Rev. Rul. 55-617

Advice has been requested whether the industrial and commercial profits derived by a Belgian corporation from the sale of its manufactured products in the United States are subject to United States income tax. The corporation does extensive business in the United States through the medium of a commission agent and thus is engaged in trade or business within the United States as defined by section 871(c) of the Internal Revenue Code of 1954. However, the corporation has no permanent establishment in the United States.

Section 894 of the Internal Revenue Code of 1954 provides as follows:

Income of any kind, to the extent required by any treaty obligation of the United States, shall not be included in gross income and shall be exempt from taxation under this subtitle.

Article III of the United States-Belgium Income Tax Convention, C.B. 1954-2, 626, provides in part as follows:

(1) An enterprise of one of the contracting States is not subject to taxation by the other contracting State in respect of its industrial and commercial profits except in respect of such profits allocable to its permanent establishment in such other State.

Article II(1)(f) of the cited convention provides in part as follows:

(f) The term `permanent establishment', when used with respect to an enterprise of one of the contracting States, means * * *. An enterprise of one of the contracting States shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business dealings in such other contracting State through a bona fide commission agent or broker acting in the ordinary course of his business as such. * * *

Article III(1) of the cited convention clearly provides that a Belgian enterprise is exempt from United States tax on its industrial and commercial profits from sources within the United States except in respect of such profits allocable to its permanent establishment in the United States. Section 894 of the Internal Revenue Code recognizes such exemption. One of the main purposes of Article III is to facilitate international commerce through exemption from tax, in the State from which industrial and commercial profits are derived, of the business income of an enterprise of the contracting State carrying on its business through a commission agent, as in the instant case.

Accordingly, it is held that a Belgian corporation constituting a Belgian enterprise, selling all or some of its products in the United States through the medium of a commission agent acting in the ordinary course of his business as such, and having no permanent establishment in the United States, is exempt, under the provisions of Article III of the United States-Belgium income tax convention, from United States tax with respect to its industrial and commercial profits so derived from sources within the United States, notwithstanding that such corporation is engaged in trade or business within the United States