PART III ALCOHOL TAX RULINGS AND DECISIONS SUBPART A.-RULINGS AND DECISIONS UNDER THE INTERNAL REVENUE CODE OF 1954 Rulings and decisions published in Part III, Subpart A, of the Internal Revenue Bulletin are based on the application of provisions of the Internal Revenue Code of 1954 and, unless otherwise noted therein, are published without consideration as to any application of the provisions of the Internal Revenue Code of 1939, the Federal Alcohol Administration Act, or other public laws. SECTION 5062: REFUND AND DRAWBACK IN CASE OF EXPORTATION [DISTILLED SPIRITS, WINES, AND BEER] 26 CFR 252.1: Drawback on distilled spirits, wines, and beer. T.D. 63571 TITLE 26-INTERNAL REVENUE, 1954.- CHAPTER I, SUBCHAPTER E, PARTS 252 AND 253 Amendment of regulations regarding drawback on domestic alcohol used in the manufacture of flavoring extracts and medicinal or toilet preparations. DEPARTMENT OF THE TREASURY, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington 25, D.C. To Officers and Employees of the Internal Revenue Service and Others Concerned: On August 19, 1958, a notice of proposed rulemaking with respect to the amendment of the regulations in 26 CFR Parts 252 and 253 was published in the Federal Register (23 F.R. 6362). The proposed amendments would conform these regulations to Treasury Department Order No. 165-9 [I.R.B. 1958-36, 29], transferring from the Commissioner of Internal Revenue to the Commissioner of Customs the function of allowing drawback of an amount equal to the internal revenue tax found to have been paid on domestic alcohol used in the manufacture or production in the United States of flavoring extracts and medicinal or toilet preparations (including perfumery) that have been exported. In accordance with the notice, interested parties were afforded an opportunity to submit written data, views, or arguments pertaining thereto. No written comments were received within the period of 124 F.R. 527. 30 days prescribed. Accordingly, the amendments so published are hereby adopted. In order to conform regulations in 26 CFR Parts 252 and 253 to the Treasury Department Order, such regulations are amended as follows: PARAGRAPH 1. 26 CFR Part 252 is amended as follows: (A) Section 252.1 is amended to read as follows: § 252.1 DRAWBACK ON DISTILLED SPIRITS, WINES, AND BEER.-The regulations in this part relate to the allowance of drawback of internal revenue tax on (a) distilled spirits and wines packaged or bottled especially for export and beer brewed and manufactured in the United States when exported or used as supplies on vessels or aircraft, and (b) distilled spirits exported in distiller's original packages containing not less than 20 wine gallons each. Regulations relating to drawback of tax on such articles deposited in foreign-trade zones are contained in Part 253 of this title. (B) Subpart F, containing §§ 252.180-252.184, is revoked. PAR. 2. 26 CFR Part 253 is amended as follows: (A) Section 253.20 is amended by deleting "flavoring extracts, and medicinal or toilet preparations made with taxpaid alcohol;" from the definition of the word "articles". (B) Sections 253.200 and 253.201 and the undesignated centerhead preceding the two sections are revoked. This Treasury Decision shall be effective as of January 1, 1959, the effective date of Treasury Department Order No. 165-9. (This Treasury Decision is issued under the authority contained in section 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805).) O. GORDON Delk, Acting Commissioner of Internal Revenue. Approved January 19, 1959. FRED C. SCRIBNER, Jr., Commissioner of Customs. Acting Secretary of the Treasury. (Filed with the Division of the Federal Register on January 22, 1959, 8:47 a.m., and published in the issue of the Federal Register for January 23, 1959, 24 F.R. 527.) SECTION 7805.-RULES AND REGULATIONS 26 CFR 170.105: Execution and filing of claims. For the procedure to be used in the execution and filing of claims covering the tax paid on distilled spirits, wines, rectified products, and beer lost, rendered unmarketable, or condemned by reason of "major disasters" occurring during the period January 1, 1955, to September 2, 1958. See Rev. Proc. 59-5, page 32. For the procedure to be used in the execution and filing of claims covering the tax paid on distilled spirits, wines, rectified products, and beer lost, rendered unmarketable, or condemned by reason of "major disasters" occurring during the period September 3, 1958, to June 30, 1959. See Rev. Proc. 59-5, page 32. 26 CFR 170.159: Execution and filing of claim. For the establishment of a claims procedure with respect to beer lost, rendered unmarketable, or condemned by reason of the floods of 1951 or the hurricanes of 1954. See Rev. Proc. 59-5, page 32. 26 CFR 296.54: Execution and filing of claims. The procedure to be used in the execution and filing of claims covering tobacco products, cigarette papers, and tubes lost, rendered unmarketable, or condemned by reason of a major disaster occurring after December 31, 1954, and not later than September 2, 1958. See Rev. Proc. 59-6, page 36. PART IV LEGISLATION AND TREATIES SUBPART A.