The Meaning of Enterprise, Business, and Business Profits Under Tax Treaties and Domestic Tax Law (forthcoming, 2011)



Written by: Allison Christians and Yariv Brauner[*]

PART I.

THE MEANING OF “ENTERPRISE” AND “BUSINESS” IN DOMESTIC NON-TAX LAW

The terms ―business‖ and ―enterprise‖ are very widely used in United States legislation[1] Given the prevalence of the terms – business and enterprise, an exhaustive survey of their use in non-tax legislation in the United States is beyond the scope of this report. Therefore, this section focuses on a few illustrative examples of how the terms are used in corporate law, insurance law, the Uniform Commercial Code, and bankruptcy law.

X.1.1 CORPORATE LAW

Title 8 of the Delaware Code forms the basis for most corporate law in the United States. With very few exceptions, corporations in the United States are organized under state law. Most major United States corporations are organized under Delaware law. Because Delaware law influences the corporate law of many other states, Delaware law impacts many smaller corporations organized in other states.

Delaware law provides that a corporation may be organized “to conduct or promote any lawful business or purposes . . . .”[2]This provision, and Delaware corporate law generally, is construed liberally to enable the formation and operation of corporations with few formalities, consistent with the philosophy that “the public good is advanced by the provision of an inexpensive mechanism that allows all individuals to achieve the benefits that the corporate form provides (most importantly, centralized management and entity status, with its characteristics of indefinite duration and separately salable share interests) . . . .”[3] The listed benefits are obviously most relevant to a traditional business entity, but incorporation is available even for lawful nonbusiness purposes. The result is that few entities will be denied incorporation under modern law.

Delaware law provides a separate category of professional corporations for individuals who provide services that require a license or other legal authorization to perform.[4] The Delaware law is somewhat inconsistent with respect to whether professional services are considered a type of ―business.‖ Professional services are treated separately from the general corporate law that allows incorporation for ―any lawful business or purposes.‖[5] Furthermore, a professional corporation is prohibited from “engag[ing] in any business other than the rendering of the professional services for which it was specifically incorporated . . . .”[6] However, this prohibition can be read to say that rendering professional services is a type of business in which a professional corporation may engage and that all other types of business are prohibited to the professional corporation.

Personal liability insurance policies commonly exclude ―business pursuits‖ from coverage.[7] Since these policies are frequently litigated, there are many cases, spanning many years, that construe this language. Generally courts have held that an activity is a ―business,‖ and thus excluded from coverage under a personal liability insurance policy, if it is continuous or regular in nature and engaged in for the purpose of earning a profit or compensation or as a means of livelihood.[8] Some courts also require that an activity be engaged in continuously and for a profit motive to constitute a business pursuit.[9]

The following examples provide some guidance on the types of activities that have been held to be ―business pursuits‖ under personal liability insurance policies. Child care services provided by a person in the person‘s home have generally been held to be ―business pursuits‖ when the services are provided on a regular basis for compensation[10] and not to be ―business pursuits when the services are incidental to the maintenance of the household and supervision of other children[11] or when the services are provided primarily as a favor or accommodation to the child‘s parents.[12] Courts have inconsistently held that investments in real estate or businesses are or are not ―business pursuits‖ under personal liability insurance policies, with active investments generally more likely to be held to be ―business pursuits‖ than passive investments.[13] Persons serving as part-time outside directors in corporations have generally been held to be engaged in business pursuits under personal liability insurance policies {14} Personal activities conducted on the premises of a business owned on the premises of a business owned by a person have been held not to be business pursuits. {15}

Professional activities of physicians and lawyers, including activities giving rise to malpractice claims, have generally been held to be business pursuits and outside the coverage of a personal liability insurance policies, {16} unless the activities are clearly personal in nature {17} In construing the business pursuits language in personal liability insurance policies, courts have found certain activities to be hobbies and therefore not business pursuits. Often this is because the court finds that actor did not have a profit motive in conducting the activity. A court found that a question of fact exists as to whether a person who conducts weekly ceramics classes in her home for a nominal fee and sells her ceramic products to students and others has a profit motive sufficient to make her activities a business enterprise.[18] A man who hunts animals and sells the pelts was found to hunt as a hobby and not as a business, primarily because he has a full-time job that does not involve hunting.[19] Another court, taking the view that any activity with a profit motive is a business activity, held that a person who breeds and sells dogs is engaged in a business despite having another livelihood.[20] A judge held that a question of fact exists as to whether homeowners who conducted as series of garage or yard sales to sell items collected as a hobby were engaged in a business.[21] Courts have inconsistently held that persons who own racehorses, not as their primary occupation, are or are not engaged in a business pursuit.[22]

In a related jurisprudence, United States securities law draws a distinction between ―brokers‖ and ―dealers‖ who are subject to regulation, and traders who are not subject to regulation. The distinction turns on whether the person is engaged in business. A ―broker‖ is defined as ―any person engaged in the business of effecting transactions in securities for the account of others.‖[23] A ―dealer‖ is defined as ―any person engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise.‖[24] The definition of dealer goes on to exclude traders, described as ―a person that buys or sells securities for such person’s own account, either individually or in a fiduciary capacity, but not as a part of a regular business.‖[25] Factors the Securities and Exchange Commission considers relevant to the determination of whether a person is a dealer or a trader include: Does one advertise or otherwise let others know that she is in the business of buying and selling securities? Does one do business with the public (either retail or institutional)? Does one make a market in, or quote prices for both purchases and sales of, one or more securities? Does one participate in a “selling group” or otherwise underwrite securities? Does one provide services to investors, such as handling money and securities, extending credit, or giving investment advice? Does one write derivatives contracts that are securities?[26]

Applying the ―business pursuits‖ exclusion of a personal liability insurance policy, a court held that a person who, in exchange for an interest in a company, provided financial assistance to a third party to help the third party gain a greater ownership interest in the company was engaged in a business rather than an investment.[27]

X.1.2 THE UNIFORM COMMERCIAL CODE

The Uniform Commercial Code (―U.C.C.‖) is a model state law that governs sales, leases, negotiable instruments, secured transactions, and other aspects of commercial law. It has generally been adopted as the commercial law in all of the states. The U.C.C. uses the terms business and enterprise but does not define them, {28} presumably intending them to have the ordinary English definitions. Much like Article 5 of the OECD Model Tax Convention (hereinafter ―OECD Model‖),[29] the U.C.C. uses the term ―enterprise‖ to refer to an entity and business to refer to the activity of an enterprise. Perhaps the best illustrative example of how the term business is used is the definition of buyer in ordinary course of business.

“Buyer in ordinary course of business” means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices. A person that sells oil, gas, or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property, or on secured or unsecured credit, and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under Article 2 may be a buyer in ordinary course of business. “Buyer in ordinary course of business” does not include a person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt.”[30]

Some activities that the U.C.C. specifically mentions as business are banking (including a savings bank, savings and loan association, credit union, and trust company);[31]directly or indirectly transporting or forwarding goods;[32]storing goods for hire;[33]making advances against goods or documents of title;[34] manufacturing custom goods;[35] leasing or selling;[36] disposing of assets for businesses contemplating liquidation or dissolution;[37] operating a railroad, subway, street railway, or trolley bus;[38]transmitting communications electrically, electromagnetically, or by light;[39]transmitting goods by pipeline or sewer;[40]transmitting or producing and transmitting electricity, steam, gas, or water;[41]dealing with securities or financial assets;[42]and licensing general intangibles.[43]

A good example of how the term ―enterprise‖ is used is in the definition of ―security‖ as follows: ―‗[s]ecurity‘ . . . means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer . . . .‖[44] The U.C.C. does not mention specific examples of enterprises.

X.1.3 BANKRUPTCY LAW

The United States bankruptcy law does not define ―business‖ or ―enterprise‖ generally. One category of business specifically mentioned in the code is the ―small business debtor‖ that is subject to certain specific provisions in a Chapter 11 reorganization. The relevant part of the definition is ―‗small business debtor‘ . . . means a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) . . .‖ with debts that do not exceed a certain amount.[45] Another type of person that is per-se engaged in business under the code is ―[a] debtor that is self-employed and incurs trade credit in the production of income from such employment {46} This provision is a significant change from prior law that allowed only wage earners to proceed with a Chapter 13 bankruptcy[47] and presumably was enacted to allow self-employed individuals to proceed under the less burdensome rules of Chapter 13.

