The Secretary of State to the Ambassador in Germany (Sackett)
Sir: Reference is made to your despatch, No. 2112, of January 5, 1933, with an enclosure, regarding the taxation of German corporations which are subsidiaries of American corporations. The question is raised whether these German subsidiaries are entitled to receive tax certificates (Steuergutscheine), which refund to the taxpayers certain definite percentages of German taxes due and paid between October 1, 1932 and September 30, 1933.
It might be somewhat difficult to make out a violation of Article VIII of the Treaty of Friendship, Commerce and Consular Rights of 1923, between the United States and Germany, because of the refusal of these tax refund certificates to German subsidiary corporations of American corporations. Article VIII applies to American nationals and merchandise in Germany. It is doubtful if it could be said to apply to German subsidiaries of American corporations, except possibly to urge that the spirit of Article VIII should preclude discrimination against an American-owned German corporation. Of course, if the Finance Minister insists on a disregard of the German corporate entity of the subsidiary, there is the possibility of assimilating the foreign subsidiary to the status of an American national.
The rights of American citizens to organize and participate in corporations in Germany are specifically set forth in Article XIII of the Treaty of 1923 between the United States and Germany. Most-favored-nation treatment is accorded and such corporations are subject to local laws and regulations. The German Finance Ministry’s ruling apparently applies to German subsidiary corporations of all foreign corporations, irrespective [Page 485] of nationality. The most-favored-nation clause, therefore, would appear to be ineffective as a ground of protest.
Inasmuch as corporations in Germany are subject to the local law, the rights of German subsidiaries of American corporations would appear to be determinable by resort to German courts. The contention of the Finance Ministry that German subsidiary corporations are not domiciled in Germany would appear to be unsound, inasmuch as the domicile of a corporation is uniformly fixed in the state of its organization.
If, after further consultation with the representatives of German subsidiaries of American corporations, you are requested to make representations to the German Foreign Office in their behalf with regard to the securing of tax refund certificates, it is suggested that you point out the fact that the German subsidiaries of American corporations should, for all questions relative to taxation, be considered as domiciled in Germany. Inasmuch as the taxes presumably were imposed on such corporations as German corporations, it would appear only just that they should likewise receive refunds of such taxes in the same capacity.
Very truly yours,