Article VI of the convention to 15
percent in the case of dividends received on or after January 1, 1948,
from sources within the United States by a nonresident alien (including
a nonresident alien individual, fiduciary, and partnership) who is a
resident of Denmark or by a Danish corporation if such alien or
corporation at no time during the taxable year had a permanent
establishment within the United States. As to what is a Danish
corporation, see Article II(1)(g) of the convention. 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
dividends derived in that year from United States sources, as provided
in Article VI of the convention, even though by reason 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. As to what constitutes a permanent
establishment, see Article II(1)(c) of the convention.
(b) Dividends paid by a United States subsidiary corporation. (1)
Under the provisions of Article VI (3) of the convention, dividends paid
by a domestic corporation to a Danish corporation controlling, directly
or indirectly, at the time the dividend is paid, 95 percent or more of
the entire voting power in such domestic corporation, are subject to tax
at the rate of only 5 percent, if (i) not more than 25 percent of
[[Page 137]]
the gross income of such paying 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 (ii) 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.
(2) Any domestic corporation which claims or contemplates claiming
that dividends paid or to be paid by it on or after January 1, 1948, are
subject only to the 5 percent rate shall file, as soon as practicable,
with the Commissioner of Internal Revenue, the following information:
(i) the date and place of its organization; (ii) the number of
outstanding shares of stock of the domestic corporation having voting
power and the voting power thereof; (iii) the person or persons
beneficially owning such stock of the domestic corporation and their
relationship to the Danish corporation; (iv) the amount of gross income,
by years, of the paying corporation for the three-year period
immediately preceding the taxable year in which the dividend is paid;
(v) the amount of interest and dividends, by years, included in the
gross income of such domestic corporation and the amount of interest and
dividends, by years, received by such corporation from its subsidiary
corporations, if any; and (vi) the relationship between the domestic
corporation and the Danish corporation to which it pays the dividend.
(3) As soon as practicable after such information is filed, the
Commissioner of Internal Revenue will determine whether the dividends
concerned fall within the provisions of Article VI (3) of the convention
and may authorize the release of excess tax withheld with respect to
dividends which come within such provision. In any case in which the
Commissioner of Internal Revenue has notified such domestic corporation
that the dividends come within such provision, the reduced rate of 5
percent applies to any dividends subsequently paid by such corporation
to the Danish corporation unless the stock ownership of the domestic
corporation, or the character of its income, materially changes, and, if
such change or changes occur, such corporation shall promptly notify the
Commissioner of Internal Revenue of the then existing facts with respect
to such stock ownership or income.
(c) Effect on withholding in case of dividends of address in
Denmark. For the purposes of withholding of the tax in the case of
dividends, every nonresident alien (including a nonresident alien
individual, fiduciary or partnership) whose address is in Denmark shall
be deemed by United States withholding agents to be a resident of
Denmark not having a permanent establishment in the United States and
every corporation whose address is in Denmark shall be deemed by such
withholding agents to be a Danish corporation not having a permanent
establishment in the United States.
(d) Rate of withholding. (1) On and after January 1, 1949,
withholding in the case of dividends paid to nonresident aliens
(including a nonresident alien individual, fiduciary or partnership) and
to foreign corporations, whose addresses are in Denmark, shall (except
(i) in any case in which prior to the date of payment of such dividend,
the Commissioner of Internal Revenue has notified the paying corporation
that such dividend falls within the provisions of Article VI (3) of the
convention, and (ii) in any case in which the Commissioner notifies the
withholding agent that the reduced rate shall not apply), be at the rate
of 15 percent.
(2) The preceding provisions relative to residents of Denmark and to
Danish corporations are based upon the assumption that the payee of the
dividend is the actual owner of the capital stock from which the
dividend is derived and consequently is the person liable to the tax
upon such dividend. As to action by the recipient who is not the owner
of the dividend, see Sec. 521.7.