The three primary forms of United States bankruptcy each contain provisions for the continued operation of the business of the debtor.[48]The jurisprudence on what constitutes continued operation of a business concerns whether the trustee‘s or debtor‘s actions in the bankruptcy proceeding require court approval and not whether the entity undergoing bankruptcy was a business to begin with. For example, in a liquidation case under Chapter 7, after the court ordered the liquidation of a furniture business and terminated the trustee’s authority to operate the business, the court held that the completion of unfinished pieces of furniture so they might be sold was not the conduct of business.[49] Similarly, the ―collection of accounts, sales of assets, matters of insurance, taxes, inventories, [and] investigations‖ are the bankruptcy trustee‘s duties and do not constitute operation of the business.[50]

X.1.4 PLACE OF BUSINESS IN CONNECTION WITH THE EXAMPLES IN COMMENTARY TO

ART. 5 OF THE OECD MODEL

A few of the factual situations considered in the commentary to Article 5 of the OECD Model have been considered by courts to determine whether a place of business exists under non-tax law. A mine has been held to be a place of business under non-tax law.[51]A construction site is generally regarded as a place of business.[52]This presumably includes a road being paved. However, at least one court has found that an unattended coin-operated vending machine is not a place of business.[53]

Some examples have not been directly examined for the presence or absence of a place of business but have been examined in other contexts, and therefore may provide insight into that question. First, a pitch in a market place, if used for selling goods, would probably be considered a place of business under U.S. state law. The state of Ohio, for example, requires a person who provides a location or space for the sale of motor vehicles at a flea market to obtain a license as a vehicle dealer.[54]While the statute does not specifically state that selling vehicles at a flea market is a business activity, the license is generally required for persons engaged in the business of selling vehicles and many of the other activities requiring a vehicle dealer license are specifically designated as business activities.[55]Furthermore, courts have held that a governmental entity that owns a market can require a person to obtain permission to conduct business in the market.[56]

Second, courts do not appear to have considered whether a loading dock regularly used by trucking company but not owned by the company constitutes a place of business under non- tax law. However, one court found that a ship moored to a dock for loading purposes did not have a fixed situs or place of business in the area.[57]

Third, the issue of whether a person who stores goods in a customs bonded warehouse is engaged in business at the location of the warehouse does not appear to have been considered in a purely non-tax context. Outside the income tax context, however, local taxing authorities often try to assess ad valorem taxes on income-producing personal property stored in a customs- bonded warehouse.[58] In this context there is a legal connection between the business or investment character of the assets and their presence in the customs warehouse, as the goods would not be taxable if they were not held or used for the production of income.[59]

Fourth, the leasing of tangible property such as equipment is clearly a business.[60] The question remains as to whether an equipment leasing company that does not have a permanent office in the lessee‘s state is engaged in business in the lessee‘s state by reason of the lease. The analysis of that question may be somewhat analogous to the determination of whether a domestic equipment leasing enterprise is subject to personal jurisdiction in a lessee‘s state. An enterprise that leases equipment from a permanent office in the lessee‘s state would be subject to personal jurisdiction in that state, just as a leasing company with an office in the lessee‘s country would be considered to have a permanent establishment in the lessee‘s country under Article 5. If the domestic leasing enterprise does not have an office in the lessee‘s state but does have significant ongoing activities in the lessee‘s state then personal jurisdiction can be established in that state by reason of sufficient minimum contacts,[61]similar to the way Article 5 provides that a leasing company may establish a permanent establishment in a lessee‘s country by engaging in activities that amount to entrepreneurial activity in that country. A court has held that an enterprise that leases equipment to a resident of a state, without maintaining an office in the lessee‘s state or specifically advertising in that state, does not have sufficient minimum contacts with the lessee‘s state to give rise to personal jurisdiction in that state.[62]It is quite possible a court would apply a similar analysis to find that a leasing company that did not operate an office in a lessee‘s state and did not have significant ongoing activities in that state was not engaged in business in that state, despite the presence in that state of equipment leased by the enterprise.

Fifth, the question whether a patent licensing agent who does not have a permanent office in the licensee‘s jurisdiction is engaged in business in the licensee‘s jurisdiction by reason of the agent‘s efforts to negotiate the license can by analyzed under the same minimum contacts analogy applied to the equipment leasing enterprise above. Courts have held that a patent licensing agent does not establish minimum contacts in the licensee‘s jurisdiction by reason of the agent‘s license negotiations alone[63] Again, it is possible a court would apply a similar analysis to find that a patent licensing agent who did not operate an office in the licensee‘s state and did not have significant ongoing activities in that state was not engaged in business in that state, despite having negotiated a license with a licensee in that state. Other examples do not appear to have been considered by courts in a non-tax context.

PART II.

THE MEANING OF “BUSINESS,” “ENTERPRISE,” AND “BUSINESS PROFITS” IN DOMESTIC TAX LAW

The term ―business‖ for U.S. tax purposes denotes activity conducted by a taxpayer, while the term ―business entity‖ denotes the nature of the taxpayer, in other words, the form through which the business activity is conducted. While some states use the term ―business enterprise,‖ sometimes interchangeably with ―business entity,‖[64] the term enterprise is not generally used in the context of domestic federal income tax determinations. Business profits arise from the conduct of business, regardless of the type of taxpayer (individual or entity). Each of these concepts is discussed below.

X.2.1 BUSINESS

In U.S. federal tax law, the term – business is habitually used as part of a core concept, trade or business, which is used extensively throughout the Tax Code {65} and Regulations {66} but not explicitly defined. This term is the domestic equivalent of the permanent establishment concept described in tax treaties. Since Congress and the Treasury have failed to define the term trade or business, it has fallen to the Judiciary to supply the definition, which it has done through a series of decisions. The term is universal in its application, however there are some special rules applicable only to international activities.

X.2.1.1 DOMESTIC LAW DEFINITION

The Supreme Court has generally taken a broad approach to the trade or business concept, stating that ―‗[b]usiness‘ is a very comprehensive term and embraces everything about which a person can be employed.‖[67] The Court initially defined the term by reference to a dictionary definition which focused on the expenditure of time and effort of individuals for the purpose of generating profit. Later decisions refined this broad conceptual approach by determining that a taxpayer‘s efforts in looking after his own investments, and a trust‘s or estate‘s efforts in conserving or managing estate or trust assets, would not generally constitute a trade or business.[68 ] However, an ―active trader‖—one who ―devoted the major portion of his time to transactions on the stock exchange for the purpose of making a livelihood‖—could be engaged in a trade or business.[69] In the seminal decision on the matter, the Supreme Court reviewed its prior decisions and determined that a trade or business can be generally defined as an activity in which the taxpayer is involved with continuity and regularity, for the primary purpose of generating income or profit, but that determining whether a particular activity constitutes a trade or business ―requires an examination of the facts in each case.‖[70]

Thus in assessing whether a trade or business exists, both the frequency of the activity and the taxpayer‘s motive must be considered. In the frequency consideration, a trade or business is generally characterized by progression, continuity, or sustained activity that occurs over a substantial portion of the taxable year. Judicial decisions have focused primarily upon the degree and significance of the undertaken activity. Yet in some cases, a single instance of activity—such as the entry of a horse in a race—has been found to constitute a trade or business[71]

The Treasury has provided some guidance for examining activities by outlining a structure for approaching the question of the taxpayer‘s profit motive. Regulation § 1.183-2(b) provides a list of nine factors to be considered in such an evaluation. This regulation is specifically aimed at distinguishing between personal hobbies and business pursuits, but the framework is useful for understanding in general what constitutes a profit motive, and therefore a major component of determining whether a trade or business exists, for federal tax purposes.[72]

The nature of this inquiry is qualitative rather than quantitative: it is neither necessary nor sufficient to simply count the number of positive factors and compare these to the negative factors. Rather, the Regulation states that ―all facts and circumstances with respect to the activityaretobetakenintoaccount.‖Inaddition,factorsotherthanthosespecificallyoutlined may be taken into account in determining whether a trade or business exists, and more weightmay be given to some factors than to others. In brief, the nine factors that tend to evidence a profit (as opposed to a personal) motive may be described as follows:

The taxpayer carries on the activity in a businesslike manner, maintaining proper books and records and choosing strategies that might improve profitability.
The taxpayer engages in extensive study or consults with appropriate experts regarding the business activity, and carries on the business in accordance with this expertise
The taxpayer or agents working on behalf of the taxpayer expend much personal time and effort pursuing the activity, with greater deference given to time and effort spent onactivities that lack―substantialpersonalorrecreationalaspects.‖
In carrying out the activity, the taxpayer uses assets, such as land, that are expected to appreciate in value, even independent of the success of the activity
The taxpayer has a proven record of success in other ventures.
The activity shows a promise of profitability, even if many years of operation are characterized by losses.
The activity yields more than an insubstantial amount of profit compared to its losses, or is high risk with a high reward potential.
The taxpayer lacks an alternative source of income.
The activity generally lacks appeal other than profit, that is, it is not overly recreational or personal in nature.
As is evident, some of the items on this list are specifically aimed at preventing taxpayers from generating tax shelters by labeling as ―business‖ activities that are really more like hobbies or personal recreational pursuits. This is especially relevant in cases in which the activity creates large losses against which other income sources may be reduced. However, the focus on the taxpayer‘s efforts in the pursuit of profitability in a regular and systemic manner generally conveys the central concepts that define business for federal tax purposes.

X.2.1.2 MODIFICATIONS IN THE CASE OF FOREIGN PERSONS

Determining whether a trade or business exists is modified in the case of foreign persons, whose activities are generally subject to U.S. taxation on the basis of source. These differences arise from a sense that the exertion of source-based tax jurisdiction requires a component of physical nexus. In general, income of foreign taxpayers that is associated with U.S. investment, rather than the operation of a trade or business, is taxed on a gross basis and often reduced under treaty {73} Conversely, income that is associated, or effectively connected with the operation of a U.S. trade or business is taxed on the same net basis and rate structure that applies to other U.S. persons.[74]

Section 864(b) of the Code and the associated regulations provide general rules for determining whether a foreign taxpayer is engaged in a trade or business ―within the United States‖ for purposes of assessing the U.S. taxation of such persons. As in the case of the term trade or business, the more specific trade or business in the United States is minimally defined by statute. Section 864(b) states only that a trade or business within the United States includes the performance of personal services within the United States at any time within the taxable year,‖ with enumerated exceptions. However, these rules do provide some thresholds involving presence and the nature of the taxpayer‘s activities in the United States.

