811.512356 Double/56
Memorandum by Mr. Horace G. White, Jr., of the Office of the Adviser on International Economic Affairs
My last memorandum, dated June 24,16 reported that the delegations had agreed to proceed with the preparation of a draft convention, leaving out the highly controversial aspects of fiscal cooperation and withholding rates. On Monday, June 27, the two delegations [Page 614] proceeded with actual negotiations within this delimited field, and on Thursday and Friday drafted a proposed convention. This draft is to be perfected next week for presentation on our part to Mr. Magill and other appropriate fiscal authorities, and the Netherlands delegation will submit the draft to The Hague.
As it now stands, the draft convention appears to contain only two controversial items: (1) the recision of outstanding American claims against Netherlands residents for capital gains made prior to the Revenue Act of 1936,17 and (2) a provision in the field of disclosure and enforcement of such extensive scope that the Netherlands is reluctant to concede. Mr. King, early in the week, stipulated that any concession to the Netherlands in regard to these capital gains cases could only be offset by a disclosure and enforcement concession on the part of the Netherlands drawn along certain lines. It will be recalled that before the impasse on the matter of withholding rates was reached last week an enforcement and disclosure concession by the Netherlands was set off against a withholding rate concession on the part of the United States. Since the capital gains concession on the part of the United States is regarded as of less value to the Netherlands than the rate concession, the original enforcement and disclosure proposal has been considerably modified.
It is possible that Mr. Magill will decline to grant the capital gains concession to the Netherlands or that The Hague will decline to grant this disclosure and enforcement concession. If this should be the outcome, it is hoped, however, that the remaining articles of the convention can be ratified. It is felt by both delegations that the remaining articles in themselves reflect a mutual exchange of concessions.
In as much as Mr. King is preparing a special report on the draft convention to Mr. Magill, it does not seem necessary for me to prepare anything on the details. Mr. King has assured me that he will make a copy of his report available to us for our information.
One sidelight that might be of interest is the attitude that Mr. Baumhauer18 has expressed toward the present draft convention. In a conversation with him the other night he told me that he thought he would oppose ratification of the present draft by The Hague. The chief reasons that he gave were: (1) the double taxation provisions did not cover subsidiary companies, but only establishments having the general character of foreign branch concerns; (2) he did not think any convention which left the existing withholding rate structure unmodified in favor of the Netherlands was worth anything; (3) he thought that our unwillingness to exempt [Page 615] the salaries of employees of the Holland House19—his personal interest—was unreasonable and shortsighted; (4) he thought that the double taxation provisions should not have been limited to income taxation but should have extended to death duties. I took this occasion to argue with him about the interest of the two countries in the convention as now drafted. While there is nothing that I could say that would do much to change his mind, I did get the impression that he has not thought out the pros and cons of his opposition, and he may actually in the final outcome be agreeable to the ratification. I have thought it of interest to note Mr. Baumhauer’s position because he is an important figure in Dutch-American relations.
The members of the Netherlands delegation who had come across the water for this occasion embarked for the Netherlands on Saturday, July 2. Mr. Molekamp, the Commercial Counselor of the Netherlands Legation, is left in charge of the further negotiations and arrangements in connection with the convention.
Another personal note—Mr. Albarda, who is an economic adviser to the Netherlands Treasury was almost totally inactive in these negotiations. The reason is that he was sent over primarily to be on hand in case the hot money question should come up. I understand from his associates that he is very highly regarded in the Netherlands as one of the capable young economists of the country who is expected to play an important part in his Government’s future economic relations with other governments.
- Not printed.↩
- 49 Stat. 1648, 1714.↩
- E. H. Baumhauer, delegate of the Netherlands-America Chamber of Commerce in Amsterdam.↩
- Holland House Corporation of the Netherlands, Inc., established in New York City in 1938 for the purpose of promoting better economic and cultural relations between the Netherlands and the United States.↩