Can U.S. Source Royalties be Exempt from U.S. Income Tax Under a Tax Treaty?

Can U.S. Source Royalties be Exempt from U.S. Income Tax Under a Tax Treaty?

The case of Georges Simenon v. Commissioner of Internal Revenue is a seminal example of how U.S. tax law interacts with international tax treaties. This 1965 case delves into the complexities of whether U.S. source royalties can be exempt from U.S. income tax under a tax treaty. Let’s explore the case and its implications in detail.

Case Overview

  • Court: Tax Court of the United States
  • Date: September 29, 1965
  • Citations: 44 T.C. 820 (U.S.T.C. 1965)

Key Participants

  • Petitioner: Georges Simenon, a citizen of Belgium and a professional writer.
  • Respondent: Commissioner of Internal Revenue, represented by Charles M. Greenspan.

Background and Facts

Georges Simenon, an eminent author known for his mystery and psychological novels, lived in the United States from 1947 until March 19, 1955, when he moved to France and then to Switzerland. During his stay in the U.S., he maintained a residence and an office at his home in Connecticut, where he carried out his writing activities.

Simenon received royalties from U.S. sources throughout 1955. He claimed these royalties were exempt from U.S. income tax under Article 7 of the tax convention with France. The respondent, however, disagreed, determining a tax deficiency for Simenon’s 1955 income.

Tax Treaty Involved

  • Treaty: Income Tax Convention between the United States and France, signed on July 25, 1939, effective January 1, 1945.
  • Relevant Article: Article 7, which states:
    “Royalties derived from within one of the contracting States by a resident or by a corporation or other entity of the other contracting State as consideration for the right to use copyrights, patents, secret processes and formulae, trademarks and other analogous rights shall be exempt from taxation in the former State, provided such resident, corporation or other entity does not have a permanent establishment there.”

Issues and Contentions

  1. Petitioner’s Position:
    • Simenon claimed exemption from U.S. income tax on royalties received after he left the U.S. on March 19, 1955, under Article 7 of the U.S.-France tax convention.
    • He filed his tax return for a short period in 1955, ending on March 19.
  2. Respondent’s Position:
    • The respondent contended that Simenon had a permanent establishment in the U.S. from January 1 to March 19, 1955.
    • Therefore, under Article 7 and section 514.109 of the respondent’s regulations, Simenon was not exempt from U.S. tax for the royalties received in 1955.

Court’s Analysis and Conclusion

Residency and Permanent Establishment

  • Residency in France: The court found that Simenon failed to prove he was a resident of France in 1955 within the meaning of Article 7. He did not provide evidence of his intention to become a resident for French tax purposes.
  • Permanent Establishment in the U.S.: The court held that Simenon’s office at his Connecticut home constituted a permanent establishment. This was based on the fact that he used part of his home as an office for his business activities, which continued until he left the U.S.

Treaty Interpretation and IRS Regulations

  • Treaty and IRS Regulations: The court upheld the validity of section 514.109 of the IRS regulations, which states that the exemption applies only if the taxpayer has no permanent establishment in the U.S. at any time during the taxable year.
  • Consistency with U.S. Tax Law: The court found that the regulation was consistent with both the tax convention and U.S. tax law. The U.S. asserts tax jurisdiction over the entire worldwide income of its citizens and residents, and taxes nonresident aliens only on U.S. source income unless exempted by a treaty.

Precedent and Legal Principles

  • Samann Case: The court referenced Jules Samann, which involved similar treaty provisions and upheld the “at any time” rule for determining permanent establishment.
  • Legislative History and Context: The court considered the legislative history and the context of the tax convention, emphasizing the intent to avoid double taxation while maintaining each country’s right to tax residents on their worldwide income.


The court concluded that Simenon had a permanent establishment in the U.S. during part of 1955 and failed to prove he was a resident of France for tax purposes. Therefore, his U.S. source royalties were subject to U.S. income tax, and he was not eligible for the treaty exemption under Article 7.

This case underscores the importance of understanding the definitions and conditions set forth in tax treaties and highlights the complexities involved in claiming tax exemptions under such treaties. It remains a key reference point for cases involving international tax treaties and the interpretation of permanent establishment.