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acteristics essential to an association and owns no property in the United within the meaning of the Act, is taxable as a corporation. (I.R.C. 62, 53 Stat. 32; 26 U.S.C., Sup., 62) [As amended by T.D. 4894, Apr. 7, 1939; 4 F.R. 1555]

§ 9.901-7 Insurance company. Insurance companies include both stock and mutual companies, as well as mutual benefit insurance companies. A voluntary unincorporated association of employees formed for the purpose of relieving sick and aged members and the dependents of deceased members is an insurance company, whether the fund for such purpose is created wholly by membership dues or partly by contributions from the employer. A corporation which merely sets aside a fund for the insurance of its employees is not required to file a separate return for such fund, but the income therefrom shall be included in the return of the corporation.

Though its name, charter powers and subjection to State insurance laws are significant in determining the business which a corporation is authorized and intends to carry on, the character of the business actually done in the taxable year determines whether it is taxable as an insurance company under the Act. For example, during the year 1938 the M Corporation, incorporated under the insurance laws of the State of R, carried on the business of lending money in addition to guaranteeing the payment of principal and interest of mortgage loans. Of its total income for the year one-third was derived from its insurance business of guaranteeing the payment of principal and interest of mortgage loans and two-thirds was derived from its noninsurance business of lending money. The M Corporation is not an insurance company for the year 1938 within the meaning of the Act and the regulations in this part.*†

§ 9.901-8 Domestic, foreign, resident, and nonresident persons. A domestic corporation is one organized or created in the United States, including only the States, the Territories of Alaska and Hawaii, and the District of Columbia, or under the law of the United States or of any State or Territory, and a foreign corporation is one which is not domestic. A domestic corporation is a resident corporation even though it does no business

States. A foreign corporation engaged in trade or business within the United States or having an office or place of business therein is referred to in the regulations in this part as a resident foreign corporation, and a foreign corporation not engaged in trade or business within the United States and not having any office or place of business therein, as a A nonresident foreign corporation. partnership engaged in trade or business within the United States or having an office or place of business therein is referred to in the regulations in this part as a resident partnership, and a partnership not engaged in trade or business within the United States and not having any office or place of business therein, as a nonresident partnership. Whether a partnership is to be regarded as resident, or nonresident is not determined by the nationality or residence of its members or by the place in which it was created or organized. The term "nonresident alien," as used in the regulations in this part, includes a nonresident alien individual and a nonresident alien fiduciary.*+

§ 9.901-9 Fiduciary. "Fiduciary" is a term which applies to persons that occupy positions of peculiar confidence toward others, such as trustees, executors, and administrators. A fiduciary for income tax purposes is a person who holds in trust an estate to which another has the beneficial title or in which another has a beneficial interest, or receives and controls income of another, as in the case of receivers. A committee or guardian of the property of an incompetent person is a fiduciary.*†

§ 9.901-10 Fiduciary distinguished from agent. There may be a fiduciary relationship between an agent and a principal, but the word "agent" does not denote a fiduciary. An agent having entire charge of property, with authority to effect and execute leases with tenants entirely on his own responsibility and without consulting his principal, merely turning over the net profits from the property periodically to his principal by virtue of authority conferred upon him by a power of attorney, is not a fiduciary within the meaning of the Act. In cases where no legal trust has been created in the estate controlled by the agent and

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SEC. 902. Separability clause. If any provision of this Act, or the application thereof to any person or circumstances, is held invalid, the remainder of the Act, and the application of such provisions to other per- 13.8 sons or circumstances, shall not be affected thereby.

SEC. 903. Effective date of act.-Except as otherwise provided, this Act shall take effect 13.9 upon its enactment.

[Received by the President, May 16, 1938.] [Note by the Department of State.-The foregoing act having been presented to the President of the United States for his approval, and not having been returned by him to the House of Congress in which it originated within the time prescribed by the Constitution of the United States, has become a law without his approval.]

§ 9.903-1 Effective date of Act. The date of the enactment of the Act is May 28, 1938.*+

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Patents, formulas and copyright royal-
ties, pensions and annuities.
TAX LIABILITY OF FRENCH CITIZENS
AND FRENCH CORPORATIONS UN-
DER THE REVENUE ACT OF 1938,
AS MODIFIED BY THE CONVENTION
Taxation of a French citizen (not a
resident of the United States) under
the Revenue Act of 1938, as modified
by the convention.

Taxation of a French corporation under
the Revenue Act of 1938 as modified
by the convention.

INTRODUCTORY

CONVENTION AND PROTOCOL, PROCLAIMED BY
THE PRESIDENT OF THE UNITED STATES ON
APRIL 16, 1935, IN PART

ARTICLE I

States are not subject to taxation by the Enterprises of one of the contracting other contracting State in respect of their industrial and commercial profits except in respect of such profits allocable to their permanent establishments in the latter State.

No account shall be taken, in determining the tax in one of the contracting States, of the purchase of merchandise effected therein by an enterprise of the other State for the purpose of supplying establishments maintained by such enterprise in the latter State.

