855.5123 Goodyear/4

The Ambassador in Belgium (Morris) to the Secretary of State

No. 193

Sir: I have the honor to refer to my despatch No. 124 of February 12, 1934, concerning the taxation of American firms in Belgium and outlining the taxation difficulties of the Goodyear Tire and Rubber Export Company of Akron, Ohio.

There are enclosed copies of two notes from the Belgian Ministry of Foreign Affairs and translations thereof,25 which set forth the attitude of the Belgian Government in substantiation of its claim that [Page 92] the American firm maintained an establishment in Belgium and therefore is subject to taxation on its profits from this business. The firm’s attitude, which was developed fully in my despatch referred to above and in enclosures to the Department’s instruction No. 47 of February 8, 1934,26 is that it only consigns merchandise to its distributor here and therefore it does not maintain an establishment, which would render it liable to the taxation claimed by the Belgian Government.

In the last paragraph of the note from the Ministry of Foreign Affairs of April 18, 1934 (copy enclosed), the Company is given the alternative of entering legal proceedings against the Government in support of its contentions or of accepting to be taxed.

The Company has not yet decided to take the case to law. A lawyer representing the American firm has been to Brussels to see the Acting Commercial Attaché to seek advice as to the best policy to adopt. The Embassy has felt that it could not advise the Company to enter legal action and has refrained from so doing. However, in view of the definite stand taken by the Belgian Minister of Finance, there is little that can be accomplished by repeating the representations which have been made time and again by the Embassy in the firm’s interests.

The matter is brought to the Department’s attention in answer to the last paragraph of its instruction No. 47 of February 8, 1934 and with the request that I be instructed as to how to proceed further in the matter.27

Respectfully yours,

Dave H. Morris

The Belgian Minister for Foreign Affairs (Hymans) to the American Ambassador (Morris)

Mr. Ambassador: Referring to note No. 82 which Your Excellency was so good as to address to me under date of December 4, 1933, I have the honor to inform Your Excellency that the dossier relating to the taxability of the American firm, “The Goodyear Tire Rubber Export & Co.” has been examined again by the Ministry of Finance.

The facts gathered from this dossier concerning the activities pursued in Belgium by the American Company in question have led the Bureau of Internal Revenue (“Administration des Contributions”) to conclude that in the case of this firm there exists an establishment in Belgium.

[Page 93]

Under this heading the American Goodyear firm unquestionably falls under the Belgian income tax law, and the Administration may not renounce the collection of the taxes in question.

In communicating this decision to me, the Minister of Finance observes that it had not been possible for him to agree with the argument upheld by the firm in question, which claims that it is engaged exclusively in trade on a consignment basis in Belgium.

The Belgian Administration agrees to consider that the consignment of merchandise, pure and simple, by a foreign firm, does not permit of the conclusion that there exists in Belgium an establishment on the basis of which a professional income tax might be assessed. But it does not seem possible to consider the case of the “Goodyear” firm as being confined to consignment trade.

The daily sending of copies of invoices and of a stock-statement, the continual intervention of the American firm in price-fixing and the conditions of sale, its special participation in advertising expenses, the semi-annual verification of stocks, their sales in Belgium in any quantity, all these circumstances show that the American firm is engaged in this country in transactions similar to those in which a Belgian firm could be engaged.

Moreover, the fact that the Belgian firm, “Belgian Tire Company,” presents itself to the public under the heading “Goodyear” which covers its trucks and the façade of its head office, permits of the conclusion that the Belgian firm is in reality a sales-house* of the American company.

The Belgian firm, it is true, obtains merchandise on consignment and is remunerated by a commission which covers the general expenses, risks and other expenditures. But these are means of remuneration which are dictated by the Commercial interest of the contracting parties; besides, this is the conclusion to be drawn from a passage from a letter addressed by the American firm to the division controller on November 16, 1932:

“by granting the consignment (of goods) to such a distributor with the guarantee of a certain bank and with personal guarantees,” says this letter, [“] we are able to place our distributor on a basis allowing him to extend the sale of our goods.”

Such are, Mr. Ambassador, the facts that have come out and those on which the Minister of Finance has based his decision.

He has added that in case the firm in question is unable to agree with this point of view, he can only advise it to have the question of principle settled by the competent judicial authorities; or, if the firm accepts the principle of the taxation, to prove by means of an objective [Page 94] documentation that the profits which are attributed to it are exaggerated.

I avail myself [etc.]

For the Minister:
The Secretary General
F. Van Langenhove
  1. Note dated May 3 not printed.
  2. The following omission indicated in the original.
  3. Apparently no instruction was given with respect to further action in the matter.
  4. Underlined in original. [Footnote in the file translation.]