811.512351Double/76
The Ambassador in France (Edge) to the Secretary of State
[Received September 9.]
Sir: Confirming my telegram No. 269, August 28, 10 a.m.,24 I have the honor to inform the Department that on Friday, August 22nd, I formally notified the Minister for Foreign Affairs of the receipt from the Department of full powers to negotiate a treaty covering the question of double taxation. At the same time I requested the Minister for Foreign Affairs, if his Government should be disposed to enter into such an agreement, provided it could be done upon terms satisfactory to both Governments, to inform me what person or persons, with like powers, would meet with me for this purpose, and at what place and hour. (A copy of my note forms Enclosure No. 124 to this despatch.)
On August 27th I called by appointment on the Minister of the Budget, M. Germain Martin, and had an hour’s informal conversation with him. The Counselor of the Embassy accompanied me. I informed M. Germain Martin that I felt that thanks to the efforts of the experts the points of view of the two Governments on double taxation were now clearly set forth and that I thought the time had [Page 37] arrived to transfer negotiations to more official channels: that I had so informed my Government and had received by telegram full powers to negotiate with the proper officials of the French Government a treaty covering this question. I then handed M. Germain Martin a French translation of the Department’s telegram No. 198, August 19, 12 A.M., at the same time explaining that the instrument itself would undoubtedly reach me within the next few days.
M. Germain Martin replied that he was very glad to know this, that he had had a conversation recently with M. Briand and that the latter had explained that as this was a question concerning the negotiation of a treaty, he presumed the Embassy would take up the matter officially with the Foreign Office. I explained to the Minister that I had already done this. M. Germain Martin replied that M. Briand would undoubtedly designate him to represent the French Government and that he would wish to have associated with him M. Borduge. He said that M. Borduge was at present in Vichy and that he probably would not be available for some time, adding that he would himself be very busy until September 20th as he had to take up with his colleagues certain necessary diminutions in the budget and that he could not possibly begin such conversations until about that date. He therefore suggested that if agreeable to me September 20th be set as the date for beginning official negotiations.
The Minister expressed the opinion that in view of the fact that all the “spade work” had already been completed, two, or at the most three, meetings would suffice to conclude matters one way or the other, adding that of course the draft of the treaty as at present drawn up by the experts, with regard to the first nine articles of which both sides were in agreement, would serve as a basis for the negotiations. I then discussed with him what I felt to be the very slight differences separating our two governments as regards Article[s] 10 and 11: that so far as Article 11 was concerned the question at issue was merely the date, that is, whether the treaty should be effective from May 1st or June 1st. I explained that personally I did not feel that it would be possible to obtain ratification by our Government of the French draft of Article 10 by which French citizens residing in France would be exempted from all surtax, pointing out, however, that from information furnished me by our experts it appeared that approximately 90% of the cases affecting the French would be covered by exemption from the surtax of dividends and interest, the remaining approximately 10% comprizing receipts from other sources. I briefly pointed out to M. Germain Martin that, through the American proposal in Article 10, we were not attempting to reduce the dividend and profit taxes now imposed under the French system so far as they applied to the operation of American branches or subsidiaries in France. Our objection was confined entirely to the duplication or additional tax imposed on [Page 38] dividends and profits earned outside of France. In fact, we were strongly of the opinion that the suggested clarification in Articles 1 to 9 already agreed to by the experts of both countries would prevent any possible evasions, if they were attempted, and should result in a greater income to France than under the existing practice. M. Germain Martin did not directly comment upon this suggestion but it will naturally form an important part of the memorandum we are preparing and of our representations when conferences are undertaken September 20th.
At this point, M. Germain Martin interrupted me to call my attention to what he designated as a “very unfortunate incident” which had occurred in connection with the return of Mr. Ogden Mills, the Undersecretary of the Treasury, to the United States. He then proceeded to read me a telegram which appeared in L’Ami du Peuple of August 21st bearing a Washington headline. Mr. Mills is reported as having declared in an interview with the press regarding double taxation, that it was “particularly burdensome to American competition”. The Minister said that the language used by Mr. Mills could not have been more unfortunate as of course the word “competition” in connection with the discussion of the present question put the negotiations on an entirely different basis: that the statement attributed to Mr. Mills, which had been reproduced in substantially the same language in nearly all of the French newspapers,25 had resulted in bringing down upon his, the Minister’s head, the protest of various French industrialists, particularly the automobile manufacturers, who demanded to be informed whether the present negotiations had as their objective the enabling of American firms to establish themselves in France with a view to competing on a more favorable basis with French manufacturers. When I attempted to explain to him that he should be able to persuade those who had become alarmed at the language used that the real objective of the negotiations, as he had rightly pointed out, was alone to remedy the duplication and inequities in the present fiscal policy, M. Germain Martin said that unfortunately he thought it would be difficult, their suspicions having been aroused, to disabuse their minds of this impression, and he was afraid that it would be necessary for the French Government to obtain more in the way of concessions than would otherwise have perhaps been the case in order not to expose itself to attack from the French industrialists.
It is true that the statement attributed to Mr. Mills appeared not only in the majority of the French papers but also in the two American newspapers published in Paris,—The New York Herald and Chicago [Page 39] Tribune. While I cannot feel that the Minister attaches to the language used by Mr. Mills the importance which he accorded it in my interview with him, (later in the same conversation he admitted that the French press had, up to the present, shown very little interest in the negotiations regarding double taxation), nevertheless, as the Department is aware, the French are hard bargainers and glad to turn any slip on the part of those with whom they are dealing to their own advantage and for this reason I have felt it advisable to set forth in some detail M. Germain Martin’s references to the statement attributed to Mr. Mills as it may well be that in the negotiations beginning September 20th he will, as intimated yesterday, use the incident to attempt to secure for the French what he may consider a better bargain from their point of view.
In concluding the interview it was arranged that I should furnish M. Germain Martin with a memorandum setting forth the objections from the American point of view to article 10, while he on his part promised to furnish me with a similar memorandum embodying the French objections to the American draft. I hope in this way to have the ground prepared sufficiently to have the negotiations, when begun, proceed smoothly and rapidly.
Respectfully yours,