[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: 26CFR509.117]

[Page 46-47]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY 
                               (Continued)
 
PART 509--SWITZERLAND--Table of Contents
 
                       Subpart--General Income Tax
 
Sec. 509.117  Dividends and interest paid by a foreign corporation.

    (a) General--(1) Dividends. A dividend paid by a foreign corporation 
constitutes, in whole or in part, income from sources within the United 
States and is subject to tax by the United States when received by a 
nonresident alien individual or other foreign corporation, if 50 percent 
or more of the gross income of the paying corporation for the statutory 
period was derived from sources within the United States. See section 
861(a)(2)(B), section 872(a), and section 882(b), Internal Revenue Code 
of 1954; and the regulations thereunder.
    (2) Interest. Interest on bonds, notes, and other interest-bearing 
obligations of resident foreign corporations constitutes, in its 
entirety, income from sources within the United States and is

[[Page 47]]

subject to tax by the United States when received by a nonresident alien 
individual or other foreign corporation, if 20 percent or more of the 
gross income of the paying corporation for the statutory period was 
derived from sources within the United States. See section 861(a)(1)(B), 
section 872(a), and section 882(b), Internal Revenue Code of 1954; and 
the regulations thereunder.
    (b) Exemption from United States tax. Notwithstanding the provisions 
of paragraph (a) of this section, Article XIV(1) of the convention 
provides that dividends and interest paid by any foreign corporation and 
derived by a nonresident alien who is a resident of Switzerland, or by a 
Swiss corporation, shall not be included in gross income and shall be 
exempt from United States tax if such alien or corporation at no time 
during the taxable year in which such items of income are derived has a 
permanent establishment in the United States. The exemption so provided 
shall apply even though the corporation paying the dividends or interest 
is a resident foreign corporation at the time of payment and without 
regard to the percentage of its gross income from sources within the 
United States.

    Effective Date Note:  By T.D. 8734, 62 FR 53497, Oct. 14, 1997, 
Sec. 509.117 was amended by removing and reserving paragaph (a), 
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.