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distributed and FCI received excess value of $15,807,495 in 1993
when Burndy-US transferred the stock of FC-Belgium and FC-
Switzerland to FCI. Burndy-US transferred excess value of
$3,926,430 to FCI in 1993 because Burndy-US paid that amount to
FCI for the currency exchange loss. Finally, Burndy-US paid
$1,147,506 to FCI as a result of the exchange rate it used for
French francs.
3. The U.S.-France Tax Treaty and 1988 Protocol
Petitioners contend that, even if Burndy-US transferred
excess value to FCI, they are not liable for withholding tax
because the U.S.-France Tax Treaty limits application of the
withholding tax to dividends “actually distributed.” According
to petitioners, a transfer of excess value is a constructive
dividend and is not “actually distributed.” We disagree.
Article 9(2)(b) of the Treaty states:
(2) Dividends derived from sources within a
Contracting State by a resident of the other
Contracting State may also be taxed by the former
Contracting State but the tax imposed on such dividends
shall not exceed--
* * * * * * *
(b) When the recipient is a corporation,
5 percent of the amount actually distributed
* * *.
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