Presence Requirement

The main threshold rule involves an inquiry into the foreign person‘s amount and type of physical presence in the United States. If a foreign person‘s presence in the United States is limited to maintaining an office for clerical and other administrative functions, it will not generally constitute a United States trade or business even if it might otherwise meet the definition of trade or business described above.[75] If a foreign person‘s domestic activities are directly related or pivotal to the active pursuit of profit, however, they will likely constitute a trade or business.

This standard is broadly consistent with judicial and other determinations construing the phrases ―doing business‖ or ―engaged in business‖ under various state constitutional and statutory provisions regulating out-of-state corporations. Activities such establishing an office, undertaking incidental transactions or internal management functions, and buying or holding stock in domestic corporations have not generally been construed as engaging in business within a state.[76] This is not necessarily because the activities fail to satisfy the definitional requirements for a trade or business described above, such as continuity and profit motivation. Rather, these rules reflect prevailing views about the appropriate jurisdictional reach of the respective sub- national taxing authorities. The threshold requirement of presence ensures both that the state‘s jurisdictional claims based on territorial grounds and that there is some basis for enforcement of the purported jurisdiction to tax.

Ownership of Assets

The ownership and management of assets for one‘s own account does not ordinarily constitute a trade or business, as discussed above. The main exception would be for active stock exchange traders. However, ownership of U.S. real property interests is treated as a trade or business in the United States in some respects. This is primarily because § 897(a) generally treats gains and losses from the sale or other disposition of U.S. real property interests as effectively connected with a U.S. trade or business. A U.S. real property interest is defined as any interest in real property, including a mine, well, or other natural deposit, located in the United States or the U.S. Virgin Islands, and any interest (other than an interest solely as a creditor) in any domestic real property holding company.[77] This rule is designed to ensure that gains derived from the sale of real property will be taxed by the United States; absent §897, such gains could be foreign-source capital gains that would not be subject to U.S. taxation at all.[78]

In addition, §§871(d) and 881(d) permit foreign persons (individual and corporate, respectively) to elect to treat income derived from the ownership of U.S. real property interests as effectively connected to the conduct of a U.S. trade or business. This rule allows foreign persons to opt for net basis taxation under the domestic rate structure, rather than gross-basis taxation which would otherwise apply to the rents derived from real property ownership.

Treatment of Services

Section 864(b) provides that a foreign person who provides services in the United States at any time within a taxable year is deemed to be engaged in a domestic trade or business, regardless of duration, frequency, or other factors. This is the case whether the person performs services as an employee or as an independent contractor. A very limited set of threshold rules prevent the application of this rule in certain de minimis situations, namely, in cases involving foreign-employed individuals who spend minimal time (no more than 90 days) and earn minimal amounts (no more than $3,000) in working in the United States.[79] If any one of these rules is violated, the threshold no longer applies. Thus, if the foreign taxpayer is compensated more than $3,000 for services performed in the United States, he will be deemed to be engaged in a trade or business here regardless of the amount of physical presence or the foreign status of his employer. Numerous issues arise in identifying the nature of income from services, the location where the services were performed, and whether an amount is appropriately attributed to services rather than another form of income, such as license fees.

Attribution from Other Taxpayers

Agents and employees must also be considered in the trade or business analysis. For example, while isolated sales by employees or minimal operational or export activity in the United States would not ordinarily constitute a trade or business, extensive sales activity or domestic marketing conducted through dependent agents (such as employees) has been found to constitute a trade or business for the principal or employer. To be considered a dependent agent, the domestic person need not be related to or affiliated with the foreign person. It is sufficient that the U.S.-based person acts exclusively (or nearly so) for the foreign taxpayer. In some cases, the activities of an independent agent might also be imputed to a foreign person for purposes of determining whether the principal is engaged in a domestic trade or business.

The trade or business activity of an entity treated as a partnership is generally imputed to its foreign owners under § 875(1), in the case of both general and limited partners. However, the corporate form is typically respected, so no similar attribution rule exists for corporations and their shareholders. As a result, foreign shareholders, whether corporate or individual, will not typically be considered to be engaged in a trade or business by virtue of share ownership alone, even if the corporation is engaged in a US trade or business.

X.2.2 BUSINESS ENTITIES

A business may be conducted by an individual directly, in the form of a sole proprietorship, or by a group of two or more individuals who conduct activities in a separate entity as defined under state law. As discussed above in Part I, state law authorizes the conduct of business through a broad variety of entity formats including associations, partnerships, limited liability companies, corporations, and so on. For federal tax purposes, these state-authorized conventions are subsumed into a business entity classification system colloquially referred to as checkthebox,‖found in the Regulations to § 7701.

The term business entity is defined in Regulation § 301.7701-2, as any ―entity recognized for tax purposes . . . that is not classified as a trust . . . or otherwise subject to special treatment under the . . Code.‖ A sole proprietorship is not a business entity because it is not recognized as a ―person‖ or a ―taxpayer‖ under state law and hence it is not recognized under the Code. If state law did treat the sole proprietorship as a separate entity, this form of business might be treated as a separate entity for tax purposes as well. Conversely, a partnership is a business entity because it is an entity that is recognized for state law purposes and therefore for tax purposes (it is not subject to a separate tax rate, but it is defined as a person and thus a taxpayer in § 7701). Business entities are separate taxpayers that can act independently of their owners for many purposes, including shielding their owners from liability. Thus under U.S. federal income tax law, a business entity may be generally defined as any non-human person, other than a trust, that carries on a business.

Under the regulation, a business entity, whatever it may be—an association, a company, a cooperative, a joint-stock company, a limited liability company, a limited liability partnership, etc.—for tax purposes is one of two types of entity: corporation or partnership. Reg § 301.7701-2 provides a set of rules for distinguishing between the two types of business entity. If an entity is incorporated under a federal or state statute, it is a corporation. However, there is a special rule for entities that are wholly owned by a single person (whether individual or entity), such as is allowed under some state limited liability company (LLC) laws. Normally, LLCs are analogous to partnerships, but a partnership necessarily requires at least two persons (see the definition in Regulation § 301.7701-2(c)(1)).

As a result, a business entity with only one owner is either classified as a corporation or is disregarded as a separate taxpayer, i.e., it is either treated as a corporation (and therefore subject to tax as a separate entity under §11) or it is treated for classification purposes as a sole proprietorship (and therefore not subject to tax under § 11). This classification as a ―disregarded entity will not exempt the entity from other obligations such as filing and withholding for employment taxes, for example, but it does prevent it from being subject to corporate taxation.

In most cases, owners of wholly owned business entities (typically LLCs) will want to treat the LLC as a disregarded entity and avoid § 11, but the Regulation allows the owner to make that choice via an entity classification election.

A business entity that is not described as a corporation and that has more than one owner is typically a partnership for tax purposes, with some statutory exceptions (for example, partnerships that trade on a stock exchange and some foreign partnerships and other non- corporate foreign entities are treated as corporations for tax purposes). Again, this is a default rule, which the owners can reject by electing to check the box to treat the entity as a corporation under the classification election rules described in Reg § 301.7701-3.

X.2.3 BUSINESS PROFITS

Under the domestic tax system, taxpayers are subject to tax on net income, which is generally derived by subtracting allowable deductions and exemptions from the taxpayer‘s gross income. Whether individual or entity, gross income includes income ―from all sources wherever derived, including gross income derived from business {80} The category of gross income from business is analogous to gross profits (receipts less cost of goods sold) rather than gross receipts.

In a manufacturing, merchandising, or mining business, gross income derived from business is defined in general by Regulation to mean ―the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources.‖[81] Cost of goods sold is a term of art that varies according to the type of business, and is distinguished from other deductions to which the taxpayer is entitled, such as salaries, rents, and other ordinary and necessary business expenses.

Business entities treated as corporations for federal income tax purposes compute their taxable income in a manner similar to individuals with some exceptions. A main difference is the treatment of capital gains, which are subject to preferential rates in the case of individuals under §1(h), but not in the case of corporations; in addition, corporations and individuals are subject to separate rules with respect to the deductibility of certain expenses such as losses and charitable contributions, and with respect to tax accounting methods and other rules for income inclusions and deductions. Corporations are also subject to income taxation under a separate rate schedule than that applicable to individuals. The top marginal rate for both individuals and corporations is currently 35%.

In the case of foreign persons engaging in a trade or business in the United States, business profits arise in the form of ―effectively connected income‖ under statute. Without a trade or business, a foreign person does not generally have effectively connected income, other than in the case of real property interest ownership as described above.[82] However, if the taxpayer is engaged in a U.S. trade or business, the income that is effectively connected with the trade or business is taxed on a net basis at graduated rates.[83] Under § 864(c), effectively connected income include U.S. source capital gains and fixed or determinable income items. (FDAP income), other U.S. source income, and certain foreign source income. To calculate the net effectively connected income of a U.S. trade or business, the gross effectively connected income and associated expenses are segregated from other income and expense items, and expenses may be further apportioned among classes of effectively connected income. As a general rule, expenses may only be deducted to the extent they are related to the effectively connected income.[84]

The category of FDAP income includes items generally associated with passive investment assets, including interest, dividends and rents, as well as wages, premiums, annuities, and ―other fixed or determinable annual or periodic gains, profits and income.‖ In order for these items to constitute effectively connect income, they must derive from assets used in or held for use in the conduct of such trade or business, or the activities of the trade or business must have been ―a material factor” in the realization‖ of the item.[85] Regulation § 1.864-4(c)(2) – (3) provides further guidance with an ―asset use‖ test and a ―business activities‖ test. The asset use test is primarily relevant to manufacturers and mercantile businesses, while the business activities test is primarily relevant to service businesses and those involving intangible assets.

