Minister Wilson to the Secretary of State.

No. 81.]

Sir: I have the honor to report to the department that the Anglo-American Chamber of Commerce at Brussels recently presented, through the medium of the British legation, to the Belgian ministry a protest against the enactment of proposed legislation relative to the taxation of corporations doing business in Belgium, alleging that the proposed legislation was in the nature of a discrimination against foreign corporations. A copy of the protest was filed with this legation, together with a note requesting my good offices in the premises.

I confined my efforts, however, to the transmission of the protest to the ministry for foreign affairs, with the simple request that it might receive the attention of the proper department.

I inclose herewith a translation of the verbal note of Count de Smet de Naeyer, minister of finance, in reply to the protest.

The original in the French text has been forwarded to the Anglo-American Chamber of Commerce.

The reply of Count de Smet de Naeyer seems to me to be convincing and conclusive.

I have, etc.,

Henry Lane Wilson.

Verbal note from the ministry for foreign affairs of Belgium to Mr. Wilson for transmission to the Anglo-American Chamber of Commerce at Brussels.

The Anglo-American Chamber of Commerce at Brussels has requested the elimination of paragraph 3, article 6, of the proposed bill relative to the licensing of insurers and limited companies.

This paragraph reads as follows:

“Deduction on account of expenses of administration, or otherwise, will only be admitted when such expenses have been incurred in Belgium.”

The petitioners’ claim is that the effect of this stipulation will be to compel limited foreign companies located in Belgium to bear a heavier burden of taxation than similar Belgian companies, the latter being authorized to deduct from their gross profits all expenses of administration, including those made outside the limits of Belgium. From this it is concluded that the proposed bill makes a discrimination contrary to the principle of commercial treaties.

The argument is not sound.

The proposed bill taxes the foreign limited companies located in Belgium at the same rate as that levied upon similar Belgian companies and upon the same fundamental principle.

If the proposed bill limits the expenses in the manner indicated above, it is only because no other system is practicable.

It would be opening the door to abuses to permit foreign companies to deduct from profits realized in Belgian establishments expenses incurred for administration purposes at the home offices for Belgian branches. The statement of expenses made by the agents of the companies could be wholly arbitrary in the absence of means for the Belgian authorities to determine its accuracy.

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It is conceivable that the Belgian fiscal authorities should be bound to make investigations at London, New York, Paris, Hamburg, etc., of the expenses of administration of the English, American, French, and German companies located in Belgium.

On the one hand, the acceptance without investigation of the taxpayer’s declaration would be contrary to the essential principle underlining the whole of our fiscal legislation; in no case does the latter admit the undisputed acceptance of the taxpayer’s declaration. On the other hand, the Belgian administration has neither the power nor practical means to verify abroad the exactitude of expenses of administration which it might be claimed had been made for the Belgian branch.

The Belgian legislator, in deciding a question closely related to the fundamental principle of taxation, can and must take into account these special considerations.

As a matter of fact, the expenses referred to in the petition of the Anglo-American Chamber of Commerce are generally very slight, so that their exclusion will have very little weight in the determination of the sum total of taxable profits.

In support of its position the Anglo-American Chamber of Commerce cites the fact that the Province of Brabant will admit its contention, so far as the proportion of tax for the Province is concerned. The provincial resolutions do not mention such decision and the argument is, moreover, irrelevant.

In the conception and application of their fiscal regulations the Provinces are more active in securing resources than in observing the rules of law, to which the State, on the contrary, must remain faithful in order to be consistent.

The provision established by paragraph 3, article 6, is moreover so rational and so equitable that it will be applied to foreign branches of Belgian companies in the determination of the profits realized in these establishments. (Art. 9 and following of the bill.)

For these reasons the Government can not take into consideration the protest of the Anglo-American Chamber of Commerce.