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- TITLE 26-INTERNAL REVENUE

CROSS REFERENCES: Bureau of Customs regulations, Department of the Treasury: See Title 19, Chapter I.

Food and Drug Administration, Federal Security Agency: See Title 21, Chapter I. Immigration and Naturalization Service, Department of Justice: See Title 8, Chapter I.

Part Chapter 1-Bureau of Internal Revenue, Department of the Treasury.--Chapter III—The Tax Court of the United States.....

701

CHAPTER 1-BUREAU OF INTERNAL REVENUE

DEPARTMENT OF THE TREASURY N. B.: Dates appearing in the citations of source of documents codified in this chapter, such as dates of issuance, approval, or effectivenes, are obtained from the original document. For general statutory provisions governing effective dates, validity, and constructive notice see section 7 of the Federal Register Act (49 Stat. 502; 44 U.S.C. 307) and sections 3 and 4 of the Administrative Procedure Act (60 Stat. 238; 5 U.S.C. 1002, 1003).

Subchapter A-Income and Excess-Profits Taxes

35

82

Part

Taxation pursuant to treaties. (Amended) 29 Income tax; taxable years beginning after December 31, 1941. (Amended)

Excess-profits tax; taxable years beginning after December 31, 1941. (Amended]

Subchapter B-Estate and Gift Taxes 81 Regulations relating to estate tax. (Amended]

Taxation pursuant to treaties. (Amended) 86 Gift tax under Chapter 4 of Internal Revenue Code, as amended. [Note]

Subchapter C—Miscellaneous Excise Taxes 101 Taxes on admissions, dues, and initiation fees. (Amended] 112 Tax on transfers of interests in silver bullion. (Amended] 113 Documentary stamp taxes. (Amended] 130 Taxes on safe deposit boxes and on certain transportation and communications

services. (Amended) 142 Tax-free withdrawals of cigars from customs bonded warehouses, class 6.

(Amended] 143 Tax with respect to the transportation of property. (Amended] 171 Miscellaneous regulations related to liquor. (Amended) 176 Drawback on distilled spirits and wine. (Amended] 178 Production, fortification, tax payment, etc., of wine. (Amended) 180 Liquors and articles from Puerto Rico and the Virgin Islands. (Amended] 181 Stills and distilling apparatus. (Amended] 182 Industrial alcohol. (Amended)

Production of distilled spirits. (Note] 184 Production of brandy. (Note) 185 Warehousing of distilled spirits. (Amended] 189 Bottling of tax-paid distilled spirits. [Note] 190 Rectification of spirits and wines. (Amended] 191 Importation of distilled spirits and wines. (Amended) 192 Fermented malt liquors. (Amended) 194 Wholesale and retail dealers in liquors. (Amended] 197 Drawback of tax on distilled spirits used in the manufacture of nonbeverage

products. [Amended]

183

Part 315 Licensing under the Federal Firearms Act of manufacturers of, and dealers in,

firearms or ammunition. (Amended] 316 Excise taxes on sales by the manufacturer. (Amended) 320 Retailers' excise taxes. [Amended] 323 Special taxes with respect to coin-operated amusement and gaming devices,

bowling alleys, billiard tables and pool tables. (Amended)

Subchapter D-Employment Taxes 400 Excise tax on employers under Title IX of the Social Security Act. (Note]

Employees' tax and employers' tax under Title VIII of the Social Security

Act. (Note]
Employees' tax and employers' tax under the Federal Insurance Contributions

Act. (Amended) 403 Excise tax on employers under the Federal Unemployment Tax Act.

[Amended) 410 Employers' tax, employees' tax, and employee representatives' tax under the

Carriers Taxing Act of 1937 and Subchapter B of Chapter 9 of the Internal
Revenue Code. (Amended)

402 Empi

Şubchapter E-Administrative Provisions Common to Various Taxes

451 Exportation without payment of tax of tobacco manufactures, oleomargarine,

adulterated butter, mixed flour, and playing cards; shipments to possessions of the United States, and drawback on tobacco manufactures and stills

exported, or shipped to Puerto Rico or Philippine Islands. (Amended) 452a Taxes under the Trading With the Enemy Act. (Note) 458 Inspection of returns. (Amended) 472 Regulations under section 3804 of the Internal Revenue Code. (Note]

Subchapter F-Organization and Procedure

I.R.O.

