ARTICLE 13 - GAINS

   Article 13 provides rules governing when a Contracting State
may tax gains from the alienation of property by a resident of
the other Contracting State.

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Paragraph 1

   Paragraph 1 preserves the situs State's right to tax gains
derived by a resident of the other Contracting State from the
alienation of either real property, defined in paragraph 2, or an
interest in a partnership, estate or trust to the extent the
interest is attributable to real property situated in the firstmentioned State. The Convention does not interfere with the
domestic law rules on the taxation of such gains, other than to
require nondiscriminatory treatment under Article 24 (Non-Dis­

crimination). Paragraph 1 does not grant the situs State an

exclusive right to tax these gains. The residence State may also
tax gains from real property, subject to the rules of Article 23
(Relief from Double Taxation).

Paragraph 2

Paragraph 2 elaborates on the rule of paragraph 1 by ex­

plaining that the term "real property situated in the other

Contracting State" includes not only such property held directly,
but also indirectly. Thus, paragraph 2 defines the term to

include (i) real property referred to in Article 6 (Income from

Immovable Property (Real Property)), (ii) a United States real
property interest or an equivalent interest in Turkish real
property, and (iii) an interest in a partnership, trust or estate

to the extent the interest is attributable to real property (see
Code section 897(g)). A "United States real property interest"
is understood to refer to that term as it is defined in Code

section 897 or any successor to that provision. It includes,

therefore, an interest in a U.S. corporation, if at least 50
percent of the assets of the corporation consist of U.S. real
property.

   The definition of "real property situated in a Contracting
State" for purposes of Article 13 is intended to permit both
Turkey and the United States to apply their domestic laws to the
taxation of gain in respect of real property situated within

their respective borders. The definition applies solely for

purposes of Article 13. Therefore, this definition has no effect
on the right to tax income covered in other articles of the

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Convention, such as Article 6 (Income from Immovable Property
(Real Property)).

   Paragraph 3

   Paragraph 3 deals with the taxation of gains from the
disposition of movable property that forms part of the business
property of a permanent establishment or fixed base that a
resident of one Contracting State has in the other State. Such
gains may be taxed by the State where the permanent establishment
or fixed base is located. This includes gains from the

disposition of such a permanent establishment (alone or with the

whole enterprise) or of such a fixed base. Point V of the
Protocol permits source State taxation of gains from the
disposition of movable property that was part of a permanent
establishment or fixed base even if the gains are deferred until
after the permanent establishment or fixed base has ceased to
exist. This rule preserves the U.S. tax imposed under Code

section 864(c) (6), except that the treaty substitutes a permanent

establishment threshold.

   This provision permits gains from the alienation by a
resident of a State of an interest in a partnership, trust or
estate that has a permanent establishment situated in the other
State to be taxed as gains attributable to such permanent estab­

lishment under paragraph 3. Thus, for example, the United States

may tax gains derived from the disposition of an interest in a
partnership that has a permanent establishment in the United

States, whether or not the assets of such partnership consist of

movable property.

   Paragraph 4

   Paragraph 4 provides that gains derived from the disposition

of ships, aircraft, containers, or related equipment (including trailers, barges, and related equipment used for the transport of

containers) operated in international traffic are taxable only in

the State in which the alienator is resident. Occasional use of

a ship, aircraft, container, or related equipment in domestic
traffic should not cause the disposition of such property to fall
outside the scope of this provision.

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Paragraph 5

   Paragraph 5 generally grants to the residence State the
exclusive right to tax gains from the disposition of property not
specifically referred to in the preceding paragraphs of Article
13. The second sentence of the paragraph provides an exception
to this general rule, not found in other U.S. treaties, dealing
with the taxation of income from the alienation of corporate
shares or bonds. Under this rule, a Contracting State may, in
accordance with its law, tax a resident of the other Contracting
State on gain from the alienation of shares or bonds issued by a
corporation that is a resident of the first-mentioned Contracting
State if three conditions are satisfied: (1) the shares or bonds
are not quoted on a stock exchange in that State; (2) the shares
or bonds are alienated to a resident of that State; and (3) the
alienator held the securities prior to alienation for one year or
less. Under Turkish law at the time of signature of the Conven­
tion, a U.S. person disposing of shares or bonds of a Turkish
corporation would be taxable in Turkey if the three conditions
were met (iue., if the non-listed securities of a Turkish company

were alienated by the U.S. resident to a resident of Turkey, and

the U.S. resident held the securities for one year or less). The
United States, at the time of signature, does not have statutory
authority to impose tax in these circumstances. However, para­
graph 6 is drafted reciprocally; therefore, if the United States
were to introduce a tax on the share gains of foreign persons, it
could impose that tax in accordance with this paragraph.

   Relation to other articles

   Gains described in Article 12 (Royalties) (j.t., gains from
the disposition of an intangible where the amount of the
consideration is contingent upon the productivity, use or
disposition of the intangible) are taxable in accordance with the
provisions of Article 12, and not this Article.

   Notwithstanding the foregoing limitations on source country
taxation of certain gains, the saving clause of paragraph 3 of
Article 1 (Personal Scope) permits the United States to tax gains
realized by its residents and citizens as if the Convention had
not come into effect.

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   As with other benefits of this Convention, a resident of one
of the States claiming the benefit of this Article must be
entitled to the benefit under the provisions of Article 22
(Limitation on Benefits).