811.512351Double/25
The Secretary of State to
the Ambassador in France (Edge)
Washington, May 13, 1930.
No. 158
Sir: I refer to my instruction of April 23,
1930, concerning the informal discussions to take place during May
between representatives of this Government and of the French Government
in connection with the double assessment of taxes upon American
corporations operating in France through French subsidiaries and now
transmit a tentative draft of a double taxation convention between the
United States and France.
The provisions of this draft treaty conform to the principles contained
in H. R. 10165, a bill recently prepared by the Treasury Department and
introduced in the House of Representatives by Mr. Hawley, which is
entitled a “bill to reduce international double taxation”. A copy of the
bill is enclosed for your convenience.11
While this draft represents only a tentative basis for the discussions
under reference, it has been carefully examined by the Department and
appears to present a possible solution of the difficulties now
confronting the American and French Governments in connection with
taxation matters.
This draft treaty is only applicable in this country to the Federal
Government. The omission of the word “national” in the second line of
the first paragraph would seemingly make it applicable to the several
States. The Department deems it preferable that if possible the
discussions be confined to taxation imposed in France by the central
Government and in the United States by the Federal Government. However,
should the French representatives indicate a disposition to make the
inclusion of the several States of the Union within the purview of the
proposed treaty a sine qua non of the conclusion
of such a treaty, the Department as at present advised is prepared on
principle to have the several States covered by the provisions of a
double taxation treaty.
As you are aware it has been the Federal Government’s policy in the past
to affect as little as possible the rights of the several States to
regulate matters normally coming within their jurisdiction. However, the
tremendous expansion of the activities in foreign countries of American
corporations and nationals places an increased responsibility on the
Federal Government to endeavor by all possible means to protect such
interests from discrimination by foreign Governments. In order to remove
any discrimination against American interests abroad it is generally
necessary to assure the foreign Government that reciprocally their
corporations and nationals will not be discriminated
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against in this country on account of
alienage. Naturally enough, foreign Governments may insist that such
assurances should also include the several States.
By national treatment of foreign corporations in this country, in so far
as the several States are concerned, is meant the treatment which one
State extends to an American foreign corporation i. e., a corporation
organized under the laws of some other State of the Union. To extend to
a corporation organized under the laws of a foreign country the same
rights as are accorded in this country by one of the several States to a
corporation organized under its own laws would place “alien foreign
corporations” on a more favorable basis than “American foreign
corporations”. The Department obviously would not be prepared to
consider the latter contingency with favor. It is understood that as a
general rule the laws of the several States of the Union do not
generally discriminate in matters of taxation between “American foreign
corporations” and “alien foreign corporations”. In a few instances,
however, such a discrimination exists especially in the case of
insurance companies.
The foregoing is, of course, for the confidential guidance of your
Embassy and the American representatives and I again reiterate that if
possible the Department would prefer not to include the States in any
treaty which may be concluded with France.
I am [etc.]
For the Secretary of State:
J. P.
Cotton
[Enclosure]
Tentative Draft of a Double Taxation Convention
Between the United States and France
The United States of America and the Republic of France, being
desirous of preventing the double imposition of national income
taxes on their nationals and on corporations created or organized in
or under the laws of either country, have decided to conclude a
Convention for that purpose, and to that end have appointed as their
plenipotentiaries:
The President of the United States of America:
. . . . . . . and
The President of the French Republic:
. . . . . . .
Who having exhibited to each other their full powers, found to be in
due form, have agreed upon the following Articles:
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Article 1
Except as provided in the following Articles, individuals resident in
the territories of one of the High Contracting Parties and
corporations created or organized in or under the law of one of the
High Contracting Parties, and deriving income from sources within
the other High Contracting Party, shall be subject to income taxes
only in the State in which such individuals are resident or in which
such corporations were created or organized.
An individual shall not be considered a resident of the territory of
either High Contracting Party unless he maintains his permanent home
in such territory and has maintained it there for at least six
months in the taxable year.
The exemptions from tax authorized by this Article shall be effected
by each High Contracting Party, either by refunding tax withheld at
the source of the income or by not collecting any tax at such
source, in accordance with its own legislation.
Article 2
The following kinds of income shall be taxable through prior right by
the High Contracting Party in whose territory the source of such
income, as described below, is located. When the recipient of any
such income, if an individual, is resident in the territory of the
other High Contracting Party, or if a corporation, is organized
under the laws of such other High Contracting Party, such other High
Contracting Party shall grant sufficient relief from its own taxes
to prevent double taxation.
(a) Income derived from any business,
trade or profession which is allocable to a permanent
establishment situated in the territories of said High
Contracting Party.
The term “permanent establishment” includes centers of management,
statutory offices or seats, branches, mines, oil wells, factories,
workshops, warehouses, offices, agencies, and other fixed places of
business; but the fact that an individual who is a resident of the
territory of one of the High Contracting Parties or a corporation
created or organized in or under the law of such High Contracting
Party has business dealings in the territories of the other High
Contracting Party through a bona fide commission agent or broker
shall not be held to mean that such individual or corporation has a
permanent establishment in the territories of the latter High
Contracting Party. Income allocable to permanent establishments in
the territory of each High Contracting Party shall be determined in
accordance with rules established by informal agreements between the
competent administrations of the High Contracting Parties.
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- (b)
- Compensation for labor or personal services performed in the
territory of said High Contracting Party;
- (c)
- Income derived from real property located in the territories
of said High Contracting Party or from any interest in real
property including rentals and royalties therefrom, gains from
the sale or other disposition thereof, and interest on
obligations (other than obligations of a corporation) secured by
such property.
Article 3
Compensation paid by one High Contracting Party to its nationals for
labor or personal services performed in the territories of the other
High Contracting Party shall be taxable only by the High Contracting
Party which makes such payment.
Article 4
Pensions paid by one High Contracting Party to an individual resident
in the territory of the other High Contracting Party, shall be
taxable only by the High Contracting Party which makes such
payment.
Article 5
The income of an individual who is a resident in the territory of one
of the High Contracting Parties, or of a corporation created or
organized in or under the law of one of the High Contracting
Parties, which consists exclusively of earnings derived from the
operation of ships or aircraft shall be taxable only by the High
Contracting Party in whose territory such individual is resident or
in which such corporation was created or organized.
Article 6
The present Convention shall be ratified and the ratifications shall
be exchanged at Paris as soon as possible. It shall be effective
from the beginning of the calendar year in which ratifications are
exchanged. It shall be terminable at the expiration of five years,
or at the end of any calendar year thereafter, on a notice of twelve
months given by either High Contracting Party to the other.
In faith whereof the respective plenipotentiaries have signed this
Convention in duplicate, in the English and French languages, both
texts having equal force, and hereunto affixed their seals.
Done at . . . . . . ., on the . . . . . . . day of . . . . . . ., in
the year of our Lord one thousand nine hundred and . . . . . . .
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PROTOCOL
At the moment of exchanging the ratifications, and in order to
prevent any ambiguity regarding the application of the Convention,
the plenipotentiaries have agreed to make it clear that the
provisions of the said Convention shall be understood to apply in
both countries to all tax assessments of companies, associated and
branch establishments and agencies which have not been finally
determined on the date that the Convention comes into operation.