Dividends, interest, and gains derived from buying and selling stock and securities by an investment company is effectively connected income.[86] Income that arises from manufacturing or buying and selling inventory goods constitutes effectively connected income under § 864(c)(3). Under § 864(c)(3), where a foreign person is engaged in a U.S. trade or business, all of the person‘s U.S. source income, gain, or loss not described in §§ 871 and 881 (other than the items already included under §864(c)(2)), is effectively connected income. Section 865(e)(2) provides a major exception to this rule if the inventory sale originates from a foreign office or other fixed place of business which materially participates in the sale. In that case, if the sale is by a nonresident, the property is sold for use, disposition, or consumption outside the United States, and title passes outside of the United States, the inventory may be foreign source.

In general, foreign source income, gain, and loss would not be effectively connected income, but §864(c)(4) provides some exceptions for certain rents and royalties from intangibles, certain dividends and interest derived in banking, financing, and trading activities, and gains from foreign inventory sales. These kinds of income are treated as effectively connected income only if the foreign person maintains a U.S. office or other fixed place of business (OFPB) and the income is attributable to the OFPB. Whether an OFPB exists depends on the facts and circumstances, but in general a fixed facility is necessary.[87]

PART IV.

“ENTERPRISE,” “BUSINESS,” AND “BUSINESS PROFITS” AS INTERPRETED FOR THE PURPOSE OF

TAX TREATIES

X.4.1 STATE’S TAX TREATY PRACTICE

X.4.1.1 UNITED STATES MODEL TAX CONVENTION

Most United States tax treaties follow the U.S. Model Tax Convention (hereinafter ―U.S. Model‖), the most recent version of which was published in 2006.[88]The U.S. Model closely resembles, although not identically, the OECD Model, and it is similarly updated from time to time. In most cases, the definitions of the terms ―enterprise‖, ―business‖ and ―business profits‖ resemble their definitions in the OECD Model.

Definition of “Enterprise”

Article 3(1)(c of the U.S. Model, which corresponds to Article 3(1)(d) of the OECD Model, defines the term ―enterprise‖ as follows: “the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State, and an enterprise carried on by a resident of the other Contracting State; the terms also include an enterprise carried on by a resident of a Contracting State through an entity that is treated as fiscally transparent in that Contracting State.”

This definition is very similar to the OECD Model, apart from the inclusion in the U.S. model of the language about fiscal transparency. Article 3(1)(d) of the U.S. Model, which mirrors Article 3(1)(c) of the OECD Model, further states that ―the term ‗enterprise‘ applies to the carrying of any business. The term ―enterprise‖ appears in several places in the U.S. Model in reference to Article 9, Associated Enterprises, which mirrors the OECD Model Article 9. The domestic U.S. rules for allocating profits among associated enterprises, i.e., the transfer pricing rules, are found in §482 and regulations thereto. The U.S. transfer pricing rules apply to both incorporated and non- incorporated entities, since the purpose is to authorize governmental scrutiny that is as wide as possible in order to enforce the arm‘s length standard. Accordingly, the use of the term enterprise is used throughout the U.S. Model where the conduct of such enterprise may give rise to business profits which may be affected by treaty provisions, and the term may refer to the taxpayer that is engaging in a trade or business (whether corporate, partnership, or individual), or the trade or business itself.[89]

Article 24(4) of the United States Model, which prohibits discrimination with respect to the allowance of deductions, uses the term ―resident‖ in contrast to the OECD Model, which uses the term ―enterprise.‖ Otherwise, the provisions are identical. The Treasury Technical Explanation does not explain this difference and simply uses both terms interchangeably.

Definitions of “Business” and “Business Profits”

The terms ―business‖ and ―business profits‖ appear throughout the U.S. Model, essentially following the OECD Model usage. Article 3(1)(e) of the U.S. Model, following Article 3(1)(h) of the OECD Model, provides that ―the term ‗business‘ includes the performance of professional services and of other activities of an independent character,‖ a statement that references the elimination of Article 14, regarding Independent Personal Services, from the Model.

Virtually identical to the OECD model as well is Article 7 of the U.S. Model, which explains how business profits should be taxed but does not explicitly define the term. The prior U.S. Model, issued in 1996, defined ―business profits‖ in Article 7(7) as ―income from any trade or business, including income derived by an enterprise from the performance of personal

services, and from the rental of tangible personal property.‖[90] This definition was eliminated in the 2006 version, but individual treaties, especially older ones, sometimes provide more specific definitions.

X.4.1.2 USE OF TERMS IN TREATIES IN FORCE

As mentioned above, most U.S. tax treaties follow the U.S. Model, but of course the referenced Model depends on the date the particular treaty was negotiated. Thus, many treaties do not include language defining ―enterprise‖ similar to that of current Article 3(1)(d), which was added in 2006. Some older tax treaties provide a modified definition of the term enterprise.‖ Some treaties that predate the Model‘s definition of ―enterprise,‖ may use other language, such as ―industrial or commercial enterprise‖ or ―undertaking,‖[91] and some treaties that predates the 1981 U.S. Model do not use the term ―enterprise‖ at all, but refer instead to residents {92} For example, the state and gift tax treaties with France (1978), {93) Germany (1980) {94} and the United Kingdom (1978) {95} as well as the income tax treaties with Greece (1950) {96}and Pakistan (1957),[97] define enterprise as ―a commercial or industrial enterprise,‖ undertaken or carried on in a contracting state. However, most newer treaties adopt the language in the current U.S. Model without further clarification.

The unique U.S. language referring to entities treated as fiscally transparent, in the spirit of IRC §875, was added to the Model in 1996, and therefore appears only in the newer treaties.[98]

Many treaties provide that the determination of whether income is attributable to a permanent establishment incorporates the domestic rules for determining business profits; i.e., income that is effectively connected with a U.S. trade or business. Several U.S. tax treaties include an explicit definition of the term ―business profits,‖ largely consistent with the prior U.S. Model language. None of the treaties refer to the concept of effectively connected income specifically, but reference is otherwise made to the domestic concepts.

The U.S. tax treaty with Barbados provides the shortest definition: ―business profits” means income derived from any trade or business, including the rental of tangible personal property.‖[99] The U.S.-Philippines tax convention uses the same language but adds that the rule applies whether the trade or business is ―carried on by an individual, corporation or any other person, or group of persons.‖[100] Similar language appears in the U.S. tax treaties with Bangladesh (2004), Denmark (1999), and Slovenia (1999), but each of these treaties also includes income from the performance of services as business profits.[101] Conversely, the treaties with the Czech Republic (1993), Estonia (1998), Kazakhstan (1993), Latvia, 1998, Lithuania (1998), Slovakia (1993), and the Ukraine (1996) all provide specifically that business profits does not include income from the performance of personal services, either as an employee or as an independent agent.[102] These treaties also include additional clarification for identifying specific types of business profits, such as that arising from manufacturing, mercantile, fishing, transportation, communications, extractive activities, and the like.[103] The treaties with Jamaica (1980), India (1983), and Thailand (1996) also contain the basic definition found in the other treaties but add other minor variations.[104]

X.4.1.3 ARTICLE 14, INDEPENDENT PERSONAL SERVICES

U.S. tax treaties generally follow the U.S. Model, which itself follows the OECD Model, in the context of Article 14. However, former Article 14 was deleted from the U.S. Model effectively in 2006 when the new Model was introduced in replacement of the former, 1996 Model. In the 2006 U.S. Model, Article 14 includes the rules for income from employment those included in Article 15 of the OECD Model (and old Article 15 of the U.S. Model) and there is no equivalent for the old Article 14.

In the period between 2000 and 2006, therefore, the U.S. Model included old Article 14 despite the commitment of the United States to the OECD Model which had previously omitted the provision. This duality is reflected in the treaties negotiated and concluded in this period. Some of them include provisions similar or identical to old Article 14,[105]while others do not.[106]

Newer, post-2006 tax treaties, including some pending treaties,[107]do not include similar provisions;[108]yet, interestingly, the 2010 pending treaty with Chile does.

There are older, pre-2000, tax treaties that were amended to delete this article,[109]yet the large majority of United States treaties still include an old Article 14, or its equivalent. Moreover, several treaties were renegotiated and actually amended, sometimes extensively, via protocols, since 2000 without eliminating the old Art. 14.[110]

X.4.2 THE INTERPRETATION OF TAX TREATIES

In general, the terms ―business,‖ ―enterprise,‖ and ―business profits‖ as used in U.S. tax treaties are not autonomous but derive their meaning from domestic tax law provisions. The main source of interpretation for tax terms used in U.S. tax treaties is found in the Treasury‘s Technical Explanation to the Model Tax Convention, with additional guidance from the Treasury Department and case law, but interpretative guidance is relatively rare. U.S Courts almost never refer to the OECD Model Convention or its commentary in their decisions, and no U.S. court decision has referred to the OECD Model or Commentary in defining the terms business, enterprise, or business profits.

