Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

343. Letter from Ball to Dillon, February 22¹

February 22, 1961

Dear Doug:

I would like an opportunity to discuss with you at your earliest convenience a matter of mutual interest—that of the negotiation of treaties with less developed countries for the avoidance of double taxation on income, with special attention to the subject of “tax sparing”.

As you know, the prospect of obtaining by treaty a United States tax credit for taxes spared to attract new investment is the principle, if not the only, inducement for less developed countries to enter into tax treaties with our country. In addition to the treaties with India, Israel, and the United Arab Republic, which are currently before the Senate Foreign Relations Committee, treaties including such a provision are in an advanced stage of negotiation with Ceylon, Chile, the Republic of China, Ghana, and Peru. The tax-sparing principle has also been discussed with Malaya and Thailand, although negotiations with those countries are less advanced. It is expected that other less developed countries will soon wish to negotiate treaties providing credit for taxes spared. The Ghanaian treaty is especially urgent because its entry into force by October 1961 is a condition of the pending Valco investment.

Because doubts as to the propriety of the tax-sparing principle have been expressed by various individuals, including members of the Senate, I wish to discuss the matter with you, with a view to affirming a joint State-Treasury position. It is my belief that inclusion of a tax-sparing clause is vital to our tax treaty program with the less developed countries. The treaty program in turn is important to our foreign policy objective of encouraging American private enterprise to contribute to the economic development of these countries. You will recall that President Kennedy is on record as having favored a much more vigorous utilization of tax-sparing agreements abroad.

I hope we can get together very soon on this matter.

Yours ever,

George Ball

Under Secretary for
Economic Affairs

1. Meeting sought to affirm State-Treasury position on inclusion of tax-sparing clause in U.S. tax treaty program with the LDCs. Official Use Only. 2 pp. Department of State, Central Files, 611.00431/2–2261.