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proceedings or litigation; or to an attorney of the Department of Justice, for like use, upon written request of the Attorney General, the Assistant to the Attorney General, or an Assistant Attorney General. If a return or copy is thus furnished, it shall be limited in use to the purpose for which it is furnished and is under no condition to be made public except to the extent that publicity necessarily results from such use. The original return will be furnished only in exceptional cases, and then only if it is made to appear that the ends of justice may otherwise be defeated. Neither the original nor a copy of a return desired for use in litigation in court will be furnished if the United States Government is not interested in the result, but this provision is not a limitation on the use of copies of returns by the persons entitled thereto.

ART. 2. Furnishing of copies of returns.—A copy of a return may be furnished to any person who is entitled to inspect such return upon written application therefor and the submission of evidence satisfactory to the Commissioner of his right to receive the same, except that if a return is in the custody of a collector or of an internal revenue agent in charge, such collector or agent in charge may furnish a copy of such return to a United States Attorney, or an attorney of the Department of Justice, or to the taxpayer or his duly authorized attorney in fact, in accordance with these regulations. Certified copies will be furnished only upon specific request therefor sent to the Commissioner at Washington.

The Commissioner may prescribe a reasonable fee for furnishing copies of returns.

ART. 3. Supplemental documents, records, and reports.-Persons entitled to inspect returns may have access to information returns, schedules, lists, and other statements designed to be supplemental to, or become a part of, the returns to which they are given access, and the Commissioner may, in his discretion, permit such persons to inspect other records and reports which contain information included or required by statute to be included in the return.

ART. 4. This Treasury decision supersedes T. D. 4798, approved March 25, 1938.

Approved January 4, 1939:

JOHN W. HANES,

GUY T. HELVERING, Commissioner of Internal Revenue.

Acting Secretary of the Treasury.

[Filed with the Division of the Federal Register January 6, 1939, 12:17 p. m.]

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Article 22 (a)-1 of Regulations 94 and 86, relating to items to be included in gross income, amended 'w Toł 920qung out of sem 19 cildug obam od of

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, D. C?? van coldavi AUST &

To Collectors of Internal Revenue and Others Concerned:
The first sentence of the second paragraph of article 22 (a)~l of
Regulations 94 and of article 22 (a)-1 of Regulations 86 reading as
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If property is transferred by a corporation to a shareholder, or by an employer to an employee, for an amount substantially less than its fair market value, such shareholder of the corporation or such employee shall include in gross income the difference between the amount paid for the property and the amount of its fair market value.

is amended to read as follows:

If property is transferred by a corporation to a shareholder, or by an employer to an employee, for an amount substantially less than its fair market value, regardless of whether the transfer is in the guise of a sale or exchange, such shareholder or employee shall include in gross income the difference between the amount paid for the property and the amount of its fair market value to the extent that such difference is in the nature of (1) compensation for services rendered or to be rendered or (2) a distribution of earnings or profits taxable as a dividend, as the case may be.

The second sentence of the second paragraph of article 22 (a)−1 of Regulations 86 reading as follows:

In computing the gain or loss from the subsequent sale of such property its cost shall be deemed to be its fair market value at the date of acquisition by the shareholder or the employee.

is amended to read as follows:

In computing the gain or loss from the subsequent sale of such property its basis shall be the amount paid for the property, increased by the amount of such difference included in gross income.

This Treasury decision is prescribed pursuant to the provisions of section 62 of the Revenue Acts of 1936 and 1934.

MILTON E. CARTER,

Acting Commissioner of Internal Revenue.

Approved January 4, 1939:

JOHN W. HANES,

Acting Secretary of the Treasury.

[Filed with the Division of the Federal Register January 6, 1939, 12:17 p. m.]

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918 atdong tent for alt ri 25 PER ST Regulations with respect to the taxation of French citizens and French corporations as affected by the Convention and Protocol on Double Taxation between the United States and the Republic of France, proclaimed by the President of the United States April 16, 1935, effective January 1, 1936

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
Washington, D. C.

To Collectors of Internal Revenue and Others Concerned:

PART I

PARAGRAPH A. The convention and protocol, proclaimed by the President of the United States on April 16, 1935, provides in part as follows:

ARTICLE I

Enterprises of one of the contracting States are not subject to taxation by the other contracting State in respect of their industrial and commercial profits except in respect of such profits allocable to their permanent establishments in the latter State.

No account shall be taken, in determining the tax in one of the contracting States, of the purchase of merchandise effected therein by an enterprise of the other State for the purpose of supplying establishments maintained by such enterprise in the latter State..

ARTICLE II

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American enterprises having permanent establishments in France are required to submit to the French fiscal administration the same declarations and the same justifications, with respect to such establishments, as French enterprises.

The French fiscal administration has the right, within the provisions of its national legislation and subject to the measures of appeal provided in such legislation, to make such corrections in the declaration of profits realized in France as may be necessary to show the exact amount of such profits. 12, ollot The same principle applies mutatis mutandis to French enterprises having permanent establishments in the United States.