ARTICLE II

American enterprises having permanent establishments in France are required to submit to the French fiscal administration the same declarations and the same justifications, with respect to such establishments, as French enterprises.

The French fiscal administration has the

right, within the provisions of its national legislation and subject to the measures of appeal provided in such legislation, to make such corrections in the declaration of profits realized in France as may be necessary to show the exact amount of such profits.

The same principle applies mutatis mutandis to French enterprises having permanent establishments in the United States.

ARTICLE III

Income which an enterprise of one of the contracting States derives from the operation of aircraft registered in such State and engaged in transportation between the two States is taxable only in the former State.

ARTICLE IV

When an American enterprise, by reason of its participation in the management or capital of a French enterprise, makes or imposes on the latter, in their commercial or financial relations, conditions different from those which would be made with a third enterprise, any profits which should normally

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At the moment of signing the Convention on Double Taxation between the United States of America and the Republic of France, the undersigned Plenipotentiaries, duly authorized by their respective Governments, have agreed, as follows:

(1) The taxes referred to in this Agreement are:

(a) for the United States:

the Federal income tax-but it is understood that Article 1 does not exempt from tax (1) compensation for labor or personal services performed in the United States; (2) income derived from real property located in the United States, or from any interest in such property, including rentals and royalties therefrom, and gains from the sale or the disposition thereof; (3) dividends; (4) interest.

(b) for France:

in Articles I, II, III and IV, the tax on industrial and commercial profits (impot sur les benefices industriels et commerciaux);

in Articles III, V and VI, the tax on income from securities (impot sur les revenus des valeurs mobilieres);

in Articles VII, VIII and IX, the tax on wages and salaries, pensions and life annuities (impot sur les traitements et salaries, pensions et rentes viageres), and other schedular taxes (impots cedulaires) appropriate to the type of income specified in said articles;

(2) The provisions of this Agreement shall not be construed to affect in any manner any exemption, deduction, credit or other allowance accorded by the laws of one of the contracting States in the determination of the tax imposed by such State. (3) As used in this Agreement:

(a) The term "permanent establishment" includes branches, mines and oil wells, factories, workshops, warehouses, offices, agencies, and other fixed places of business, but does not include a subsidiary corporation.

carries on business in the other State through When an enterprise of one of the States to contract for its account, it is considered an agent established there who is authorized as having a permanent establishment in the latter State.

But the fact that an enterprise of one of the contracting States has business dealings in the other State through a bona fide commission agent or broker shall not be held to mean that such enterprise has a permanent establishment in the latter State.

(b) The term "enterprise" includes every form of undertaking whether carried on by an individual, partnership (societe en nom collectif), corporation (societe anonyme), or any other entity.

tracting States" means, as the case may be, (c) The term "enterprise of one of the con"American enterprise" or "French enterprise."

(d) The term "American enterprise" means an enterprise carried on in the United States by a citizen of the United States or by an American corporation or other entity; the term "American corporation or other entity" means a partnership, corporation or other entity created or organized in the United States or under the law of the United States or of any State or Territory of the United States.

(e) The term "French enterprise" is defined in the same manner, mutatis mutandis, as the term "American enterprise."

(f) The American corporations mentioned in Articles V and VI are those which, owing to their form of organization, are subject to Article 3 of the Decree of December 6, 1872. The present Agreement does not modify the regime of "abonnement" for securities.

(g) The term "United States," when used in a geographical sense, includes only the States and the Territories of Alaska and Hawaii, and the District of Columbia.

(h) The term "France," when used in a geographical sense, indicates the country of France, exclusive of Algeria and the Colonies. PROCLAMATION OF THE CONVENTION BY THE PRESIDENT OF THE UNITED STATES ON APRIL 16, 1935, IN PART

And whereas, the said convention and protocol have been ratified on both parts, and

the ratifications of the two Governments

were exchanged at Paris on the ninth day of April, one thousand nine hundred and thirty-five;

And whereas, it is stipulated in Article X

of the said convention that the convention

shall become effective on the first day of January following the exchange of ratifications, that is to say on the first day of January, one thousand nine hundred and thirty-six;

Now, therefore, be it known that I, Franklin D. Roosevelt, President of the United States of America, have caused the said convention and the said protocol to be made public, to the end that the same and every article and clause thereof may be observed and fulfilled with good faith by the United States of America and the citizens thereof on and from the first day of January, one thousand nine hundred and thirty-six.

In testimony whereof, I have hereunto set my hand and caused the Seal of the United States of America to be affixed.

Done at the city of Washington this sixteenth day of April in the year of our Lord one thousand nine hundred and thirty-five, and of the Independence of the United States of America the one hundred and fifty-ninth.

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IN PART

EFFECT OF THE CONVENTION UPON THE DETERMINATION OF UNITED STATES TAXABLE INCOME OF FRENCH CITIZENS AND FRENCH CORPORATIONS

§ 13.1 General. The primary purposes of the convention are to regulate the method of taxation of corporations of either of the contracting States carrying on industrial or commercial activities through a permanent establishment or a subsidiary corporation in the other State and to avoid double taxation upon certain special classes of income.