600 Organization. (Amended)
601 Procedure. (Amended]

ABBREVIATIONS: The following abbreviations are used in this chapter:
CFR Code of Federal Regulations
E.O. Executive order
FR.

Federal Register

Internal Revenue Code
Pub. law Public law
Reg.

Regulation
R.S.

Revised Statutes
Sec.(8) Section(s)
Stat.

Statutes at Large
Supp.

Supplement, Code of Federal Regulations
T.D.

Treasury Decision
U.S.C. United States Code

Subchapter A-Income and Excess-Profits Taxes
PART 7-TAXATION PURSUANT TO Sec.
TREATIES

7.515 Definitions.

7.516 Scope of convention with respect to Subpart-United Kingdom, Taxable Years

determination of "industrial or comBeginning After December 31, 1944

mercial profits."

7.517 Control of a domestic enterprise by & Sec.

United Kingdom enterprise. 7.502 Interest. (Amended]

7.518 Income from operation of ships and REGULATIONS EFFECTIVE JULY 30, 1946

aircraft.

(ADDED] 7,519 Exemption from, or reduction in rate 7.512 Introductory.

of, United States tax in the case of 7.513 Applicable provisions of the Internal

dividends, interest, royalties, natRevenue Code.

ural resource royalties, and real 7.514 Scope of the convention.

property rentals.

7.525

Sec. 7.520 Government wages, salaries, pensions,

and similar remunerations. 7.521 Compensation for labor or personal

services. 7.522 Pensions and life annuities. 7.523 Capital gains. 7.524 Dividends and interest paid by &

United Kingdom corporation. United Kingdom corporations; exemp

tion from Federal taxation with respect to accumulated profits or un

distributed income. 7.526 Visiting professors or teachers. 7.527 Remittances. 7.628 Credit against United States tax liabil.

ity for income tax paid or deemed to have been paid to the United

Kingdom. 7.529 Adjustment of tax liability of non

resident aliens who are residents of the United Kingdom and of United

Kingdom corporations. 7.530 Reciprocal administrative assistance. 7.531 Information to be furnished in due

course. 7.532 Information in specific cases.

SOURCE: $$ 7.512 to 7.632, inclusive, contained in Treasury Decision 5569, Commissioner of Internal Revenue, approved by the Acting Secretary of the Treasury, July 3, 1947, 12 F.R. 4569.

$ 7.512 Introductory. The income tax convention between the United States and the United Kingdom of Great Britain and Northern Ireland, signed April 16, 1945, and supplementary protocol, signed at Washington on June 6, 1946, both of which were proclaimed by the President of the United States on July 30, 1946, and effective (for the purposes of United States income and excess profits taxes) for taxable years beginning on or after January 1, 1945 (hereinafter referred to as the convention), provide as follows:

ARTICLE I (1) The taxes which are the subject of the present Convention are:

(a) In the United States of America: The Federal income taxes, including surtaxes and excess profits taxes (hereinafter referred to as United States tax).

(b) in the United Kingdom of Great Britain and Northern Ireland: The income tax (including surtax), the excess profits tax and the national defense contribution (hereinafter referred to as United Kingdom

tax):

$ 7.502 Interest-(a) General. * •

Form 1001A-UK must be filed for each three calendar year period and the first such form filed by the taxpayer with any withholding agent should be filled not later than 20 days preceding the date of the first payment of income in such period. If the taxpayer files such form with the withholding agent in the calendar year 1946 or in any subsequent calendar year no additional Form 1001AUK need be filed prior to the end of the two calendar years immediately following the calendar year in which such form is so filed unless the Commissioner notifies the withholding agent that an additional Form 1001A-UK must be filed by the taxpayer at an earlier date.

CODIFICATION: In $7.502 (a) the seventh undesignated paragraph was amended to read as set forth above by Treasury Decision 5580, Commissioner of Internal Revenue, approved by the Acting Secretary of the Treasury, Nov. 13, 1947, effective on the 31st day after Nov, 20, 1947, 12 F.R. 7826.

(2) The present Convention shall also apply to any other taxes of a substantially similar character imposed by either Contracting Party subsequently to the date of signature of the present Convention or by the government of any territory to which the present Convention is extended under Article XXII.

ARTICLE II (1) In the present Convention, unless the context otherwise requires:

(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 of Hawaii, and the District of Columbia.

(b) The term “United Kingdom" means Great Britain and Northern Ireland, excluding the Channel Islands and the Isle of Man.

(c) The terms “territory of one of the Contracting Parties" and "territory of the other Contracting Party" means the United States or the United Kingdom as the context requires.

