811.512351 Double/107

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

No. 1712

Sir: With reference to my despatch No. 1707 of August 4, 1931,81 and to all previous correspondence concerning the so-called French double taxation question, I have the honor to report the developments in this matter since the French interrupted the negotiations last autumn by a demand for American tariff concessions on certain French products, and since my visit to Washington last November and December.

The contents of this despatch may be summarized in this paragraph, as follows: According to oral assurances received from the Foreign Office, we have succeeded in getting the French Government to withdraw its demand for American tariff concessions in exchange for granting to us relief in this tax question. The French appear more favorably disposed to reach a solution than formerly, and the time seems particularly opportune to attempt to obtain the proposed agreement of last year with Article X of the draft82 entirely eliminated, or, failing that, with the American draft of Article X included instead of the French draft of that article. The American draft of Article X provides for the exemption of French citizens from surtax only on dividends and interest, whereas the French draft of that article grants to French citizens complete exemption from surtax. My arrangement with the French tax authorities to delay further assessments against American companies pending the outcome of the negotiations no longer holds, since a very heavy one has been made recently against the International Telephone and Telegraph Company. Mr. Mills has telegraphed Mr. Mellon that he considers it inadvisable to make a double taxation treaty of any kind with France at the present moment, but this opinion appears to be based [Page 263] upon the impression that we are still endeavoring to sign the proposed agreement with the inclusion of the French draft of Article X. Mr. Mellon clearly realizes that the situation is becoming more serious and that it is important to reach some agreement. He has informed me that the matter will receive his closest attention immediately upon his return to the United States. Other governments are now more interested in the question and new assessments are being made, particularly against British and Swiss companies. Formal negotiations are to begin the first week in October between France and Great Britain upon this subject. Since it appears that Great Britain is prepared to give the concession which France asked of us and which we are unable to give, namely, the complete exemption of surtax on French citizens, it seems highly important that we should attempt to reach an agreement with France before the British negotiations are undertaken.

I attach copies of four memoranda of informal conversations which took place at various times during the period under reference between Mr. Howell and representatives of the Foreign Office and Ministry of Finance which contain most of the details of what has transpired. (Enclosures Nos. 1, 2, 3, and 4.83) From them you will observe that it has been made quite clear to the French authorities, first, that it was impossible to continue the negotiations on this double taxation question unless the French demand for tariff concessions were abandoned, and, second, that there was no possibility whatever of the United States accepting the French draft of Article X.

As a result of considerable effort on our part, the Foreign Office has orally advised the Embassy that the Ministry of Commerce, the Ministry in which the demand originated, has withdrawn its request for American tariff reductions on certain French products before proceeding with an agreement between the two countries on this tax question. This, at least, brings the matter back to where it stood last autumn and makes possible its settlement purely as a tax problem.

The French authorities now appear much more favorably disposed toward a settlement of the question, probably because of our continued efforts to get the matter adjusted and the pressure of other governments on their own account. While I have not been able to extract a promise from the Foreign Office that it will recommend to the Ministry of Finance the signing of the proposed agreement with the American draft of Article X included instead of the French draft of that article, I believe that it is disposed to do so when it has received an intimation that we are still prepared to accept the agreement [Page 264] in that form. M. Borduge, who has been so opposed, is no longer the Director General of Taxation and is now only one of three men designated by the French Minister of Finance to deal with foreign governments regarding the “quotité imposable” and other tax questions. The other two are the Directeur de la Régie Intéressée and the Directeur-Contrôleur des Administrations Financières. Furthermore, my information is to the effect that, since these matters have been taken out of the exclusive control of M. Borduge, in whose hands they have rested for so many years, the Ministry of Finance is more favorably disposed to a settlement with us. I have been unable to ascertain, however, that Ministry’s attitude toward this particular plan of settling the matter.

Under these circumstances, I consider this a particularly appropriate time to endeavor to reach an agreement, first, with Article X entirely eliminated from the draft agreement, or, failing that, with the American draft of Article X included in the draft agreement instead of the French draft of that article. It is not necessary to designate anyone officially to carry on negotiations, because the text of the proposed agreement was drafted last year by their experts and ours. It is only a matter of doing what we can with the Foreign Office and the Ministry of Finance to obtain their approval of the agreement as outlined above. I cannot attempt this, however, until I am sure that an agreement in such form would be satisfactory to you and the Treasury Department. If I am to endeavor to obtain such an agreement with France, I believe that it should be done before the first week in October, when the British negotiations begin, because it appears that Great Britain is prepared to grant the concession to France which we are unable to give, namely, complete exemption from surtax on French citizens.

Regarding particular American cases, in my confidential telegram No. 300 of June 6, 12 a.m.,85 I reported to you that assessments had been made recently against the International Telephone and Telegraph Company, in spite of my efforts to prevent any further assessments being made pending the outcome of our negotiations on this question. From the attached memorandum (Enclosure No. 5),83 you will observe that the assessments have been made against that corporation by reason of business done in France through its two subsidiaries. The first assessment was Frs. 423,000,000 and the second one, while not yet known, is expected to be for more than double that amount, making a total assessment of over $50,000,000. In my telegram [Page 265] No. 324 of June 18, 6 p.m.,86 I informed you that the Chambre des Requêtes had on that day decided that the case of the Boston Blacking Company should be placed upon the docket of the Cour de Cassation for final consideration. Mr. Conner, the attorney for the Boston Blacking Company, is of the opinion that the case will not be reached by that court during the next twelve months. Regarding the case of the General Motors Corporation, the only other case of particular importance, that company’s attorneys in Paris inform me that they have failed thus far to make any settlement with the French tax authorities, although they have succeeded in reducing the amount of the original assessment to a considerably lower figure.

. . . . . . . . . . . . . .

Respectfully yours,

For the Ambassador:
J. Theodore Marriner

Counselor of Embassy
  1. Not printed.
  2. For text of this draft, see telegram No. 257, August 13, 1930, from the Ambassador in France, Foreign Relations, 1930, vol. iii, p. 32.
  3. None printed.
  4. Not printed.
  5. None printed.
  6. Not printed.