Definition of “Enterprise”

There is little guidance beyond the text of the U.S. Model and existing treaties in force with respect to the meaning of the term ―enterprise.‖ The Treasury issued a definition of the term in a Regulation interpreting the prior tax treaty with Switzerland.[111] This definition is consistent with the treatment of enterprise as equivalent to carrying on a trade or business, and reflects the definition of business profits in a number of existing treaties (as discussed below).

The Regulation states:

“Enterprise.— The term “enterprise” means any commercial or industrial undertaking carried on by any person, for example, by an individual, partnership, or corporation. It includes such activities as manufacturing, merchandising, mining, processing, banking, and insuring. It does not include the rendition of personal services. Hence, a nonresident alien individual who is a resident of Switzerland and who performs personal services is not, merely by reason of such services, engaged in a Swiss enterprise within the meaning of the convention; consequently, his liability to United States tax is not determined under Article III of the convention, if he has not otherwise carried on a Swiss enterprise.”[112]

Regulations on the prior tax treaties with Denmark and Sweden provided similar definitions, stating that the term means ―any commercial or industrial undertaking whether conducted by an individual, partnership, corporation, or other entity,‖ including in the definition manufacturing, merchandising, mining, processing, and banking, and excluding services.[113]

Despite the general sense given by these Regulations that enterprise refers to the carrying on of a business, at least one court may have equated the term with the taxpaying entity itself. For example, in National Westminster Bank v. United States, the Federal Court of Appeals stated simply and without further explanation that the taxpayer National Westminster Bank was an enterprise. Although the court was not explicit, this statement could imply that the entity itself constituted the enterprise, rather than Nat West’s activity in carrying out trade or business.[114] No other court decisions appear to have addressed the definitional aspects of the term.

Definition of “Business”

A 1958 tax court case, Herbert v. Commissioner,[115 ]suggests that the domestic standard for determining whether a trade or business exists is equally applicable to the term business as it is used in an income tax convention. In that case, the IRS had assessed a deficiency for underpayment of tax on a British individual who owned real estate in the United States. The Service argues that the individual was conducting a U.S. trade or business through a permanent establishment, so the associated rental income was not eligible for a reduced rate of tax under the U.S.-U.K. income tax convention. The Tax Court applied the domestic law requirements of continuity, regularity, and considerable activity to find that no U.S. trade or business existed within the meaning of the tax treaty.

The Court noted that the tax treaty stated that ownership and leasing of real property do not constitute per se engaging in trade or business, and that this statement was consistent with a prior ruling of the U.S. Board of Tax Appeals involving the domestic (non-treaty) definition of a U.S. trade or business.[116] The Court further noted that ―where the activities of the nonresident alien are beyond the scope of mere ownership of real property, or the receipt of income from real property and are considerable, continuous, and regular it has been held (although not in a case construing the provisions of the United States-United Kingdom tax convention) that such activities of the nonresident alien constitute engaging in a business.‖[117] The Court confined its interpretation to the treaty, stating that the conclusion ―is not intended to relate in any way to the possibly wider meaning accorded to the word “business” in some of the provisions of the Internal Revenue Code.‖[118]

Definition of “Business Profits”

As in the case of the other terms, there is relatively little guidance outside of the text of the treaties themselves with respect to the meaning of business profits for treaty purposes. The Regulation interpreting the prior U.S.-Switzerland treaty reflects to some extent the definition of business profits found in these treaties.[119] The main feature of the definition is to distinguish business profits from passive investment income. The Regulation states:

The term “industrial and commercial profits” means profits arising from industrial, commercial, mercantile, manufacturing, and like activities of an enterprise, including mining, financial, and insurance profits. It does not include income in the form of dividends, interest, rents, royalties, or remuneration for personal services. In determining the industrial and commercial profits from sources within the United States of a Swiss enterprise, no profits shall be deemed to arise from the mere purchase of goods or merchandise within the United States by such enterprise. Moreover, in determining such profits of the United States permanent establishment of such enterprise, there shall be allowed as deductions all expenses which are reasonably applicable to the permanent establishment, including executive and general administrative expenses so applicable. See sections 861 through 864, Internal Revenue Code of 1954, and the regulations thereunder.”[120]

Even absent specific language that refers generally to the domestic concepts, the principles of anti-discrimination found in Article 24 would likely require that the United States tax business profits attributable to the conduct of a business carried out through a permanent establishment in the same manner as business profits earned by a domestic trade or business, namely, on a net basis using the graduated tax rates available to residents and domestic corporations. This parity of treatment is echoed in other ways, for example, in Article 6(5) of the U.S. Model Treaty, which provides a net election for income from real property holdings that is analogous to the domestic rule.

X.4.3—“ENTERPRISE” AND “BUSINESS PROFITS” FROM THE STATE OF SOURCE PERSPECTIVE OR THE STATE OF RESIDENCE PERSPECTIVE

As discussed above, U.S. Courts have relatively modest experience interpreting tax

treaties, and very few decisions have involved an interpretation of the terms ―business, enterprise, or business profits for treaty purposes. In general, U.S. courts do not take a consistent position regarding interpretation of the relevant terms, as is the case with most judicial interpretation in the tax treaty context.[121]

U.S. courts tend to rely on the text of the treaty and U.S. domestic law, with rare references to any foreign interpretive guidance, whether originating from the treaty partner or from international institutions such as the OECD. In many cases, the Court interprets the relevant terms pursuant to domestic law, without comment on whether the term has an autonomous meaning under the treaty.[122] In a few cases, not dealing particularly with the terms discussed in this Report but with other treaty interpretation matters, the court has considered as relevant correspondence from the foreign competent authority, treaty negotiator, or tax authority, and the Vienna Convention on the Law of Treaties. [123] In addition, U.S Courts have occasionally used the text of treaties other than the one under scrutiny, language from the OECD Model, and language from the OECD Commentary, to adjudicate tax treaty issues.[124 ] However, there is no consistent attention to the position of the United States as residence or source country beyond the general pragmatic ―commonsense‖ approach of the particular courts. No U.S. Court has directly addressed the concept of conflict of qualification as such.

The United States has not expressly reserved on the proposed solution for conflicts of qualification described in the OECD Model Commentary on Articles 23A and 23B (Article 23A is generally inapplicable in any event since the United States does not use the exemption method in its tax conventions).[125] However, U.S. Courts may be reluctant to override its own proper application of the treaty on account of its treaty partner‘s similarly proper yet conflicting application. {126} Instead, U.S. courts, should they be presented with such a case, might be likely to suggest that the proper remedy for this kind of conflict is a competent authority agreement. This position would be consistent with reservations made by the United States with respect to Article 7 of the OECD Model Commentary, where the United States has indicated its intention to resolve foreign tax credit issues arising from transfer pricing allocations by means of competent authority involvement.[127]

PART V. COMPATIBILITY OF DOMESTIC LAW PROVISIONS WITH TAX TREATIES

X.5.1 GENERAL

United States tax treaties are ―treaties,‖[128] i.e., international agreements of the United States concluded by the executive branch ad referendum. After the negotiation and conclusion of these treaties, they are signed by the negotiator for the government of the United States, after which the President transmits the document to the Senate, seeking its advice and consent, which practically requires a supermajority of two-thirds of the Senate. If the Senate consents to ratification, the President may then ratify the treaty by exchanging instruments of ratification. Once these instruments are exchanged with the treaty partner, the President proclaims the treaty and it enters into force. At that point in time the treaty provisions become ―the supreme law of the land,‖ as per the U.S. Constitution.[129]

That said, such treaties are equal, and not superior, in status to other statutes or treaties of the United States. This somewhat unusual constitutional construction resulted at times in so- called ―treaty override,‖[130] when later-in-time statutes contradicted,[131]and based on the common interpretation norm of later in time, superseded, existing treaty obligations of the United States. This interpretation norm was restated in 1988 by §7852(d)(1) of the Code. The practice of treaty override is not unique to the United States, yet it is often associated with United States international tax policy.[132] Many commentators and treaty partners criticized this practice,[133]but others defended it, in part, arguing that substantively most treaty overrides serve essentially (United States) domestic anti-abuse purposes and do not really harm the treaty partners of the United States.[134]To avoid antagonizing treaty partners, the possibility of override is softened by the requirement that a subsequent statute must specifically acknowledge the intent of the Congress to override existing treaties, in order to be given such effect.[135] U.S. courts have consistently followed a norm that prefers interpretation of treaty obligations and statutes as if they were harmonious if possible. Section 894(a) codifies this interpretation convention and the above mentioned constitutional construct within the international tax subchapter of the Code. This provision requires that Code provisions be applied with ―due regard‖ to any treaty obligations of the United States.

