811.512351Double/27: Telegram

The Ambassador in France ( Edge ) to the Secretary of State

146. With reference to my confidential telegram 130, May 6, noon, and despatch number 516 of the same date.12 There have been conferences almost daily since May 8 at the Ministry of Finance covering all phases of France’s double dividend tax. These conferences are being attended by M. Borduge, Barrau and Guinard of the Ministry of Finance, M. Campana of the Foreign Office, Messrs. Adams, Carroll and Alvord and Mr. Howell, First Secretary of Embassy. There is a marked feeling of friendship on the part of the French representatives and apparently they have a genuine desire to adjust this problem.

On May 13, M. Borduge proposed in substance the following as basis of solution of difficulties regarding French subsidiaries of American companies:

“As to American companies operating as French subsidiary corporations, they would be liable to taxation on industrial and commercial profits according to the total amount of their actual profits and to tax on revenue from movable property according to the total amount of the dividends distributed under the same conditions as the French filial of a French company.

But if the administration were to establish that the profit showed on the balance sheet is lower than the profit actually realized, the difference between the declared profit on the balance sheet and the real profit would be subject immediately in totality both to the 15 percent tax and the 16 percent tax.

No claim would be made on the American mother company and there would consequently be no occasion for the fixing of an assessable quota.”

The above system would eliminate the objectionable “quotité imposable” method of taxation.

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As to American companies operating through branches in France, an effort is being made to work out a plan whereby the branch will have the option of continuing under the present system of “quotité imposable” or of paying a dividend tax upon 75 percent of French profits of the branch whether or not distributed. The French representatives have indicated a willingness to accept this plan.

The French of course are requiring a quid pro quo and the American delegates are endeavoring to find something which will satisfy them and which would require only slight modification of the revenue act.

The American delegates are keeping in close touch with the representatives here of American interests who are almost unanimously of the opinion that a solution as above outlined would be eminently satisfactory.

There is no prospect of an agreement based on the bill to reduce international double taxation H. R. 10165 but if an agreement is reached it will take the form of a convention or treaty concerning primarily the fiscal treatment of corporations.

Messrs. Adams, Carroll and Alvord leave tomorrow for Geneva where discussion will be continued with M. Borduge. Negotiations will be resumed in Paris about June 1st.

  1. Despatch not printed.