-TAX CONVENTIONS UNITED STATES-FEDERAL REPUBLIC OF GERMANY INCOME TAX CONVENTION (Also Income Tax Conventions between the United States and Austria, Belgium, Canada, Denmark, Finland, France, Greece, Honduras, Italy, Japan, Netherlands, Norway, Sweden, Switzerland, the Union of South Africa, and the United Kingdom.) (See also Part I, Sections 901, 904; 26 CFR 1.901-1, 1.904-1.) Rev. Rul. 59–56 Even though the income tax conventions to which the United States is a party contain a provision that income from real property shall be subjected to tax only in the country in which the property is situated, a citizen of the United States or an alien resident thereof is, by reason of a saving clause in the convention, liable for United States income tax on the income from such property. In order substantially to avoid double taxation in this type of case, a credit against United States income tax is allowable as provided in section 901 of the Internal Revenue Code of 1954, subject to the limitation of section 904. Advice has been requested with respect to the effect of a "saving clause" as found in most of the tax conventions to which the United States is a party. For purposes of illustration, the question for consideration is whether income derived from the cutting and sale of timber in Germany by a United States citizen residing in the United States is subject only to German tax by reason of Article IX of the Income Tax Convention between the United States and the Federal Republic of Germany, C.B. 1955-1, 635. Article IX of the Income Tax Convention between the United States and the Federal Republic of Germany, supra, reads, in part, as follows: (1) Income from real property situated in one of the contracting States (including gains derived from the sale or exchange of such property and interest on debts secured by mortgages on farms, timberlands, or real property used wholly or partly for housing purposes * * * derived by a resident or corporation or other entity or company of the other contracting State, shall be taxable only by the former State. (2)(b) A resident or corporation or other entity of the United States deriving from sources in the Federal Republic any item of income coming within the scope of paragraph (1) of this Article, may, for any taxable year, elect to be subject to tax by the Federal Republic on a net income basis as if such resident or corporation or other entity were engaged in trade or business within the Federal Republic through a permanent establishment therein. Article XV of the convention reads, in part, as follows: (1) It is agreed that double taxation shall be avoided in the following manner: (a) The United States, in determining its taxes specified in Article I of this convention in the case of its citizens, residents or corporations, may, regardless of any other provision of this convention, include in the basis upon which such taxes are imposed all items of income taxable under the revenue laws of the United States as if this Convention had not come into effect. * (2) The provisions of this Article shall not disturb the exemptions from tax of the United States *** granted by Article XI (1) of the present convention. Provisions similar to those in Article XV (1) (a) are contained in the tax conventions between the United States and Austria, C.B. 1957-2, 985; Belgium, T.D. 6160, C.B. 1956-1, 815; Canada, C.B. 1951-1, 624; Denmark, T.D. 5777, C.B. 1950-1, 76; Finland, T.D. 6202, C.B. 1956–2, 1067; France, T.D. 5499, C.B. 1946-1, 134; Greece, effective as of January 1, 1953; Honduras, C.B. 1957-2, 1033; Italy, C.B. 1956-2, 1096; Japan, C.B. 1955-1, 658; Netherlands, T.D. 5778, C.B. 1950-1, 92; Norway, T.D. 6150, C.B. 1955-2, 793; Sweden, T.D. 4975, C.B. 1940-2, 43; Switzerland, T.D. 6149, C.B. 1955-2, 814; and the Union of South Africa, C.B. 1954-2, 651. Although the convention with the United Kingdom of Great Britain and Northern Ireland contains no specific provision such as Article XV (1) (a) of the German convention, other provisions of the United Kingdom convention are interpreted as having the same effect as Article XV (1) (a) of the German convention. T.D. 5569, C.B. 1947-–2, 100, regulations section 7.514. The meaning of Article XV (1) (a) of the German convention and of similar provisions in other income tax conventions is that the United States income tax liability of United States citizens, residents, or corporations is determined "as if this Convention had not come into effect." The purpose of this "saving clause" is to make it plain that the United States reserves the right, in the case of its citizens, residents, or corporations, to include in its tax base all items of income taxable under its revenue laws. However, this right is made subject, in certain of the conventions, to an exception such as is provided in Article XV (2) of the convention with the Federal Republic of Germany. One of the fundamental principles of interpretation of a statute or treaty is that particular clauses and phrases should not be studied. as detached expressions, but that every part of a treaty must be considered in determining the meaning of any of its parts. A treaty must be considered as a whole, its parts making it an integral whole. Accordingly, Article IX of the convention with Germany must be read in the light of Article XV. It is apparent from the foregoing that the income derived and/or loss sustained from the cutting and sale of timber in Germany by a citizen of the United States, irrespective of his place of residence, or by a resident of the United States, is treated for United States income |