X.5.2 RELEVANT RELATIONSHIP BETWEEN TREATIES AND THE CODE

The relationship between specific Code provisions and U.S. treaty obligations varies significantly, and therefore could hardly be classified to be simply consistent or inconsistent. This is particularly true in the context of taxation of business profits, which is at the center of this report. Some examples of the variety of relationships that may be relevant in the context of this report include the following:

Taxation of foreign corporations beyond Article 7 limitations. The most obvious examples for this quite explicit treaty override or violation are the branch rules under §884, which in certain cases limit treaty benefits to foreign corporations by taxing their United States profits above and beyond the regular domestic corporate tax.
Some code sections, including §§ 953(c)(3)(C)(i)(II), 953(d)(1)(D) and 1298(b)(8)(A)(i)), effectively require waiver of treaty benefits by taxpayers in order to enjoy certain protections from the U.S. anti-deferral rules (which otherwise arguably override treaty obligations of the Unites States by imposing taxation regardless of and beyond that which is permitted by Article 7).
Other code provisions, including §§952(b), 1248(d)(4), and 1293(g)(1)(B), provide for special treatment under the U.S. anti-deferral regime for income that pursuant to a tax treaty is subject to a reduced U.S. tax or no U.S. tax.
Section 897(i)(4) provides that the available election for foreign corporations to be taxed as if they were domestic corporations shall be the exclusive remedy for taxpayers claiming discrimination in the context of dispositions of investment in United States real property.
The United States has a very weak thin capitalization regime, and therefore Congress found it necessary to enact §163(j) to limit the deduction of interest in cases of taxpayers (recipients of the interest) that are subject to tax at a level below the regular U.S. tax rate, namely foreign persons.
Under IRC § 894(b), certain taxpayers are treated as not having a permanent establishment (with respect to income that is not effectively connected with a U.S. trade or business). This provision triggers treaty protection from U.S. taxation of profits.
The so-called check-the-box regulations discussed in part II should also be mentioned here despite their not being directly in the realm of treaty override. If one adds to these regulations the addition of limited liability corporations (―LLCs‖) to the arsenal of United States business entities, one can understand that since the mid-1990s, treaty partners of the United States faced difficulties in applying their old treaties to a new set of business entity classifications in the United States. Recently, these difficulties have been solved with specific competent authority agreements. However, this is naturally a lengthy, costly, and highly politicized solution that is essentially beyond the control of taxpayers and hence imposes a problematic state of legal uncertainty for U.S.- related businesses.

Finally, it should be mentioned that despite the importance of regulations in the practice of United States tax law, they cannot override treaty obligations as a matter of law. On one occasion it was argued that the so-called anti-conduit regulations under §7701(l) attempted to

Christians & Brauner override treaty obligations of the United States, by ignoring valid foreign legal entities involved in financing arrangements. However, the IRS has explicitly argued, including in the preamble to these regulations themselves, that override was not intended.[136]

[*]Allison Christians, Associate Professor of Law, University of Wisconsin Law School; J.D., Columbia University School of Law; LL.M., New York University School of Law. Yariv Brauner, Professor of Law, University of Florida Levin College of Law; LL.B., Hebrew University School of Law; LL.M., in International Taxation, J.S.D., New York University School of Law.

[1]A cursory search for the term ―business‖ in the United States Code returned 6,141 results. The same search for the term ―business‖ in the state statutes of the United States returned approximately 300,000 results. A search for the term ―enterprise‖ in the United State Code returned 1,040 results, while a search for ―enterprise‖ in the state statutes returned 16,282 results. The searches were conducted September 22, 2010. The United States Code searches were conducted in the Westlaw USC database covering the unannotated United

States Code. The state law searches were conducted in the Westlaw STAT-ALL database covering the unannotated statutes of the 50 states in the United States, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands. The results include both tax and non-tax statutes.

[2]Del.Code Ann. tit. 8, § 101(b).

[3]Matter ofAppraisalofFord Holdings,Inc.Preferred Stock, 698 A.2d973, 976 (Del.Ch. 1997).

[4] Del.Code Ann., tit. 8, §§ 601, 603(1).

[5 ] Del.Code Ann., tit. 8, §101(b).

[6 ] Del.Code Ann., tit. 8, § 609.

[7] 35A.L.R. 5th375.

[8] Id at §3[a].

[9] Id at §3[b].

[10] Id at §10[c].

[11] Id at §10[a].

[12] Id at §10[b].

[13] Id at §17.

[14] Id at §18.

[15] Id at §31[a].

[16] Id at §32[b].

[17] Id at § 32[c].

[18] Riverside Ins.Co.v.Kolonich, 329N.W.2d 528(Mich.App., 1983).

[19] Asbury v.IndianaUnion Mut.Ins.Co.,441N.E.2d 232, 242 (Ind.App., 1982).

[20] Wiley v.TravelersIns.Co., 534 P.2d 1293 (Okl. 1974).

[21] Stewart v.Dryden Mut.Ins.Co., 156A.D.2d 951, (N.Y.A.D. 4Dept.,1989).

[22] 35A.L.R.5th 375 § 64.

[23] 15U.S.C.A.§ 78(c)(4)(A).

[24] 15U.S.C.A.§ 78(c)(5)(A).

[25]15 U.S.C.A. § 78(c)(5)(B).

[26] Division of Trading and Markets, U.S. Securities and Exchange Commission, Guide to Broker-Dealer Registration (April 2008) (available at http://www.sec.gov/divisions/marketreg/bdguide.htm).

[27 ] Buirkle v.HanoverIns.Co.,832 F.Supp.469(D.Mass., 1993).

[28] U.C.C. § 1-201.

[29]Available at http://lysander.sourceoecd.org/vl=7787181/cl=18/nw=1/rpsv/~6684/v2010n5/s1/p1l (latest edition published July 22,2010).

[30 ] Idat § 1-201(9).

[31] Idat §§ 1-201(4), 4-105.

[32] Idat § 1-201(6).

[33 ] Idat §§ 1.201(42), 7-102(a)(13).

[34] Id at § 2-104(2).

[35] Idat § 2-201(3)(a).

[36] Idat § 2A-103(1)(f).

[37] Idat § 6-102.

[38] Idat § 9-102(a)(80)(A).

[39] Idat § 9-102(a)(80)(B).

[40] Idat § 9-102(a)(80)(C).

[41] Idat § 9-102(a)(80)(D).

[42] Idat § 9-206(c)(1)(B).

[43] Idat § 9-321(a).

[44] Idat § 8-102(15).

[45] 11.U.S.C.§ 101(51D).

[46] 11 U.S.C.§ 1304(a).

[47] 7NortonBankr.L.&Prac.3d § 145:5.

[48]11 U.S.C. § 721 (under Chapter 7, dealing with liquidations), § 1108 (under Chapter 11, dealing with reorganizations), and § 1304(b) (under Chapter 13, dealing with adjustments of debts of an individual with regular income).

[49] California State Bd. ofEqualizationv.Goggin,191 F.2d 726, 728 (9thCir. 1951).

[50 ] Inre United StatesProducts Corp., 57 F.Supp. 239, 241(N.D.Cal. 1944).

[51] Continental Coal Corp. v. Roszelle Bros., 242 F. 243, 247 (6th Cir. 1917) (the court‘s holding in this case that the mine was the corporation‘s principal place of business was abrogated by the United States Supreme Court in Hertz Corp. v. Friend, 130 S.Ct. 1181 (U.S. 2010), which held that the corporation‘s ―nerve center‖ was the principal place of business).

[52] E.g.Ex parteFluorCorp.,960So.2d701,705(Ala.Civ.App.2006)(citing Ex parteFluorContractorsInt‘l,772So.2d1157(Ala. 2000)).

[53] Phillipsv.Richmond Newspapers, Inc.,9 Va. Cir. 149 at2, 1987 WL488674 (Va.Cir.Ct., 1987).

[54] Ohio Rev.Code Ann.§4517.02(A).

[55] Id.

[56] CityofDallasv.Rogers,257 S.W.2d 117, 121(Tex.Civ.App.Dallas 1953).

[57] Penellov. Seafarers‘Int‘lUnionofN.Am.,164 F.Supp. 635,639(D.C.Va. 1957).

[58 ] E.g.VirginiaIndonesiaCo.v.HarrisCountyAppraisalDist.,910S.W.2d 905(Tex.1995).

[59] Tex.Tax Code Ann.§11.14.

[60] E.g.In re Tools-4-Hire,Inc., 2010 WL 3938368(Bkrtcy.D.Mass., 2010).

[61] SeeInt‘lShoeCo.v.Washington,326U.S.310 (1945).

[62] Edriss v. Ron Pray Equipment Sales, Inc., 2010 WL 3810619 at 2 (D.Mass. 2010).

[63] E.g. Lawman Armor Corp. v. Simon, 319 F.Supp. 2d 499, 504 (E.D. Pa., 2004).

[64] See, e.g, New Hampshire Business Enterprise Tax, Rev 2404.01 (Apportionment of the Enterprise Value Tax Base; Definitions. . . . Businessentity‖meansabusinessenterpriseand thetermsmaybe usedinterchangeably‖).

[65]26 U.S.C. §§1 et seq.

[66]26 C.F.R. §§1.1-1et seq.

[67] Flintv.Stone TracyCo., 220U.S. 107(1911).

[68] Higgins v Commissioner, 312 U.S. 212 (1941) (trading for one‘s own account is not a trade or business); City Bank Farmers Trust Co. v. Helvering, 312 U.S. 121 (1941) (estate or trust efforts in asset conservation and maintenance do not constitute a trade or business).

[69 ] Snyder v. Commissiooner, 295 US. 134 (1935).

[70 ] Cmrv.Groetzinger,480U.S.23 (1987).

[71 ] See Revenue Ruling 58-63(foreignperson‘sentryofa horseintoa race intheUnited Stateswasdeemedtobe a tradeorbusiness).

[72] Theregulationrelatesto§183,whichdistinguishes―hobbies‖frombusinesspursuitsforpurposesofdeterminingwhetherdeductions should be allowed. The seminal cases in this area stem from taxpayers who attempted to take business expense deductions against their other, usually earned, income for what appear to be essentially personal outlays. See, e.g., Prieto v. Commissioner, U.S. Tax Court, T.C. Memo 2001-266; October 4, 2001 (taxpayer, an orthopedic surgeon, could not deduct from his salary income the expenses incurred in horse raising activities because they were essentially personal rather than business outlays in nature).

