- 53 -
refers were at arm’s length. Petitioners further contend that,
under the U.S.-France Tax Treaty (the Treaty)21 in effect in
1993, withholding tax does not apply under the circumstances
present here.
We conclude that Burndy-US transferred excess value to FCI
in 1993 in the amounts discussed below, and that the excess value
is a constructive dividend to FCI which is subject to withholding
tax under section 1442.
2. Whether Burndy-US Transferred Excess Value to FCI in
1993
Respondent contends that, in 1993, Burndy-US transferred
assets to FCI that were worth more than the value of assets
Burndy-US received from FCI (excess value). Respondent contends
that Burndy-US transferred excess value to FCI in each of the
following five ways: (a) Burndy-US transferred to FCI European
subsidiaries and cash worth more than 40 percent of the Burndy-
Japan stock that FCI transferred to Burndy-US; (b) Burndy-US
transferred additional value to FCI by using an inflated exchange
rate to value French francs; (c) Burndy-US transferred additional
value to FCI by using exchange rates for the cost of yen in
French francs on July 30 and August 2, 1993, that differed from
21 References to the Treaty are to the Convention With
Respect to Taxes on Income and Property, July 28, 1967, U.S.-Fr.,
19 U.S.T. 5281; Protocol to the Convention With Respect to Taxes
on Income and Property as Amended by the Protocols of Oct. 12,
1970, Nov. 24, 1978, Jan. 17, 1984, and June 16, 1988, T.I.A.S.
6518 and 11967.
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