[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: 26CFR509.101]
[Page 33-38]
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. 509.101 Introductory.
Source: Treasury Decision 6149, 20 FR 7587, Oct. 12, 1955; 25 FR
14022, Dec. 31, 1960, unless otherwise noted.
The income tax convention between the United States and the Swiss
Confederation, signed May 24, 1951, and proclaimed by the President of
the United States on October 1, 1951, subject to the understanding
expressed in the protocol of exchange, referred to in this part as the
convention, provides as follows, effective for taxable years beginning
on or after January 1, 1951:
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: 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.
[[Page 34]]
(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 III
(1)(a) A Swiss enterprise shall not be subject to taxation by the
United States in respect of its industrial and commercial profits unless
it is engaged in trade or business in the United States through a
permanent establishment situated therein. If it is so engaged the United
States may impose its tax upon the entire income of such enterprise from
sources within the United States.
(b) A United States enterprise shall not be subject to taxation by
Switzerland in respect of its industrial and commercial profits except
as to such profits allocable to its permanent establishment situated in
Switzerland.
(2) No account shall be taken in determining the tax in one of the
contracting States of the mere purchase of merchandise therein by an
enterprise of the other State.
(3) Where an enterprise of one of the contracting States is engaged
in trade or business in the territory of the other contracting State
through a permanent establishment situated therein, there shall be
attributed to such permanent establishment the industrial or commercial
profits which it might be expected to derive if it were an independent
enterprise engaged in the same or similar activities under the same or
similar conditions and dealing at arm's length with the enterprise of
which it is a permanent establishment.
(4) In the determination of the industrial or commercial profits of
the permanent establishment there shall be allowed as deductions all
expenses which are reasonably applicable to the permanent establishment,
including executive and general administrative expenses so applicable.
(5) The competent authorities of the two contracting States may lay
down rules by agreement for the apportionment of industrial and
commercial profits.
Article IV
Where an enterprise of one of the contracting States, by reason of
its participation in the management or the financial structure of an
enterprise of the other contracting State, makes with or imposes on the
latter, in their commercial or financial relations, conditions different
from those which would be made with an independent enterprise, any
profits which would normally have accrued to one of the enterprises, but
by reason of those conditions have not so accrued, may be included in
the profits of that enterprise and taxed accordingly.
Article V
Income which an enterprise of one of the contracting States derives
from the operation of ships or aircraft registered in that State shall
be taxable only in the State in which such ships or aircraft are
registered.
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 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.
[[Page 35]]
(2) 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 State through a permanent
establishment therein during such taxable year.
Article X
(1) An individual resident of Switzerland shall be exempt from
United States tax upon compensation for labor or personal services
performed in the United States (including the practice of the liberal
professions and rendition of services as director) if he is temporarily
present in the United States for a period or periods not exceding a
total of 188 days during the taxable year and either of the following
conditions is met:
(a) His compensation is received for such labor or personal services
performed as an employee of, or under contract with, a resident or
corporation or other entity of Switzerland, or
(b) His compensation received for such labor or personal services
does not exceed $10,000.
(2) The provisions of paragraph (1) of this Article shall apply
mutatis mutandis, to an individual resident of the United States with
respect to compensation for such labor or personal services performed in
Switzerland.
(3) The provisions of this Article shall have no application to the
income to which Article XI (1) relates.
(4) The provisions of paragraph (1)(a) of this Article shall not
apply to the compensation, profits, emoluments or other remuneration of
public entertainers such as stage, motion picture or radio artists,
musicians and athletes.
Article XI
(1)(a) Wages, salaries and similar compensation, and pensions paid
by the United States or by the political subdivisions or territories
thereof to an individual (other than a Swiss citizen who is not also a
citizen of the United States) shall be exempt from Swiss tax.
(b) Wages, salaries and similar compensation and pensions paid by
Switzerland or by any agency or instrumentality thereof or by any
political subdivisions or other public authorities thereof to an
individual (other than a United States citizen who is not also a citizen
of Switzerland) shall be exempt from United States tax.
(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.
[[Page 36]]
Article XII
A professor or teacher, a resident of one of the contracting States,
who temporarily visits the other contracting State for the purpose of
teaching for a period not exceeding two years at a university, college,
school or other educational institution in the other contracting State,
shall be exempted in such other contracting State from tax on his
remuneration for such teaching for such period.
Article XIII
A student or apprentice, a resident of one of the contracting
States, who temporarily visits the other contracting State exclusively
for the purposes of study or for acquiring business or technical
experience shall not be taxable in the latter State in respect of
remittances received by him from abroad for the purposes of his
maintenance or studies.
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 XV
(1) It is agreed that double taxation shall be avoided in the
following manner:
(a) The United States in determining its taxes specified in Article
I of this Convention in the case of its citizens, residents or
corporations may, regardless of any other provision of this Convention,
include in the basis upon which such taxes are imposed all items of
income taxable under the revenue laws of the United States as if this
Convention had not come into effect. The United States shall, however,
subject to the provisions of section 131, Internal Revenue Code, as in
effect on the date of the entry into force of this Convention, deduct
from its taxes the amount of Swiss taxes specified in Article I of this
Convention. It is agreed that by virtue of the provisions of
subparagraph (b) of this paragraph, Switzerland satisfies the similar
credit requirement set forth in section 131(a)(3), Internal Revenue
Code.
