Rev. Rul. 55-282

Advice has been requested whether a Canadian corporation organized as an investment company, which has an agent in the United States with a discretionary power of attorney to purchase and sell United States securities and to keep records of the Canadian corporation in this country, is a resident foreign corporation subject to the provisions of section 882 of the Internal Revenue Code of 1954, and, if so, whether it is entitled to be taxed at the reduced rate provided for in the income tax convention between the United States and Canada, page 624, this Bulletin.

Section 882 of the Code provides in part that a foreign corporation engaged in trade or business in the United States shall be taxable as provided in section 11 of the Code on income from sources within the United States, that foreign corporations shall not be allowed credits against tax for the taxes of foreign countries and United States possessions allowed by section 901, and that if any foreign corporation has no office or place of business in the United States, the return required by section 6012 of the Code shall be made by its agent.

The income tax convention between the United States and Canada, supra , provides that the rate of tax on income derived from sources within the United States shall not exceed 15 percent if the corporation has no permanent establishment in the United States. The protocol which accompanies the convention states that the term `permanent establishment' includes an agency and that if business is carried on in the United States through an employee or agent established there who has general authority to contract for the corporation, such enterprise shall be deemed to have a permanent establishment in the United States.

Accordingly, it is held that a Canadian corporation which has an agent in the United States with a discretionary power of attorney to purchase and sell United States securities, will be treated as a resident foreign corporation subject to the provisions of section 882 of the 1954 Code and that no reduction of the tax rate under the income tax convention is permissible. See G.C.M. 21219, C.B. 1939-1, Part 1, 201