[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: 26CFR509.1]
[Page 24-27]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 509--SWITZERLAND--Table of Contents
Subpart--Withholding of Tax
Sec. 509.1 Introductory.
Source: Treasury Decision 5867, 16 FR 11910, Nov. 27, 1951, unless
otherwise noted. Redesignated at 25 FR 14022, Dec. 31, 1960.
Effective Date Note: By T.D. 8734, 62 FR 53497, Oct. 14, 1997,
Subpart--Withholding of Tax, consisting of Secs. 509.1 through 509.10,
was removed, effective Jan. 1, 1999. By T.D. 8804, 63 FR 72183, Dec. 31,
1998, the effective date was delayed until Jan. 1, 2000. By T.D. 8856,
64 FR 73408, Dec. 30, 1999, the effective date was delayed until Jan. 1,
2001.
The income tax convention between the United States and the Swiss
Confederation, signed May 24, 1951, proclaimed by the President of the
United States on October 1, 1951, and effective as to taxable years
beginning after December 31, 1950 (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 taxes, including surtaxes and excess profits
taxes.
(b) In the case of The Swiss Confederation:
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The federal, cantonal and communal taxes on income (total income,
earned income, income from property, industrial and commercial profits,
etc.).
(2) The present Convention shall also apply to any other income or
profits tax 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 means the States, the Territories
of Alaska and Hawaii, and the District of Columbia.
(b) The term ``Switzerland'' means The Swiss Confederation.
(c) The term ``permanent establishment'' means a branch, office,
factory, workshop, 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 habitually
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 commission agent, broker or custodian or
other independent agent 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. The maintenance within the territory of one of the
contracting States by an enterprise of the other contracting State of a
warehouse for convenience of delivery and not for purposes of display
shall not of itself constitute a permanent establishment within that
territory even though offers of purchase have been obtained by an agent
of the enterprise in that territory and transmitted by him to the
enterprise for acceptance.
(d) The term ``enterprise of one of the contracting States'' means,
as the case may be, ``United States enterprise'' or ``Swiss
enterprise''.
(e) The term ``United States enterprise'' means an industrial or
commercial enterprise or undertaking carried on in the United States by
a resident (including an individual, fiduciary and partnership) of the
United States or by a United States corporation or other entity; the
term ``United States corporation or other entity'' means a corporation
or other entity created or organized under the law of the United States
or of any State or Territory of the United States.
(f) The term ``Swiss enterprise'' means an industrial or commercial
enterprise or undertaking carried on in Switzerland by an individual
resident in Switzerland or by a Swiss corporation or other entity; the
term ``Swiss corporation or other entity'' means a corporation or
institution or foundation having juridical personality, or a partnership
(association ``en nom collectif'' or ``en commandite''), or other
association without juridical personality, created or organized under
Swiss laws.
(g) The term ``competent authorities'' means, in the case of the
United States, the Commissioner of Internal Revenue as authorized by the
Secretary of the Treasury; and in the case of Switzerland, the Director
of the Federal Tax Administration as authorized by the Federal
Department of Finances and Customs.
(h) The term ``industrial or commercial profits'' includes
manufacturing, mercantile, mining, financial and insurance profits, but
does not include income in the form of dividends, interest, rents or
royalties, or remuneration for personal services: Provided, however,
that such excepted items of income shall, subject to the provisions of
this Convention, be taxed separately or together with industrial or
commercial profits in accordance with the laws of the contracting
States.
(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 VI
(1) The rate of tax imposed by one of the contracting States upon
dividends derived from sources within such State by a resident or
corporation or other entity of the other contracting State not having a
permanent establishment in the former State shall not exceed 15 percent:
Provided, however, that this paragraph shall have no application to
Swiss tax in the case of dividends derived from Switzerland by a Swiss
citizen (who is not also a citizen of the United States) resident in the
United States.
(2) It is agreed, however, that such rate of tax 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
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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 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.