(d) The term "United States corporation" means a corporation, association or other like entity created or organized in or under the laws of the United States.

(e) The term “United Kingdom corporation" means any kind of juridical person created under the laws of the United Kingdom..

(1) The terms “corporation of one contracting Party" and "corporation of the other Contracting Party" mean a United States

REGULATIONS EFFECTIVE JULY 30, 1946

(ADDED]

AUTHORITY: $$ 7.512 to 7.532, inclusive, issued under sec. 62 I.R.C.; 53 Stat. 32, 59 Stat. 839; 26 U.S.C. 62. Tax convention between the United States and the United Kingdom of Great Britain and Northern Ireland, signed Apr, 16, 1945, and supplementary protocol, proclaimed by the President of the United States on July 30, 1946.

corporation or a United Kingdom corporation as the context requires.

(g) The term "resident of the United Kingdom" means any person (other than a citizen of the United States or a United States corporation) who is resident in the United Kingdom for the purposes of United Kingdom tax and not resident in the United States for the purposes of United States tax. A corporation is to be regraded as resident in the United Kingdom if its business is managed and controlled in the United Kingdom.

(h) The term "resident of the United States" means any individual who is resident in the United States for the purposes of United States tax and not resident in the United Kingdom for the purposes of United Kingdom tax, and any United States corporation and any partnership created or organized in or under the laws of the United States, being a corporation or partnership which is not resident in the United Kingdom for the purposes of United Kingdom tax.

(1) The term "United Kingdom enterprise" means an industrial or commercial enterprise or undertaking carried on by a resident of the United Kingdom.

(1) The term “United States enterprise" means an industrial or commercial enterprise or undertaking carried on by a resident of the United States.

(k) The terms "enterprise of one of the Contracting Parties" and "enterprise of the other Contracting Party" mean a United States enterprise or a United Kingdom enterprise, as the context requires.

(1) The term "permanent establishment" when used with respect to an enterprise of one of the Contracting Parties means a branch, management, factory or other fixed place of business, but does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of such enterprise or has a stock of merchandise from which he regularly fills orders on its behalf. An enterprise of one of the Contracting Parties shall not be deemed to have a permanent establishment in the territory of the other Contracting Party merely because it carries on business dealings in the territory of such other Contracting Party through a bona fide commission agent, broker or custodian acting in the ordinary course of his business as such. The fact that an enterprise of one of the Contracting Parties maintains in the territory of the other Contracting Party 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 Party has a subsidiary corporation which is a corporation of the other Contracting Party or which is engaged in trade or business in the territory of such other Contracting Party (whether through a permanent establishment or otherwise) shall not of itself constitute that subsidiary corporation a

permanent establishment of its parent cor. poration,

(2) For the purposes of Articles VI, VII, VIII, IX and XIV a resident of the United Kingdom shall not be deemed to be engaged in trade or business in the United States in any taxable year unless such resident has s permanent establishment situated therein such taxable year. The same principle sball be applied, mutatis mutandis, by the United Kingdom in the case of a resident of the United States.

(8) In the application of the provisions of the present Convention by one of the Contracting Parties any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that contracting Party relating to the taxes which are the subject of the present Convention.

ARTICLE III (1) A United Kingdom enterprise shall not be subject to United States tax in respect of its industrial or 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, United States tax may be imposed upon the entire income of such enterprise from sources within the United States.

(2) A United States enterprise shall not be subject to United Kingdom tax in respect of its industrial or commercial profits unless It is engaged in trade or business in the United Kingdom through a permanent establishment situated therein. If it is so engaged, United Kingdom tax may be imposed upon the entire income of such enterprise from sources within the United Kingdom: Provided, That nothing in this paragraph shall affect any provisions of the law of the United Kingdom regarding the imposition of United Kingdom excess profits tas and national defence contribution in the case of inter-connected companies.

(3) Where an enterprise of one of the Contracting Parties is engaged in trade of business in the territory of the other co tracting Party 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 simllar conditions and dealing at arm's length with the enterprise of which it is a permanent establishment, and the proits so attributed shall, subject to the law of such other Contracting Party, be deemed to be income from sources within the territory of such other Contracting Party.

(4) In determining the industrial or commercial profits from sources within the ter. ritory of one of the Contracting Parties of an enterprise of the other contracting Party, no profits shall be deemed to arise from the mere purchase of goods or merchandise within the territory of the former Contracting Party by such enterprise.