[73]§871(a).

[74]§871 (b).

[75]See,e.g.,The Scottish American InvestmentCo.,Ltd.v. Commissioner, 12T.C.49 (1949).

[76]Id.

[77]§897(c)(1)(A).

[78]Capital gains involving non-inventory property are typically sourced by reference to the residence of the seller under §§ 861(a)(6), 862(a)(6), and §865, with residence modified in some respects for these purposes under § 865(g). According to these rules, sales of investment assets, including real property interests, by foreign persons who do not have a tax home in the United States would generate foreign-source gains which would generally be free of U.S. taxation pursuant to § 871. Section 865(e)(2) provides some exceptions to this sourcing rule in cases where the income is attributable to an office or fixed place of business maintained by the foreign person in the United States.

[79]§ 864(b)(1).

[80]§61(a)(2).

[81]Reg.§1.61-3(a).

[82]Regulation §1.864-3(a).

[83]IRC §§ 871(b) and 882.

[84]Expenses are allocated and apportioned pursuant torules set forth in Regulation §1.861-8.

[85]§864(c)(2).

[86]Regulation § 1.864-4(c)(3) Example 1.

[88]Availableathttp://www.ustreas.gov/press/releases/reports/hp16801.pdf.

[89]Art. 5(1), 5(4), 5(5), 5(6), 6(4), 7, 8, 13(3), 13(4), 13(5), 24(2), 24(5), 25(3).

[90]1996U.S. ModelTax Convention,available athttp://www.irs.gov/businesses/international/article/0,,id=169597,00.html.

[91]See,e.g.,the treaties withGreece(1950),ArtII,andPakistan(1957),Art.II.

[92]See, e.g., the treaties with Norway (1971), Israel (1975)[except for an incidental mention in Art. 12], Canada (1980)[except for a mention in Art. 5(9)], and Cyprus (1984)[except for an incidental mention in Art. 16], etc. Note that the newer treaty with

Russia(1992)alsodoesnotreferto―enterprise,‖yetthisisprobablyduetoitsoriginsintheoldtreaty withtheU.S.S.R.

[93]Convention Between The United States Of America And The French Republic For The Avoidance Of Double Taxation And The

Prevention OfFiscalEvasion WithRespectTo TaxesOn Estates,Inheritances,And Gifts,Art.3(1)(d),1978,TIAS9812 (―The term enterprise‘meansa commercialor industrial enterprise carried on byanindividualdomiciled in aContracting State.‖)

[94]Convention Between The United States Of America And The Federal Republic Of Germany For The Avoidance Of Double Taxation With Respect To Taxes On Estates, Inheritances, And Gifts, Art. 3(1)(c) (TIAS 11082) (―The term ‗enterprise‘ means an industrial or commercial undertaking.‖).

[95]Convention Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Estates Of Deceased Persons And On Gifts, 1978, Art. 3(1)(c) (TIAS 9580) (‗the term “enterprise‘ means an industrial or commercial undertaking‖).

[96]Convention Between The United States Of America And The Kingdom Of Greece For The Avoidance Of Double Taxation And The Prevention OfFiscalEvasion WithRespectTo TaxesOn Income,1950,Art.II(1)(f)and(g)(TIAS 2902)(―f)Theterm“UnitedStates enterprise” means an industrial or commercial enterprise or undertaking carried on in the United States by a citizen or resident of the United States or by a United States corporation. g) The term “Greek Enterprise” means an industrial or commercial enterprise or undertaking carried on in Greece by a subject or resident of Greece or by a Greek corporation.‖).

[97]Convention Between The Government Of The United States Of America And The Government Of Pakistan For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income, 1957, Art. II(1)(k) (TIAS 4232) (―The terms ‗United States enterprise‘ and ‗Pakistan enterprise‘ mean, respectively, an industrial or commercial enterprise or undertaking carried on in the United States by a resident of the United States and an industrial or commercial enterprise or undertaking carried on in Pakistan by a resident of Pakistan‖).

[98] See, e.g., the treaties with Belgium (2006), Denmark (1999, amended in 2006), Malta (2008), etc. Note that some newer treaties donotinclude this language. See,e.g.,the treaty withIceland(2007).

[99]Convention Between Barbados and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxeson Income,December 31, 1984, TIAS 11090,Art. 7(8)

[100]Convention Between the Government of the United States of America and the Government of the Republic of the Philippines with Respect to Taxes on Income, October 1, 1976, TIAS 10417, Art. 8(6) (―business profits” means income derived from any trade or business whether carried on by an individual, corporation or any other person, or group of persons, including the rental of tangible personal (movable) property.‖)

[101]Convention Between the Government of the United States of America and the Government of the Peoples Republic of Bangladesh for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, September 26, 2004, TIAS, Art 7(7)(― business profits” means income derived from any trade or business whether carried on by an individual, company, enterprise or any other person, or group of persons, including the rental of tangible personal (movable) property and performance of personal services by an enterprise.‖); Convention Between the Government of the United States of America and the Government of the Kingdom of Denmark for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, August 19, 1999, 1999 WTD 202-30; Doc 1999-33612, Art 7(7) (―business profits” means income from any trade or business, including income derived by an enterprise from the performance of personal services, and from the rental of tangible personal property.‖); Convention Between the United States of America and the Republic of Slovenia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital June 21, 1999, 1999 Wtd 202-33; Doc 1999-33615, Art. 7(7) (―business profits” means income from any trade or business, including income derived by an enterprise from the performance of personal services, and from the rental of tangible personal property (movable property).‖).

[102]Convention Between the United States of America and the Czech Republic for the Avoidance of Double Taxation and the Prevention ofFiscalEvasion with Respect to Taxeson Incomeand Capital, September 16, 1993,TreatyDoc.103-17,Art7(7)(―businessprofits“ means income derived from any trade or business. It includes, for example, profits from manufacturing, mercantile, fishing, transportation, communication, or extractive activities, and from the furnishing of the personal services of another person, including the furnishing by a corporation of the personal services of its employees. It does not include income received by an individual for his performance of personal services either as an employee or in an independent capacity.‖); Convention Between the United States of America and the Republic of Estonia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, January15, 1998,TreatyDoc.105-55,Art.7(7)(―businessprofits“means profitsderivedfromanytradeorbusiness.It includes, for example, profits from manufacturing, mercantile, fishing, transportation, communications or extractive activiti es, and from the furnishing of personal services of another person, including the furnishing by a company of the personal services of its employees. It does not include income received by an individual for his performance of personal services either as an employee or in an independent capacity.‖); Convention Between the Government of the Republic of Kazakhstan and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, October 24, 1993,94TNI 200-38; Doc94-30448-I,Art6(6)(―businessprofits“meansprofitsderivedfromtheactiveconductofbusiness.It includes, for example, profits from manufacturing, mercantile, transportation, communication, or extractive activities, and from the

furnishing of services of another person. It does not include income received by an individual for his performance of persona l services (either as an employee or in an independent capacity). Income of an individual from the performance of services as an employee is dealt with in Article 15 (Income from Employment). Income of an individual from the performance of services in an independent capacity is dealt with in Article 14 (Independent Personal Services).‖); Convention Between the United States of America and the Republic of Latvia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, January 15, 1998, 1999 WTD 25-37; Doc 1999-4969, Art. 7(7) (―business profits” means profits derived from any trade or business. It includes, for example, profits from manufacturing, mercantile, fishing, transportation, communications or extractive activities, and from the furnishing of personal services of another person, including the furnishing by a company of the personal services of its employees. It does not include income received by an individual for his performance of personal services either as an employee or in an independent capacity.‖); Convention Between the Government of the United States of America and the Government of the Republic of Lithuania for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, January 15, 1998, 1999 Wtd 25-36;Doc 1999-4968,Art.7(7)(―businessprofits“means profitsderivedfromanytrade or business.It includes, forexample, profits from manufacturing, mercantile, fishing, transportation, communications or extractive activities, and from the furnishing of personal services of another person, including the furnishing by a company of the personal services of its employees. It does not include income received by an individual for his performance of personal services either as an employee or in an independent capacity.‖); Convention Between the United States of America and the Slovak Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital October 8, 1993, 93 TNI 210-17; Doc 93-31987, Art. 7(7) (―business profits” means income derived from any trade or business. It includes, for example, profits from manufacturing, mercantile, fishing,

transportation, communication, or extractive activities, and from the furnishing of the personal services of another person, including the furnishing by a corporation of the personal services of its employees. It does not include income received by and individual for his performance of personal services either as an employee or in an independent capacity.‖); Convention Between the Government of the United States of America and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxeson Income and Capital,March 4, 1994,Doc 94-30656; 94TNI 205-35,Art.7(6)(―businessprofits“meansprofits derived from the active conduct of business. It includes, for example, profits from manufacturing, mercantile, fishing, transportation,

communication, or extractive activities, from the rental of tangible movable property, and from the furnishing of services of another person. It does not include income received by an individual for his performance of personal services (either as an employee or in an independent capacity). Income of an individual from the performance of services as an employee is dealt with in Article 15 (Dependent Personal Services). Income of an individual from the performance of services in an independent capacity is dealt with in Article 14 (IndependentPersonalServices).‖).