The specific classes of income relieved from United States income tax are:

(a) Industrial and commercial profits of a French enterprise having no permanent establishment in the United States.

(b) Income derived by a French enterprise from the operation of aircraft registered in France and engaged in transportation between the United States and France.

(c) Compensation paid by France to its citizens for labor or personal services performed in the United States.

(d) War pensions paid by France to persons residing in the United States.

(e) Income paid to a French corporation, or to a citizen of France residing in France.

(1) as consideration for the right to

SECTION 22 (b) (7), REVENUE ACT OF 1938, use patents, secret processes and formu

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las, trade marks and other analogous rights;

(2) as copyright royalties;

(3) as private pensions and life an

(b) Exclusions From Gross Income.-The following items shall not be included in gross income and shall be exempt from tax-nuities. ation under this title:

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Except as to those items of income (7) Income Exempt Under Treaty.-In- expressly exempted by the convention, come of any kind, to the extent required by the tax liability of French citizens, not any treaty obligation of the United States: residents of the United States, and § 13.0 Introductory. The regulations French corporations, is determined in acin this part are prescribed to carry into cordance with the provisions of the reveeffect the quoted provisions of the con-nue laws of the United States and the vention and protocol, or treaty, between regulations thereunder applicable genthe United States of America and the Republic of France, hereinafter referred to as the convention, for taxable years beginning after December 31, 1937.*†

§§ 13.0 to 13.9, inclusive, issued under the authority contained in sec. 62, 52 Stat. 480; 26 U.S.C., Sup., 62.

The source of §§ 13.0 to 13.9, inclusive, is T.D. 4880, Secretary of the Treasury, Jan. 5, 1939; 4 F.R. 105.

erally to nonresident alien individuals and to foreign corporations.

The convention does not affect the liability to tax of French citizens resident in the United States unless and to the extent such citizens are entitled to the benefits of Article VII or VIII of the convention. See §§ 13.5 and 13.6. The tax liability of a United States citizen or

United States resident, a member of a French partnership carrying on a French enterprise, is not affected by Article I of the convention. Such citizen or resident is subject to United States income tax upon his distributive share of its net income even though the other members of such partnership are not subject to tax upon their share of the partnership's industrial and commercial profits from sources within the United States.

The convention has no reference to the rates of taxation imposed by the respective countries and concerns only the determination of income arising in one of the contracting States to citizens or corporations of the other contracting State and subject to taxation in the former State.

The regulations in this part are limited to a consideration of the factors involved in the application of: (a) the provisions of the conventions alone; and (b) the provisions of the convention as extended by the Revenue Act of 1938. The regulations in this part are not concerned with Article V or VI of the convention as such Articles affect only the application of certain French tax laws and decrees.*† § 13.2 Definitions. Any word or term used in the regulations in this part which is defined in the convention shall be given the definition assigned to such word or term in such convention. Any word or term used in the regulations in this part which is not defined in the convention but is defined in the Revenue Act of 1938 shall be given the definition contained in the Revenue Act.

The term "permanent establishment" includes branches, mines and oil wells, factories, work shops, warehouses, offices, agencies and other fixed places of business. A French enterprise, as defined in the convention, carrying on business in the United States through an agent established there who is authorized to contract for its account, is considered to have a permanent establishment in the United States. However, the carrying on of business dealings in the United States by a French enterprise through a bona fide commission agent or broker does not constitute a permanent establishment in the United States. A French corporation doing business in the United States through a domestic subsidiary corporation has not,

merely by reason of such fact, a permanent establishment in the United States.

The term "enterprise" means any commercial or industrial undertaking whether conducted by an individual, partnership, corporation or any other entity. It includes such activities as manufacturing, merchandising, mining, banking and insurance. It does not include the operation of, or the trading in, real property located in the United States. It does not include the rendition of personal services. Hence, a French citizen rendering personal services within the United States is not, merely by reason of such service, engaged in an enterprise within the meaning of the convention and his liability to Federal income tax is unaffected by Article I of the convention.

The term "French enterprise" means an enterprise carried on in France by a citizen of France or by a French corporation or other entity. The term "French corporation or other entity" of the convention means a partnership, corporation or other entity created or organized in France or under the law of France. If, for example, a French citizen or French corporation does not carry on an enterprise in France it is not a French enterprise within the meaning of the convention even though it carries on an enterprise in some other foreign country and hence such enterprise is not relieved by the convention from United States income tax upon its industrial and commercial profits from sources within the United States even though it has no permanent establishment therein.

The term "industrial and commercial profits" means the profits arising from the industrial, mercantile, or manufacturing or like undertakings of a French enterprise, as defined in this section. For the purpose of the exemption under Article I of the convention such term does not include gains from the sale or exchange within the United States of capital assets as defined in section 117 of the Revenue Act of 1938 unless it can be shown by clear and convincing evidence that such sale or exchange was incident, and had a necessary relation, to the commercial and industrial activities of the French enterprise. For treatment of such gains under the Revenue Act of 1938, see §§ 13.8 (b) and 13.9 (b). Such

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