Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 72-12

1972-1 C.B. 440

Sec. 61
Sec. 401

IRS Headnote

Definition of private pensions under the United States-Sweden Income Tax Convention, and the character of dividends received as income of a domestic trust which are to be distributed currently by a fiduciary to a Swedish beneficiary; I.T. 3427 superseded.

Full Text

Rev. Rul. 72-12 /1/

The purpose of this Revenue Ruling is to update and restate under the current statute and regulations the portion of I.T. 3427, C.B. 1940-2, 143, that is currently applicable.

The questions presented relate to: (1) the meaning of the term "private pensions" as used in Article X of the Income Tax Convention between the United States and Sweden, C.B. 1940-1, 228, and (2) whether dividends, which are received as income of a domestic trust and then remitted as a distribution of trust income to a Swedish beneficiary, retain their character as dividends under Article VII of the Convention cited above and as supplemented by Supplementary Income Tax Convention, C.B. 1965-1, 626.

Article X of the Convention provides as follows:

Wages, salaries and similar compensation and pensions paid by one of the contracting States or by the political subdivisions or territories or possessions thereof to individuals residing in the other State shall be exempt from taxation in the latter State.

Private pensions and life annuities derived from within one of the contracting States and paid to individuals residing in the other contracting State shall be exempt from taxation in the former State.

The term "private pensions," as used in the second paragraph of Article X of the Convention means pensions paid by private persons as distinguished from "pensions paid by one of the contracting States or by a political subdivision or territories or possessions thereof," referred to in the first paragraph of Article X. A similar distinction is made in section 1.61-11(a) of the Income Tax Regulations which provides, in pertinent part, that pensions and retirement allowances paid either by the government or by private persons constitute gross income unless otherwise excluded by law.

It is held that private pensions paid either directly or through the medium of a trust come within the meaning of the tem "private pensions" in Article X of the Convention.

As to the second question, Article VII of the Convention as supplemented, provides:

Dividends received from sources within one of the contracting States by a resident, corporation, or other entity of the other State not having a permanent establishment in the former State shall be subject to tax by such former State at a rate not in excess of 15 percent of the amount of such dividends: Provided, however, that such rate of tax shall not exceed 5 percent of the amount of such dividends paid by a corporation of such former State to a corporation of such other State * * *

It is held that dividends received as income of a domestic trust which are to be distributed currently by a fiduciary to a Swedish beneficiary generally retain their character as dividends under Article VII of the Convention when distributed to the beneficiary.

I.T. 3427 is hereby superseded, since the applicable portion thereof is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.