[103]Id.

[104]Convention Between the Government of the United States of America and the Government of Jamaica for the Avoidance of Double TaxationandthePreventionofFiscalEvasionwithRespecttoTaxeson Income,May21,1980,TIAS10206, Art7(7) (―business profits” means income derived from the conduct of any trade or business including the rental of tangible personal (movable) property and

the furnishing of the personal services of another person, but not including income from the rental or licensing of cinematograph films or films or tapes used for radio or television broadcasting and not including income derived by an individual from the performance of personal services either as an employee or in an independent capacity.‖); Convention Between the Government of the United States of America and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxeson Income,September 12, 1989, 90TNI 26-49;Doc93-31210,Art.7(7)(―businessprofits“means incomederived from any trade or business including income from the furnishing of services other than included services as defined in Article 12

(Royalties and Fees for Included Services) and including income from the rental of tangible personal property other than prop erty described in paragraph 3(b) of Article 12 (Royalties and Fees for Included Services).‖); Convention Between the Government of the United States of America and the Government of the Kingdom of Thailand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, November 26, 1996, 96 TNI 232-23; Doc 96-31051, Art. 7(8) (―business profits” means income derived from any trade or business, including profits from the rental of ships, aircraft and containers (includi ng trailers, barges and related equipment for the transport or containers), if such profits are not incidental to income from the operation of ships or aircraftininternationaltraffic.‖)

[105]See the treaty with Bangladesh, Art. 15 (2004).

[106]See the treatieswithJapan(2003), and the United Kingdom(2001).

[107]See the pending treatieswith Hungary(2010), Malta (2008), and the NewZealand 2008 Protocol amending the 1982 treaty.

[108]See the treatieswithBelgium(2006), Bulgaria(2007), and Iceland (2007).

[109]See the treatieswith Canada(1980, 2007 Protocol), andGermany(1989, 2006 Protocol).

[110]E.g., the treaties with Australia (2001 Protocol), Sri Lanka (2002 Protocol), Mexico (2002 Protocol), Barbados (2004 Protocol ), Netherlands (2004 Protocol), Sweden (2005 Protocol), Denmark (2006 Protocol), Finland (2006 Protocol), Luxembourg (2009 Protocol),

Switzerland (2009 Protocol), and France (2004 and 2009 Protocols).

[111]CCH U.S.Tax Treaties Reporter, Regulation,Switzerland,§509.104,TreasuryDepartment,Definitions.

[112]Id.

[113]CCH U.S. Tax Treaties Reporter, Regulation, Denmark,§521.104 [T. D. 5777].,Treasury Department, Definitions; CCH U.S. Tax

TreatiesReporter,Regulation,Sweden,§520.103[T.D.4975].,TreasuryDepartment,Definitions.

[114]Nat‘lWestminsterv.United States,512 F.3d1347 (Fed.Cir. 2008).

[115]30 T.C. 26 (1958).

[116]Herbertv.Commissioner at33, citing Evelyn M.L.Neill, 46 B. T.A. 197(1942).

[117]Herbertv.Commissioner at33, citing See Jan CasimirLewenhaupt,20 T.C. 151, 163 (1953)

[118]HerbertvCommissioner at 34.

[119]See supra note 111.

[120]Id.

[121]SeeJ.RossMcDonald,―Songsof InnocenceandExperience‖:ChangestotheScopeandInterpretationofthePermanent Establishment Article in U.S. Income Tax Treaties, 1950-2010, 63 Tax Law. 285 (2010).

[122]See,e.g.,deAmodiov.Commissioner, 34 T.C. 894(1960),aff‘d299 F.2d623 (3dCir.1962)(determiningthatthetaxpayerhada trade or business within the meaning of § 871).

[123]deAmodio v Cmr, supra (referring to a letter from the Swiss Federal Administration to the taxpayer regarding his withholding obligations); Coplin v United States, 761 F.2d 688 (1985) (referring to a diplomatic note from the Panama tax authority affirming the position of the IRS on the meaning of the Panama Canal treaty in respect of exemption for income earned by U.S. persons in Panama); Kappus v. Commissioner, 337 F.3d (D.C. Cir., 2003) (considering the taxpayer‘s reference to the Vienna Convention but ultimately determining that the invoked provision did not apply in this case).

[124]See, e.g., Crow v. Commissioner, 85 T.C. 21 (1985) (referring to the U.S.-U.K. tax treaty and technical explanation in analysis of issue arising under U.S.-Canada tax treaty); Estate of Burghardt v. Commissioner, 80 T.C. 705 (1983) (referring to the U.S. estate tax treaties with France, Greece, and others in analysis of issue arising under U.S.-Italy estate tax treaty); Mazurek v. United States, 271 F3d 226 (5thCir. 2001) (referring to the OECD Model and Commentary in interpreting the U.S. France tax convention, but noting that

―although the Commentary to the [OECD] Model Treaty provides guidance, the IRS’s specific commentary and advice on the U.S.- France Tax Treaty should be given greater weight‖).

[125]OECD Commentary, Article 32.3, OECD Model Convention of 2010.

[126]In the example given in the Commentary, the conflict of qualification arose as a result of the differential treatment by the treaty partners of the enterprise operating through the permanent establishment. The state of residence viewed the enterprise as a corporation, and therefore would treat the income from the sale of an interest in the enterprise as a sale of stock which should be exempt from source- based tax by the treaty partner and therefore ineligible for a foreign tax credit or exemption by the residence state. Conversely, the state of source viewed the enterprise as a transparent entity, and therefore would treat the income from the sale of the interest in the enterprise as a sale of the underlying assets, giving rise to source-based taxation and therefore deserving of a tax credit or exemption by the residence state in order to relieve double taxation. Applied to the United States, this example would require the United States to provide a tax credit in respect of income taxes withheld by the treaty partner even if under domestic law the source state would be viewed as having (improperly) withheld taxes on capital gains.

[127]SeeOECDModelCommentaryParagraphs27and65,andU.S.reservationstheretoinparagraph83(―Where ataxpayer can demonstrate to the competent authority of the United States that such double taxation has been left unrelieved after the application of mechanisms under the United States‘ domestic law such as the utilisation of foreign tax credit limitation created by other transactions, the United States will relieve such additional double taxation‖).

[128]Incontrastto―executiveagreements,‖whicharetheotherformofinternationalagreementsintheUnitedStates. U.S.social security totalization agreements and most U.S. tax information exchange agreements are executive agreements, which are entered into by the President upon prior congressional approval. For a discussion, see Allison Christians, Taxing the Global Worker: Three Spheres of International Social Security Coordination, 26 Va. Tax Rev. 81 (2006).

[129]U.S.Const. art. VI,cl. 2;see alsoSamannv.Comm’r, 313F.2nd.461, 463(4th Cir.1963).

[130]See,e.g.,RichardL.Doernberg, Overriding TaxTreaties: TheU.S. Perspective,9EmoryInt’lL.Rev. 71, 114(1995).

[131]Whitney v. Robertson, 124 U.S. 190, 194 (1988). Also see IRC §7852(d)(2) that declares that no Code provision in effect on August 16, 1954 (the effective date of the then new Internal Revenue Code) will apply if its application would be contrary to a United States treaty obligation in effect on August 16, 1954.

[132]For example, Turkey has a similar rule.

[133]See, e.g.,OECDCommitteeonFiscalAffairs,ReportonTaxTreatyOverrides,2TaxNotes Int‘l25(1990).

[134]See, e.g., Reuven S. Avi-Yonah, Tax Treaty Overrides: A Qualified Defense of US Practice (October 12, 2005). Available at SSRN: http://ssrn.com/abstract=829746

[135]Cook v. United States, 288 U.S. 102, 120 (1933); Restatement (Third) of Foreign Relations Law §115 (1987); Rev. Rul. 79- 199, 1979-1 CB 246.

[136] See TD 8611, 1995-1 CB 286, 288. See also Richard Doemberg, Treaty Override by Administrative Regulation: The Multiparty Financing Regulations, 2 Fla. Tax Rev. 521 (1995). – 28

Previously published by the University of Wisconsin – Law School, 2011

Contents

Part I. The meaning of ―enterprise‖ and ―business‖ in domestic non-tax law

X.1.1 Corporate Law

X.1.2 The Uniform Commercial Code

X.1.3 Bankruptcy Law

X.1.4 Place of Business in Connection with the Examples in Commentary to Art. 5 of the OECD Model

PartII. Themeaningof―business,‖―enterprise,‖and―businessprofits‖indomestic taxlaw

X.2.1 Business

X.2.1.1 Domestic Law Definition

X.2.1.2 Modifications in the Case of Foreign Persons

X.2.2 Business Entities

X.2.3 Business Profits

Part IV. ―Enterprise,‖ ―Business,‖ and ―Business Profits‖ as Interpreted for the Purpose of Tax Treaties 17

X.4.1State‘sTaxTreaty Practice

X.4.1.1 United States Model Tax Convention

X.4.1.2 Use of Terms in Treaties in Force

X.4.1.3 Article 14, Independent Personal Services

X.4.2 The interpretation of tax treaties

X.4.3—―Enterprise‖ and ―Business Profits‖ from the State of Source perspective or the State of Residence Perspective

Part V. Compatibility of Domestic Law Provisions with Tax Treaties

X.5.1 General

X.5.2 Relevant Relationship Between Treaties and the Codd