beneficiaries of this legislation if it were put into effect-whether American nationals or foreign nationals would gain by it.

Secretary MELLON. I do not believe that can be approximately determined, at all.

Mr. MILLS. I think we can, so far as individuals are concerned. We are having the matter looked into now and trying to make a careful compilation of returns filed at Baltimore by nonresidents and I think we can get a fairly accurate picture. We did the same thing two or three years ago and found we were not collecting any very considerable amount. My recollection is when we last looked into it the principal foreign taxpayers (I am talking about individuals) did not pay more than five or six million dollars. Is not that correct, Mr. Alvord?

Mr. ALVORD. Yes, sir.

Mr. MILLS. Whereas, on the other hand, when you consider the very large sum of American money that is being invested abroad and the fact that taxes paid at the source are deducted from the American tax by means of a credit, our best estimate is that in the long run we are going to be the gainer from this legislation, rather than loser; but, in any event, we hope to have the best figures we can get in the course of the next two or three weeks.

Mr. GARNER. I would like to ask in that connection, if I may, Mr. Secretary, what is the opinion of the Treasury Department as to the public policy of this country, by its tax methods, encouraging American capital to make investments abroad?

Secretary MELLON. I do not think there is any opinion on that, or any inclination to encourage investments abroad. That is something that comes through the general working of foreign trade and com

merce.

Mr. GARNER. Do I understand, then, that the Treasury Department does not believe in the matter of taxation we should encourage American capital to make investments abroad?

Secretary MELLON. This is not in the nature of encouraging American capital to make investments abroad, but it is treating the matter of American taxpayers on a broad principle by which, whatever they do in that direction, they will not be penalized.

Mr. GARNER. Well, I do not care to press you if you do not care to answer the question direct. My question was, What is the opinion of the Treasury Department as to the public policy of arranging our tax laws so as to encourage American capital to make investments abroad?

Secretary MELLON. I do not think there would be any occasion for arranging our tax laws with a view to encouraging investment of capital abroad. That investment will be made without regard to anything that we may do.

Mr. GARNER. Well under this arrangement that Mr. Mills has just spoken of, of this capital being invested abroad and making this reciprocal, if it would be advantageous to that capital, that certainly would be encouraging that capital to make investment abroad. Secretary MELLON. It is to that extent; it is encouraging to our investors. There is a very great volume of American capital invested abroad.

Mr. GARNER. Oh, I know there is.

Secretary MELLON. And very much more than there is of foreign. capital invested in this country.

Mr. GARNER. I was just wondering, though, what your idea of the public policy should be with reference to enacting our tax laws-for instance, reciprocal relations-so as to encourage American capital to make foreign investments.

Secretary MELLON. I do not think there would be any occasion to consider that in the making of our tax laws.

The CHAIRMAN. Well, Mr. Secretary, is this the situation? As I understand this proposal, it arises out of existing conditions of trade and commerce wherein our American people have made investments abroad and foreign people have made investments in the United States, creating a certain situation and difficulty in regard to tax matters, and this is a proposal to simplify the situation so that it will operate fairly to all parties concerned?

Secretary MELLON. Yes.

The CHAIRMAN. Now with reference to increasing our capital abroad or foreign capital here, that situation exists now and what is the best way to deal with it?

Secretary MELLON. It is just to afford an equitable arrangement to our citizens who do business and have investments abroad and, in order to accomplish that, to afford the same opportunity to foreign investors in this country.

Mr. GARNER. In other words, if we make reciprocal relations we will encourage Americans to make investments abroad and the foreigners to make investments in this country?

Secretary MELLON. It will encourage general trade.

Mr. GARNER. General investments-foreigners investing in this country and Americans investing in foreign countries? Secretary MELLON. Exactly.

The CHAIRMAN. Have you concluded your statement, Mr. Secretary?

Secretary MELLON. I have concluded.

The CHAIRMAN. Have you any statement to make, Mr. Mills? Mr. MILLS. No, Mr. Chairman; I think that Doctor Adams is here, prepared to discuss the history of this movement and the specific features of it.

Mr. GARNER. Mr. Mills, I wish you would give for the record your understanding of the conference that we had at the Treasury Department that I referred to a moment ago.