(b) Switzerland, in determining its taxes specified in Article I of
this Convention in the case of its residents, corporations or other
entities, shall exclude from the basis upon which such taxes are imposed
such items of income as are dealt with in this Convention, derived from
the United States and not exempt from, and not entitled to the reduced
rate of, United States tax under this Convention; but in the case of a
citizen of the United States resident in Switzerland there shall be
excluded all items of income derived from the United States.
Switzerland, however, reserves the right to take into account in the
determination of the rate of its taxes also the income excluded as
provided in this paragraph.
(2) The provisions of this Article shall not be construed to deny
the exemptions from United States tax or Swiss tax, as the case may be,
granted by Article XI (1) of this Convention.
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 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 XVII
(1) Where a taxpayer shows proof that the action of the tax
authorities of the contracting States has resulted, or will result, in
double taxation contrary to the provisions of the present Convention, he
shall be entitled to present the facts to the State of which he is a
citizen or a resident, or, if the taxpayer is a corporation or other
entity, to the State in which it is created or organized.
[[Page 37]]
Should the taxpayer's claim be deemed worthy of consideration, the
competent authority of such State shall undertake to come to an
agreement with the competent authority of the other State with a view to
equitable avoidance of the double taxation in question.
(2) Should any difficulty or doubt arise as to the interpretation or
application of the present Convention, or its relationship to
Conventions between one of the contracting States and any other State,
the competent authorities of the contracting States may settle the
question by mutual agreement.
Article XVIII
(1) The provisions of this Convention shall not be construed to deny
or affect in any manner the right of diplomatic and consular officers to
other or additional exemptions now enjoyed or which may hereafter be
granted to such officers.
(2) The provisions of the present Convention shall not be construed
to restrict in any manner any exemption, deduction, credit or other
allowance now or hereafter accorded by the laws of one of the
contracting States in the determination of the tax imposed by such
State.
(3) The citizens of one of the contracting States shall not, while
resident in the other contracting State, be subjected therein to other
or more burdensome taxes than are the citizens of such other contracting
State residing in its territory. The term ``citizens'' as used in this
Article includes all legal persons, partnerships and associations
created or organized under the laws in force in the respective
contracting States. In this Article the word ``taxes'' means taxes of
every kind or description, whether Federal, State, cantonal, municipal
or communal.
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.
Done at Washington, in duplicate, in the English and German
languages, the two texts having equal authenticity, this 24th day of
May, 1951.
For the President of the United States of America:
[seal]
Dean Acheson.
For the Swiss Federal Council:
[seal]
Charles Bruggmann.
Proclamation by the President of the United States Dated October 1, 1951
* * * * *
And whereas the Senate of the United States of America, by their
resolution of September 17, 1951, two-thirds of the Senators present
concurring therein, did advise and consent to the ratification of the
aforesaid convention, subject to a reservation, as follows:
``The Government of the United States of America does not accept
paragraph (4) of Article X of the Convention, relating to the profits or
remuneration of public entertainers.''
And whereas the text of the aforesaid reservation was communicated
by the Government of the United States of America to the Government of
the Swiss Confederation and the aforesaid reservation was accepted by
the Government of the Swiss Confederation;
And whereas the aforesaid convention was duly ratified by the
President of the United States of America on September 20, 1951, in
pursuance of the aforesaid advice and consent of the Senate and subject
to the aforesaid reservation, and the aforesaid convention was duly
ratified on the part of the Swiss Confederation;
And whereas the respective instruments of ratification of the
aforesaid convention were duly exchanged at Bern on September 27, 1951,
and a protocol of exchange of instruments of ratification, in the
English and French languages, was signed at that place
[[Page 38]]
and on that date by the respective Plenipotentiaries of the United
States of America and the Swiss Confederation, the said protocol
containing a statement that it is understood by the two Governments that
the convention aforesaid, upon entry into force in accordance with its
provisions, is modified in accordance with the aforesaid reservation, so
that, in effect, paragraph (4) of Article X of the convention is deemed
to be deleted;
And whereas, so far as appertains to an exchange of instruments of
ratification prior to October 1 of any year, it is provided in Article
XX of the aforesaid convention that upon the exchange of instruments of
ratification the convention shall have effect for the taxable years
beginning or [sic] or after the first day of January of the year in
which such exchange takes place;
Now, therefore, be it known that I, Harry S. Truman, President of
the United States of America, do hereby proclaim and make public the
aforesaid convention to the end that the said convention and each and
every article and clause thereof, subject to the aforesaid reservation,
may be observed and fulfilled with good faith by the United States of
America and by the citizens of the United States of America and all
other persons subject to the jurisdiction thereof.
* * * * *