Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

CR–4. Memorandum from the Chief of the International Tax Staff, Department of the Treasury (Gordon) to the Officer in Charge of Costa Rican-Nicaraguan Affairs (Taylor)¹

Washington, March 28, 1958

SUBJECT

• Meeting between President Echandi of Costa Rica and Dan Throop Smith, Deputy to the Secretary of the Treasury, March 27, 1958

The President, after preliminary greetings, expressed his intention to devote his country’s resources to economic development to the maximum possible extent. He pointed out that taxes from banana companies constitute an important potential source of revenue. Three banana companies are or will be trading in Costa Rica: United Fruit, Standard, and a local company (possibly Bananaria). Only United Fruit, however, does not pay tax on its total income, he stated. Moreover, its income alone is not susceptible of determination by Costa Rica. Prices for the export of meat, which is being promoted, are set by a production council. Coffee contracts and the prices are registered with the government. Sugar has a world price and profits of Costa Rican companies can be based upon that world price. The same is true of cocoa. Only in the case of bananas has it not been possible to obtain an “independent” determination of profits. Rather than act arbitrarily, the President would prefer to come to some amicable agreement in the matter.

Mr. Smith indicated briefly how the fifty-fifty arrangement came into being and the fact that there is no independent banana price makes it necessary to resort to a formula. The formula, he emphasized, was utilized not only in the United Fruit case but in other situations—where an America company sells to its distributing subsidiary abroad and no independent price exists. The formula used for imports is also used for exports.

After some discussion, Mr. Smith indicated that the Treasury would be very glad to give its attention to this problem promptly.

In passing, the President expressed an interest in having an American tax expert go to Costa Rica for a month or two to assist in improving their tax system. However, no comment on this request was made by Treasury.

Mr. Smith suggested that Costa Rica may want to give consideration to the possibility of reaching an agreement on a tax convention between our two countries. The Costa Ricans expressed an interest and requested copies of recent tax treaties. Two sets of copies of the U.S. convention with Honduras, Japan and Germany² are being forwarded to President Echandi.

Present for Treasury were: Mr. Dan Throop Smith; Mr. David Lindsay, Assistant to the Secretary; Mr. Nathan Gordon, Chief, International Tax Staff.

1. Source: Department of State, Central Files, 718.11/3–2858.
2. For text of the Tax Convention with Honduras, signed at Washington, June 25, 1956, see 8 UST 219; with Japan, signed at Washington, April 16, 1954, see 6 UST 113 and 149; and with Germany, signed at Washington, July 22, 1954, see 5 UST (pt. 3) 2768.