What Constitutes a ‘Permanent Establishment’ in the U.S. for a Nonresident Alien?

What Constitutes a ‘Permanent Establishment’ in the U.S. for a Nonresident Alien?

The concept of a “permanent establishment” is crucial for understanding tax obligations for nonresident aliens in the United States. One of the early and seminal cases that sheds light on this concept is Georges Simenon v. Commissioner of Internal Revenue. This 1965 Tax Court case delved into the intricacies of what constitutes a permanent establishment and its implications for taxation under U.S. law and relevant tax treaties.

Case Background

  • Full Title: Georges Simenon, Petitioner, v. Commissioner of Internal Revenue
  • Court: Tax Court of the United States
  • Date: September 29, 1965
  • Citation: 44 T.C. 820 (U.S.T.C. 1965)

The Tax Treaty

The tax treaty in question is the income tax convention between the United States and France, signed on July 25, 1939, and effective January 1, 1945. Article 7 of this treaty provides:

“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.”

Parties Involved

  • Petitioner: Georges Simenon, a Belgian citizen and professional writer.
  • Respondent: Commissioner of Internal Revenue.

Type of Income and Period

The income under discussion consists of royalties from U.S. sources, earned from March 28, 1955, to November 29, 1955.

Petitioner’s Position

Simenon contended that the royalties received in 1955 should be exempt from U.S. income tax under Article 7 of the tax treaty with France. He argued that he did not have a permanent establishment in the U.S. during the relevant period and that he was a resident of France.

Respondent’s Disagreement

The Commissioner of Internal Revenue disagreed, arguing that Simenon had a permanent establishment in the U.S. from January 1 to March 19, 1955. Consequently, the royalties earned after he left the U.S. were still subject to U.S. income tax. The respondent determined a tax deficiency based on this position.

Court’s Analysis

The court identified several key issues:

  • Definition of Permanent Establishment: The court examined whether Simenon had a “permanent establishment” in the U.S., defined broadly in Article III(A) of the protocol to include workshops, offices, and other fixed places of business.
  • Residency: The court also analyzed whether Simenon was a resident of France for tax purposes during 1955. This determination is critical under French tax law and affects treaty interpretation.
  • Burden of Proof: The court noted that the burden of proof was on Simenon to demonstrate he was a resident of France and did not have a permanent establishment in the U.S.


  • Permanent Establishment: The court found that Simenon maintained an office at his home in Connecticut until March 19, 1955. This office was used for his writing and business activities, constituting a permanent establishment under the treaty’s definition.
  • Residency: Simenon failed to prove he was a resident of France within the meaning of Article 7 of the tax treaty. His presence in France during 1955 did not satisfy the residency requirements under French tax law.

Relevant Case Law and Statutes

  • Jules Samann v. Commissioner: This case supported the respondent’s position on the definition of a permanent establishment, emphasizing that having a fixed place of business in the U.S. can constitute a permanent establishment.
  • John Ernest Goldring, 36 B.T.A. 779: This case discussed the abandonment of U.S. residency and provided relevant precedent for determining residency status.
  • Van Der Elst v. Commissioner, 223 F.2d 771: This case helped establish the precedent that a taxable year is the calendar year unless proven otherwise.
  • Marsman v. Commissioner, 205 F.2d 335: This case dealt with dual-status tax years and provided insights into filing requirements for nonresident aliens.

The court upheld the respondent’s determination, finding that Simenon had a permanent establishment in the U.S. during part of 1955 and that his royalties were subject to U.S. income tax. This decision was based on the interpretation of the tax treaty, U.S. tax law, and the facts presented.

This case underscores the importance of understanding the concept of a permanent establishment and its implications for nonresident aliens under U.S. tax law and international tax treaties. It highlights the complexities involved in determining tax liability and the need for thorough documentation and legal understanding.

The Georges Simenon case remains a pivotal reference for tax professionals and international taxpayers, illustrating the nuanced interplay between domestic tax regulations and international treaties. It emphasizes the critical role of permanent establishments in tax determinations and the rigorous scrutiny applied by courts in such matters.