The Secretary of State to the Ambassador in France ( Edge )
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 [Page 11] 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.]
- Not reprinted.↩