ARTICLE III'

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Income which an enterprise of one of the contracting States derives from the operation of aircraft registered in such State and engaged in transportation bẹtween the two States is taxable only in the former State.

ARTICLE IV

When an American enterprise, by reason of its participation in the management or capital of a French enterprise, makes or imposes on the latter, in their commercial or financial relations, conditions different from those which would be made with a third enterprise, any profits which should normally have appeared in the balance sheet of the French enterprise, but which have been, in this manner,

diverted to the American enterprise, are, subject to the measures of appeal applicable in the case of the tax on industrial and commercial profits, incorporated in the taxable profits of the French enterprise.

The same principle applies mutatis mutandis, in the event that profits are diverted from an American enterprise to a French enterprise.

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Compensation paid by one of the contracting States to its citizens for labor or personal services performed in the other State is exempt from tax in the latter State.

ARTICLE VIII

War pensions paid by one of the contracting States to persons residing in the territory of the other State are exempt from tax in the latter State.

ARTICLE IX

The following classes of income paid in one of the contracting States to a corporation of the other State, or to a citizen of the latter State residing there, are exempt from tax in the former State:

(a) amounts paid as consideration for the right to use patents, secret processes and formulas, trade marks, and other analogous rights;

(b) income received as copyright royalties;

(c) private pensions and life annuities.

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The Agreement shall become effective on the first day of January following the exchange of ratifications and shall remain effective for a period of five years, and thereafter until twelve months from the date on which either Contracting Party gives notice of its termination.

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At the moment of signing the Convention on Double Taxation between the United States of America and the Republic of France, the undersigned Plenipotentiaries, duly authorized by their respective Governments, have agreed, as follows:

(1) The taxes referred to in this Agreement are:

(a) for the United States:

the Federal income tax-but it is understood that Article I does not exempt from tax (1) compensation for labor or personal services performed in the United States; (2) income derived from real property located in the United States, or from any interest in such property, including rentals and royalties therefrom, and gains from the sale or the disposition thereof; (3) dividends; (4) interest.

(b) for France:

-in Articles I, II, III and IV, the tax on industrial and commercial profits (impot sur les benefices industriels et commerciaux);

-in Articles III, V and VI, the tax on income from securities (impot sur les revenus des valeurs mobilieres);

-in Articles VII, VIII and IX, the tax on wages and salaries, pensions and life annuities (impot sur les traitements et salaries, pensions et rentes viageres),

and other schedular taxes (impots cedulaires) appropriate to the type of income specified in said articles;

(2) The provisions of this Agreement shall not be construed to affect in any manner any exemption, deduction, credit or other allowance accorded by the laws of one of the contracting States in the determination of the tax imposed by such State.

(3) As used in this Agreement:

(a) The term "permanent establishment" includes branches, mines and oil wells, factories, workshops, warehouses, offices, agencies, and other fixed places of business, but does not include a subsidiary corporation.

When an enterprise of one of the States carries on business in the other State through an agent established there who is authorized to contract for its account, it is considered as having a permanent establishment in the latter State.

But the fact that an enterprise of one of the contracting States has business dealings in the other State through a bona fide commission agent or broker shall not be held to mean that such enterprise has a permanent establishment in the latter State.

(b) The term "enterprise" includes every form of undertaking whether carried on by an individual, partnership (société en nom collectif), corporation (société anonyme), or any other entity.

(c) The term "enterprise of one of the contracting States" means, as the case may be, "American enterprise" or "French enterprise."

(d) The term "American enterprise" means an enterprise carried on in the United States by a citizen of the United States or by an American corporation or other entity; the term "American corporation or other entity" means a partnership, corporation or other entity created or organized in the United States or under the law of the United States or of any State or Territory of the United States.

(e) The term "French enterprise" is defined in the same manner, mutatis mutandis, as the term “American enterprise.”

(f) The American corporations mentioned in Articles V and VI are those which, owing to their form of organization, are subject to Article 3 of the Decree of December 6, 1872. The present Agreement does not modify the regime of "abonnement" for securities.

(g) The term "United States," when used in a geographical sense, includes only the States and the Territories of Alaska and Hawaii, and the District of Columbia.

(h) The term "France," when used in a geographical sense, indicates the country of France, exclusive of Algeria and the Colonies.

PAR. B. The proclamation of the convention by the President of the United States on April 16, 1935, reads in part as follows:

AND WHEREAS, the said convention and protocol have been ratified on both parts, and the ratifications of the two Governments were exchanged at Paris on the ninth day of April, one thousand nine hundred and thirty-five;

AND WHEREAS, it is stipulated in Article X of the said convention that the convention shall become effective on the first day of January following the exchange of ratifications, that is to say on the first day of January, one thousand nine hundred and thirty-six;

Now, THEREFORE, be it known that I, Franklin D. Roosevelt, President of the United States of America, have caused the said convention and the said protocol to be made public, to the end that the same and every article and clause thereof may be observed and fulfilled with good faith by the United States of America

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