[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: 26CFR509.118]

[Page 47-48]
 
                       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. 509.118  Credit against United States tax for Swiss tax.

    (a) General--(1) Taxable as though no convention. Notwithstanding 
any other provision of the convention the United States, in determining 
the United States tax of a citizen or resident of the United States, or 
of a domestic corporation, may, under Article XV(1)(a) of the 
convention, include in the basis upon which such tax is imposed all 
items of income taxable under the revenue laws of the United States, as 
though the convention had not come into effect. For example, despite the 
exemption from United States tax granted by Article VIII of the 
convention with respect to a copyright royalty derived from sources 
within the United States by a resident of Switzerland, such royalty 
shall be included in gross income and is subject to United States tax 
when so derived by a resident of Switzerland who is a citizen of the 
United States, even though such resident has no permanent establishment 
in the United States.
    (2) Exception. Notwithstanding the provisions of subparagraph (1) of 
this paragraph, the exclusion from gross income, and exemption from 
United States tax, granted by Article XI(1) of the convention with 
respect to wages, salaries, and similar compensation, and pensions, paid 
by Switzerland or any agency or instrumentality thereof, or by any 
political subdivisions or other public authorities of Switzerland, shall 
not be denied. See Article XV(2) of the convention.
    (b) Application of credit--(1) General. For the purpose of 
mitigating double taxation, Article XV(1)(a) of the convention provides 
that a citizen or resident of the United States, or a domestic 
corporation, deriving income from sources within Switzerland shall be 
allowed a credit against the United States tax for the amount of Swiss 
tax paid or accrued during the taxable year. This credit shall be made 
in accordance with the provisions of section 131 of the Internal Revenue 
Code of 1939 as in effect on September 27, 1951, but subject to the 
provisions of Article XVIII(2) of the convention.
    (2) Similar credit requirement. (i) Article XV(1)(a) further 
provides that, by virtue of the provisions of Article XV(1)(b) of the 
convention, relating to the exclusion from basis for computing the Swiss 
tax, Switzerland satisfies the similar credit requirement set forth in 
section 901(b)(3), Internal Revenue Code of 1954, relating to alien 
residents of the United States, etc.
    (ii) This provision of Article XV(1)(a) shall be taken to mean that, 
solely by reason of the exclusion granted by it under Article XV(1)(b) 
and without reference to concessions otherwise made by such country, 
Switzerland satisfies the similar credit requirement only with respect 
to taxes paid to Switzerland, and not with respect to taxes paid to 
another foreign country. Nothing in this subdivision shall be construed, 
however, to prevent Switzerland from otherwise satisfying the similar 
credit

[[Page 48]]

requirement, in accordance with section 901 of the Internal Revenue Code 
of 1954 and the regulations thereunder, with respect to taxes paid to 
another foreign country. Thus, if pursuant to a convention between 
Switzerland and another foreign country, Switzerland were to exempt from 
its income taxes the income received from sources within such other 
foreign country by a United States citizen residing in Switzerland, then 
Switzerland would, in accordance with such regulations under section 
901, satisfy the similar credit requirement of section 901(b)(3) with 
respect to income taxes paid to such other country by a Swiss citizen 
residing in the United States.