Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

149. Minutes of the 69th Meeting of the Council on Foreign Economic Policy⁰

January 30, 1958.¹

[Here follow a list of participants and discussion of agenda items I and II.]

III. CFEP 565—Tax Incentive for the Flow of U.S. Private Investment Abroad.

1. The Council on Foreign Economic Policy (CFEP) considered the draft statute and recommendation for legislation for the 14 percentage point tax credit on income derived from investment abroad contained in CFEP 565/1, dated January 24, 1958.²

2. Discussion of this matter indicated that while there was general agreement on the principle of tax incentives to promote foreign investment in the underdeveloped areas, there was opposition to some of the recommendations in CFEP 565/1. The CFEP discussed other alternatives for stimulating U.S. investment in the underdeveloped areas and agreed that the following proposals, modified in the light of the Council’s discussion, seemed to offer the best present basis for legislation in this field: (Treasury asked to make clear it was reserving decision as to a final position.)

a. Permit deferral of U.S. tax on the income of a foreign branch of a domestic corporation until such income is withdrawn from the country where earned. This is the treatment now accorded foreign subsidiaries, and was recommended by the President to the Congress in 1954 and 1955.

b. Permit a domestic subsidiary, substantially all of whose income is derived from abroad, to be taxed as a foreign subsidiary. The object of this change would be to make unnecessary the present practice of resorting to the use of foreign subsidiaries incorporated under the laws of one of the so-called “tax-haven” countries.

c. Permit 14 point tax credit as follows:

(1) Limit to underdeveloped countries defined geographically or by State Department certification.

(2) Apply to existing as well as new investment.

(3) Exclude trading income except where principal activity is manufacturing.

(4) Exclude extractive industries which elect to use depletion allowances.

3. The Chairman recommended that a CFEP Subcommittee consisting of representatives of the Departments of State, Treasury and Commerce, and the CFEP staff be appointed to develop specific recommendations for the CFEP by February 28, 1958 for legislation in this field, embodying the general proposals outlined above. The CFEP approved this recommendation.

[Here follows discussion of an unrelated matter.]

Paul H. Cullen
Lt. Col., USA Secretary, CFEP

0. Source: Eisenhower Library, CFEP Records, Office Series, Council Minutes, 1958 (2). Confidential.
1. The meeting was held at the White House.
2. Not printed. (Eisenhower Library, CFEP Chairman Records, Staff Series, CFEP (1))