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

CR–7. Letter from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Secretary of the Treasury’s Deputy (Smith)¹

Washington, June 19, 1958

Dear Mr. Smith:

While Mario Echandi, then President-elect of Costa Rica, was in Washington he called upon you and other Treasury officials on March 28 to discuss a revision in the U. S. tax regulations whereby 50 percent of the profits of United Fruit Company and its Costa Rican subsidiary are taxable in the United States and the other 50 percent taxable in Costa Rica. Mr. Echandi expressed at that time a desire to work out an arrangement whereby a larger percentage of the profits would be allocated to the producing subsidiary company in Costa Rica. This would be done, he stated, without hardship to the United Fruit Company, by increasing the base for taxation of the firm’s profits in Costa Rica.

President Echandi, who was inaugurated on May 8, has reiterated to our Ambassador in San Jose, a continuing interest in this matter, and the Department has been informed that other Central American countries in which United Fruit has subsidiaries also share his view. The Department recognizes, of course, that questions relating to allocation of income for tax purposes under the Internal Revenue Code, involving as they do the fair and equitable administration of United States text laws, are within the province of the Treasury Department. Furthermore, the Department is not in a position, and has no desire, to become involved in the particular tax problems of individual American companies under the U.S. Revenue Laws.

The recent drop in commodity prices has resulted in a reduction of income to Costa Rica as well as other Central American countries. For this, as well as other reasons, the Department of State considers that, generally, feasible measures which will improve the economic position of such countries will be beneficial in furthering our foreign policy interests. To the extent that such measures may be taken within the ambit of a fair and equitable administration of the tax laws, the Department considers that they would be in the national interest.

Sincerely,

R.R. Rubottom, Jr.

1. Source: Department of State, Central Files, 811.05118/6–1958. Confidential. Drafted by Stewart and Taylor, and delivered to Smith by Stewart on June 19. At that meeting Stewart told Smith that Echandi wanted a 75–25 split for taxes on UFCO profits. Smith said that presented no problem to the Treasury Department. (Memorandum from Stewart to Rubottom, June 19, 1958; OAP Files, Lot 61 D 473, “Costa Rica”) Rubottom noted on Stewart’s memorandum that this was “very good news.”