The Netherland Legation to the Department of State

No. 2115

Lately numerous private persons, firms and corporations in the Netherlands have received intimations from the United States Bureau of Internal Revenue to file returns for income received from transactions on stock exchanges in this country since 1929.

In these intimations the recipients were also informed that failure to comply within a specified period would mean the imposition of a fine and the levying of interest for delay in payment of the taxes which might be assessed.

As American citizens or organizations, non-residents of the Netherlands, are not required to pay income tax for profits derived from transactions on the stock markets in that country, the Netherland Government wonders if the action taken by the United States Bureau of Internal Revenue is not due to a misunderstanding.

As stated, the Bureau’s requests for information show that the intention is to assess taxes for income received since 1929.

If the intention to assess taxes for income received since 1929 should be carried into effect, the result would mean a great and undeserved hardship on the people and organizations concerned, who had no knowledge and could hardly be expected to have any knowledge that they would be held liable to taxation, a hardship which would even be [Page 490] increased if the imposition of fines and interest with which they are threatened, should actually take place.

It need not be explained that a tax as that which forms the subject of this aide-mémoire might harmfully affect the trade relations between our two countries by forcing the parties affected to divert their business to markets outside the United States.

The Netherland Government is anxious to discuss this and other tax matters with the United States Authorities in order to come to an agreement to prevent double taxation and would appreciate it if no further action were taken by the Bureau of Internal Revenue in the matter set forth above pending the outcome of the discussions.

The Netherland Government has in mind to base the agreement on the principle that individuals, firms and organizations of one country shall only be taxed in the other—as far as the results of their trades and industries are concerned—if these individuals, firms etc. maintain a definite residence or establishment in the latter for the transaction of their business or if they carry on their trades through a representative, resident in the latter country, who holds a full power of attorney to transact business on their behalf; the transaction of business through a broker not to be taxed in the country in which the broker is established.

The Netherland Government also suggests that the exemption to be provided by an agreement do not apply to the types of income referred to sub I (a) of the Protocol to the Convention on Double Taxation concluded between the United States and France, signed at Paris on April 27, 1932.