[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: 26CFR514.105]
[Page 95-96]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 514--FRANCE--Table of Contents
Subpart--General Income Tax
Sec. 514.105 Scope of convention with respect to determination of ``industrial and commercial profits'' of a nonresident alien individual resident of France,
or of a French corporation or other entity carrying on a
French enterprise in the United States.
(a) General. Article 3 of the convention adopts the principle that
an enterprise of one of the contracting States shall not be taxable in
the other contracting State in respect of its industrial and commercial
profits unless it has a permanent establishment in the latter State.
Hence, a French enterprise is subject to United States tax upon its
industrial and commercial 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 French 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, to income derived from real property located in the
United States or any interest therein, including rentals and royalties,
to gains from the sale or other disposition of such real property or
interest, to dividends and interest, to rentals and royalties arising
from leasing personal property or any interest in such property,
including rentals and royalties for the use of patents, copyrights,
secret processes and formulae, good will, trade marks, trade brands,
franchises, and other like property, or to profits from the sale or
exchange of capital assets. Such enumerated items of income, to the
extent covered by the convention, are treated separately elsewhere in
this subpart and are subject to the rules laid down
[[Page 96]]
in the sections having specific references to the respective items of
income.
(b) No United States permanent establishment. A nonresident alien
individual who is a resident of France, or a French corporation or other
French entity carrying on a French enterprise, but having no permanent
establishment in the United States, is not subject to United States
income tax upon industrial and commercial profits from sources within
the United States. For example, if such French corporation sells stock
in trade, such as wines or perfumery or cheese, through a bona fide
commission agent or broker in the United States, the resulting profit
is, under the terms of Article 3 of the convention, exempt from United
States income tax. Such French corporation, however, remains subject to
tax upon all other items of income from sources within the United States
which are not expressly exempted from such tax under the convention.
(c) United States permanent establishment. A nonresident alien
individual who is a resident of France, or a French corporation or other
entity, carrying on a French enterprise having a permanent establishment
in the United States is subject to tax upon his or its industrial and
commercial profits from sources within the United States. In the
determination of the income of such resident of France or French
corporation or other entity from sources within the United States, all
industrial and commercial profits from such sources shall be deemed to
be allocable to the permanent establishment within the United States.
Hence, for example, if a French enterprise, having a permanent
establishment in the United States, sells directly in the United States
through a commission agent or broker therein goods produced in France,
the resulting profits derived from United States sources from the latter
transactions are allocable to such permanent establishment. The net
income from sources within the United States, including the industrial
and commercial profits, shall be determined in accordance with the
provisions of section 119 of the Internal Revenue Code and the
regulations thereunder. In determining industrial and commercial profits
no account shall be taken of the mere purchase of merchandise effected
in the United States by such French enterprise. A nonresident alien who
is a resident of France, a member of a French partnership having a
permanent establishment within the United States, shall by reason of
such fact be deemed to have a permanent establishment within the United
States.