[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: 26CFR509.2]
[Page 27-29]
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. 509.2 Dividends.
(a) General. Under Article VI of the convention, the rate of tax
imposed with respect to dividends by section 211(a) of the Internal
Revenue Code (relating to nonresident alien individuals not engaged in
trade or business within the United States) and by section 231(a) of the
Internal Revenue Code (relating to foreign corporations not engaged in
trade or business within the United States) is reduced to 15 percent in
the case of dividends received in taxable years beginning on or after
January 1, 1951, from sources within the United States by a nonresident
alien (including a nonresident alien individual, fiduciary, and
partnership) who is a resident of Switzerland or by a Swiss corporation
if such alien or corporation at no time during the taxable year had a
permanent establishment within the United States. As to what is a Swiss
corporation (see Article II(1)(f) of the convention. Thus, if a
nonresident alien who is a resident of Switzerland performs personal
services within the United States during the calendar year 1952, but has
at no time during such year a permanent establishment within the United
States, he is entitled to the reduced rate of tax with respect to
dividends derived in that year from United States sources, as provided
in Article VI of the convention, even though, by reason of his having
rendered personal services within the United States, he is engaged in
trade or business therein in that year within the meaning of section
211(b) of the Internal Revenue Code. As to what constitutes a permanent
establishment, see Article II(1)(c) of the convention.
In the case of dividends paid on or after January 1, 1951, by any
foreign corporation to a nonresident alien who is a resident of
Switzerland or to a
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Swiss corporation, not having a permanent establishment in the United
States, no withholding of United States tax is required. See Article XIV
of the convention.
(b) Dividends paid by a United States subsidiary corporation. Under
the provisions of Article VI(2) of the convention, dividends from
sources within the United States paid by a domestic corporation to a
Swiss corporation controlling, directly or indirectly, at the time the
dividend is paid, 95 percent or more of the entire voting power in such
domestic corporation are, when received in taxable years beginning on or
after January 1, 1951, subject to tax at the rate of only 5 percent, if
(1) not more than 25 percent of the gross income of such paying
corporation for the three-year period immediately preceding the taxable
year in which the dividend is paid consists of dividends and interest
(other than dividends and interest paid to such domestic corporation by
its own subsidiary corporations, if any), (2) the relationship between
such domestic corporation and such Swiss corporation has not been
arranged or maintained primarily with the intention of securing such
reduced rate of 5 percent, and (3) such Swiss corporation at no time
during the taxable year had a permanent establishment within the United
States.
Any domestic corporation which claims or contemplates claiming that
dividends paid or to be paid by it on or after January 1, 1951, are
subject only to the 5 percent rate shall file, as soon as practicable,
with the Commissioner of Internal Revenue, the following information:
(1) The date and place of its organization; (2) the number of
outstanding shares of stock of the domestic corporation having voting
power and the voting power thereof; (3) the person or persons
beneficially owning such stock of the domestic corporation and their
relationship to the Swiss corporation; (4) the amount of gross income,
by years, of the paying corporation for the three-year period
immediately preceding the taxable year in which the dividend is paid;
(5) the amount of interest and dividends, by years, included in the
gross income of such domestic corporation and the amount of interest and
dividends, by years, received by such corporation from its subsidiary
corporations, if any; and (6) the relationship between the domestic
corporation and the Swiss corporation to which it pays the dividends.
As soon as practicable after such information is filed, the
Commissioner of Internal Revenue will determine whether the dividends
concerned fall within the provisions of Article VI(2) of the convention
and may authorize the release of excess tax withheld with respect to
dividends which come within such provisions. In any case in which the
Commissioner of Internal Revenue has notified such domestic corporation
that the dividends come within such provisions, the reduced withholding
rate of 5 percent will apply to any dividends subsequently paid by such
corporation to the Swiss corporation unless the stock ownership of the
domestic corporation, or the character of its income, materially
changes, or unless the Commissioner of Internal Revenue determines that
the relationship between the two corporations is being maintained
primarily with the intention of securing such reduced rate; and, if such
change in stock ownership or character of income occurs, such
corporation shall promptly notify the Commissioner of Internal Revenue
of the then existing facts with respect to such stock ownership or
income.
(c) Effect of address in Switzerland on withholding in case of
dividends. For the purpose of withholding of the tax in the case of
dividends, every nonresident alien (including a nonresident alien
individual, fiduciary, and partnership) whose address is in Switzerland
shall be deemed by United States withholding agents to be a resident of
Switzerland not having a permanent establishment in the United States;
and every corporation whose address is in Switzerland shall be deemed by
such withholding agents to be a Swiss corporation not having a permanent
establishment in the United States.
(d) Rate of withholding. On and after January 1, 1951, withholding
in the case of dividends paid to nonresident aliens (including a
nonresident alien individual, fiduciary, and partnership) and to foreign
corporations, whose addresses are in Switzerland, shall be at the
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rate of 15 percent in every case except (1) that in which, prior to the
date of payment of such dividends, the Commissioner of Internal Revenue
has notified the paying corporation that such dividends fall within the
provisions of Article VI (2) of the convention and (2) that in which the
Commissioner of Internal Revenue has, prior to the date of payment of
such dividends, notified the withholding agent that the reduced rate of
tax shall not apply.
The preceding provisions relative to residents of Switzerland and to
Swiss corporations are based upon the assumption that the payee of the
dividend is the actual owner of the capital stock from which the
dividend is derived and consequently is the person liable to the tax
upon such dividend. As to action by the recipient who is not the owner
of the dividend, see Sec. 509.8.