(3) Switzerland may collect its tax without regard to paragraphs (1)
and (2) of this Article but will make refund of the tax so collected in
excess of the tax computed at the reduced rates provided in such
paragraphs.
Article VII
(1) The rate of tax imposed by one of the contracting States on
interest on bonds, securities, notes, debentures or on any other form of
indebtedness (including mortgages or bonds secured by real property)
derived from sources within such contracting State by a resident or
corporation or other entity of the other contracting State not having a
permanent establishment in the former State shall not exceed five
percent: Provided, however, that this paragraph shall have no
application to Swiss tax in the case of interest derived from
Switzerland by a Swiss citizen (who is not also a citizen of the United
States) resident in the United States.
(2) Switzerland may collect its tax without regard to paragraph (1)
of this Article but will make refund of the tax so collected in excess
of the tax computed at the reduced rate provided in such paragraph.
Article VIII
Royalties and other amounts derived, as consideration for the right
to use copyrights, artistic and scientific works, patents, designs,
plans, secret processes and formulae, trademarks, and other like
property and rights (including rentals and like payments in respect to
motion picture films or for the use of industrial, commercial or
scientific equipment), 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 (including gains derived from the sale
or exchange of such property but not including interest from mortgages
or 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 or other entity of one of the
contracting States deriving any such income from such property 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 or entity were engaged in trade or
business within such other contracting States through a permanent
establishment therein during such taxable year.
* * * * *
Article XI
(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 ``pensions'', as used in this Article, means periodic
payments made in consideration for services rendered or by way of
compensation for injuries received.
(4) The term ``life annuities'' as used in this Article, 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
return for adequate and full consideration in money or money's worth.
* * * * *
Article XIV
(1) Dividends and interest paid by a corporation other than a United
States domestic corporation shall be exempt from United States tax where
the recipient is a nonresident alien as to the United States resident in
Switzerland or a Swiss corporation, not having a permanent establishment
in the United States.
(2) Dividends and interest paid by a corporation other than a Swiss
corporation shall be exempt from Swiss tax where the recipient is a
resident or corporation of the United States, not having a permanent
establishment in Switzerland.
* * * * *
Article XVI
(1) 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 like 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
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collection of the taxes which are the subject of the present Convention.
No information shall be exchanged which would disclose any trade,
business, industrial or professional secret or any trade process.
(2) Each of the contracting States may collect such taxes imposed by
the other contracting State as though such taxes were the taxes of the
former State as will ensure that the exemption or reduced rate of tax
granted under Articles VI, VII, VIII and XI(2) of the present Convention
by such other State shall not be enjoyed by persons not entitled to such
benefits.
(3) In no case shall the provisions of this Article be construed so
as to impose upon either of the contracting States the obligation to
carry out administrative measures at variance with the regulations and
practice of either contracting State or which would be contrary to its
sovereignty, security or public policy or to supply particulars which
are not procurable under its own legislation or that of the State making
application.
* * * * *
Article XIX
(1) The competent authorities of the two contracting States may
prescribe regulations necessary to carry into effect the present
Convention within the respective States.
(2) The competent authorities of the two contracting States may
communicate with each other directly for the purpose of giving effect to
the provisions of this Convention.
Article XX
(1) The present Convention shall be ratified and the instruments of
ratification shall be exchanged at Berne as soon as possible. It shall
have effect for the taxable years beginning on or after the first day of
January of the year in which such exchange takes place: Provided,
however, that if such exchange takes place on or after October 1 of such
year, Article VI (except paragraph (2) thereof) and Article VII of the
Convention shall have effect only for taxable years beginning on or
after the first day of January of the year immediately following the
year in which such exchange takes place.
(2) The present Convention shall continue effective for a period of
five years beginning with the calendar year in which the exchange of the
instruments of ratification takes place 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 for the
taxable years beginning on or after the first day of January next
following the expiration of the six-month period.
* * * * *
As used in this Treasury decision, unless the context otherwise
requires, the terms defined in the above articles of the convention
shall have the meanings so assigned them.