ARTICLE IV

(2) Dividends derived from sources withWhere an enterprise of one of the Con

in the United Kingdom by an individual who tracting Parties, by reason of its participation

18 (a) a resident of the United States, (b)

subject to United States tax with respect in the management, control or capital of an enterprise of the other Contracting Party,

to such dividends, and (c) not engaged in makes with or imposes on the latter, in their

trade or business in the United Kingdom, commercial or financial relations, conditions

shall be exempt from United Kingdom sur

tax. different from those which would be made with an independent enterprise, any profits

(8) Either of the Contracting Parties may which would but for those conditions have

terminate this Article by giving written noaccrued to one of the enterprises but by rea

tice of termination to the other Contracting son of those conditions have not so accrued,

Party, through diplomatic channels, on or may be included in the profits of that enter

before the thirtieth day of June in any year

after the year 1945, and in such event paraprise and taxed accordingly,

graph (1) hereof shall cease to be effective ARTICLE V

as to United States tax on and after the

first day of January, and paragraph (2) (1) Notwithstanding the provisions of

hereof shall cease to be effective as to United Articles III and IV of the present Convention, profits which an individual (other than

Kingdom tax on and after the 6th day of a citizen of the United States) resident in

April, in the year next following that in

which such notice is given. the United Kingdom or a United Kingdom corporation derives from operating ships

ARTICLE VII documented or aircraft registered under the laws of the United Kingdom, shall be exempt

(1) Interest (on bonds, securities, notes,

debentures, or on any other form of indebtfrom United States tax. (2) Notwithstanding the provisions of

edness) derived from sources within the Articles III and IV of the present Convention,

United States by a resident of the United profits which a citizen of the United States

Kingdom who is subject to United Kingdom not resident in the United Kingdom or a

tax on such interest and not engaged in United States corporation derives from oper

trade or business in the United States, shall ating ships documented or aircraft registered

be exempt from United States tax; but such under the laws of the United States, shall be

exemption shall not apply to such interest exempt from United Kingdom tax.

paid by a United States corporation to a cor(3) This Article shall be deemed to have

poration resident in the United Kingdom superseded, on and after the first day of

controlling, directly or indirectly, more than January 1945, as to United States tax, and 50 percent of the entire voting power in the on and after the 6th day of April, 1945, as

paying corporation. to United Kingdom tax, the arrangements

(2) Interest (on bonds, securities, notes, relating to reciprocal exemption of shipping

debentures, or on any other form of indebtprofits from income tax effected between

edness) derived from sources within the the Government of the United States and the

United Kingdom by a resident of the United Government of the United Kingdom by ex

States who is subject to United States tax change of Notes dated August 11, 1924, No

on such interest and not engaged in trade vember 18, 1924, November 26, 1924, January

or business in the United Kingdom, shall 15, 1925, February 13, 1925, and March 16,

be exempt from United Kingdom tax; but 1925, which shall accordingly cease to have

such exemption shall not apply to such intereffect.

est paid by a corporation resident in the

United Kingdom to a United States corporaARTICLE VI

tion controlling, directly or indirectly, more (1) The rate of United States tax on divi

than 50 percent of the entire voting power dends derived from a United States corpora

in the paying corporation. tion by a resident of the United Kingdom

ARTICLE VIII who is subject to United Kingdom tax on such dividends and not engaged in trade or

(1) Royalties and other amounts paid as business in the United States shall not ex- consideration for the use of, or for the priyceed 15 percent: Provided, That such rate of llege of using, copyrights, patents, designs, tax shall not exceed five percent if such resi- * 'secret processes and formulae, trademarks, dent is a corporation controlling, directly or and other like property, and derived from indirectly, at least 95 percent of the entire sources within the United States by a resivoting power in the corporation paying the dent of the United Kingdom who is subject dividend, and not more than 25 percent of to United Kingdom tax on such royalties or the gross income of such paying corporation other amounts and not engaged in trade or is derived from interest and dividends, other business in the United States, shall be exthan interest and dividends received from its empt from United States tax. own subsidiary corporations. Such reduction: (2) Royalties and other amounts paid as of the rate to five percent shall not apply consideration for the use of, or for the privi11 the relationship of the two corporations lege of using, copyrights, patents, designs, has been arranged or is maintained primarily secret processes and formulae, trade-marks, with the intention of securing such reduced and other like property, and derived from rate.

sources within the United Kingdom by a resi

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