§ 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 re- ceived 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 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 owner- ship 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 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 § 509.8.