[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: 26CFR521.105]

[Page 148-149]
 
                       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. 521.105  Scope of convention with respect to determination of ``industrial or commercial profits''.

    (a) General. Article III of the convention adopts the principle that 
an enterprise of one of the contracting States shall not be taxable by 
the other contracting State upon its industrial or commercial profits 
unless it has a permanent establishment in the latter State. Hence, a 
Danish enterprise is subject to United States tax upon its industrial 
and commercial profits to the extent of such profits from 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 Danish 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, including rentals and 
royalties therefrom, nor to gains from the sale or disposition of such 
property, nor to interest, dividends, royalties, other fixed or 
determinable annual or periodical income and gains derived from the sale 
or exchange of capital assets.
    (b) No United States permanent establishment. A nonresident alien 
(including a nonresident alien individual, fiduciary and partnership) 
who is a resident of Denmark or a Danish corporation, carrying on an 
enterprise in Denmark and having no permanent establishment in the 
United States, is not for taxable years beginning on or after January 1, 
1948, subject to United States income tax upon industrial or commercial 
profits from sources within the United States. For example, if the 
Danish enterprise carried on by such alien or corporation sells, in 
1948, merchandise, such as silverware, dairy products, or liquors, 
through a bona fide commission agent or broker in the United States 
acting in the ordinary course of his business as such agent or broker, 
the resulting profits are, under the terms of Article III of the 
convention, exempt from United States income tax. Likewise no permanent 
establishment exists and no United States income tax attaches to such 
profits if such enterprise, through its sales agents in the United 
States, secures orders for its products, the sales being made in 
Denmark.
    (c) United States permanent establishment. A nonresident alien 
(including a nonresident alien individual, fiduciary and partnership), 
who is a resident of Denmark, or a Danish corporation, whether or not 
carrying on a Danish enterprise, having a permanent establishment in the 
United States, is subject to tax upon industrial or commercial profits 
from sources within the United States to the same extent as are 
nonresident aliens and foreign corporations engaged in trade or business

[[Page 149]]

therein. In the determination of the income taxable to such alien or 
foreign corporation all industrial and commercial profits from sources 
within the United States shall be deemed to be allocable to the 
permanent establishment in the United States. Hence, for example, if a 
Danish enterprise having a permanent establishment in the United States 
sells in the United States, through a commission agent therein goods 
produced in Denmark, the resulting profits derived from United States 
sources from such transactions are allocable to such permanent 
establishment even though such transactions were carried on 
independently of such establishment. In determining industrial and 
commercial profits no account shall be taken of the mere purchase of 
merchandise within the United States by the Danish enterprise. The 
industrial or commercial profits of the permanent establishment shall be 
determined as if the establishment were an independent enterprise 
engaged in the same or similar activities and dealing at arm's length 
with the enterprise of which it is a permanent establishment.