Mr. MILLS. Well, I think my understanding is the same understanding as the Secretary's, Mr. Garner, and I am confirmed in that belief by the fact that in the part of the annual report dealing with double taxation we stated very specifically that we would submit certain recommendations to Congress at this present session. I happened to write that part of the report, and it was written at about the time of the conference, and that would indicate to me very clearly that what we had in mind was, if we passed the emergency measure dealing with tax reduction this year, that would preclude the Treasury from coming to Congress with any general tax bill affecting the revenues or the rates this year. It never occurred to me that the understanding would apply to this kind of a suggestion. We are bringing it to you now because you have more time for consideration and study. It is a new question, a new problem, and if we should come in December, at a time when your minds will be occupied possibly with rates and the revenues needed for the next fiscal year

and you feel the necessity of acting promptly in order to make the rates effective by March 15, this committee would not have the time to give to a new question.

Mr. GARNER. Are you familiar with the debates in the Senate on the $160,000,000 reduction bill?

Mr. MILLS. No; Mr. Garner.

Mr. GARNER. I think if you will examine the debates over there, there was an effort made to amend the bill over in the Senate and the statement was made by some of the gentlemen who attended that conference that they were favorable to those amendments; but under the agreement they had entered into at the Treasury Department that there should be no amendments to that resolution and that there should be no other tax legislation at this session of Congress they could not support any amendment to it. I had occasion to examine this yesterday, I believe, and I had occasion to discuss the matter with Senator Watson and Senator Smoot and Senator Harrison and Senator Simmons, and that was their impression-that there was to be no other legislation at this session of Congress. Now, I am not speaking of that for the purpose of discussing the merits of this bill-it may have very great merit but I do think we ought to be very careful when we enter into agreements to observe them as far as it is possible to do so.

Mr. MILLS. Oh, I think it is essential and you realize, of course, if it had occurred to anyone in the Treasury that this in any way violated the letter or spirit of any understanding, it would never have been suggested; or, if it had been suggested, it would have been presented with the simple statement that we call this to your attention and ask you to examine into the legislation, not with a view of enacting it at the present time but to have it before you for study.

Mr. GARNER. I recall one distinct occasion, Mr. Secretary, when I sought to modify an agreement made by you and you very frankly said, "No, sir; you have made that agreement and you are going to keep it," and I said, "Yes, sir; I am going to keep it." [Laughter.] The CHAIRMAN. Would it be in order to inquire what the agreement was?

Mr. MILLS. That is a dangerous question, Mr. Chairman.

Mr. GARNER. Yes; it would be in order to inquire what the agreement was. I wanted to modify in conference the 80 per cent deduction by the States in the inheritance tax and I called Mr. Mills because he was the only one I had the conference with and I did not have anybody else to see but him, and I called him and I said, "Would it be agreeable to you to modify this," and he spoke in very strong language over the phone and said, "It would not; you said you would do so and so and you are going to keep that agreement," and I said, "Yes, sir; I am going to keep that agreement." [Laughter.]

Mr. MILLS. Mr. Garner, I can assure you there is not a thought on the part of any one in the Treasury Department in any way to violate the spirit of an agreement. I think, if you think the matter over, you would agree it is perfectly legitimate, even in view of the agreement, to come here and submit this proposition to you for your consideration at this time, so as to give you plenty of time to think

it over.

Mr. RAMSEYER. On the first page of the bill it speaks of the income of an individual and of a corporation, in line 3. Now there I pre

sume you mean a United States citizen residing abroad, doing business there; is that correct?

Mr. MILLS. Yes.

Mr. RAMSEYER. Now in line 4 it is "corporation organized under the law of a foreign country." Does that mean a corporation located in another country, say Switzerland, organized under the laws of Switzerland, and the stock owned by American citizens, or what does it mean?

Mr. MILLS. It means just what it says, Mr. Ramseyer-a corporation created or organized in or under the law of a foreign country, a foreign corporation.

Mr. RAMSEYER. Suppose it is owned by Swiss citizens-we have nothing to do with that; there is nothing exempt there?

Mr. MILLS. We would have if part of their income were derived in the United States, you see. Of course, if they have no income from the United States, we are not interested in them; but if they happen to have income in the United States, they come squarely under our jurisdiction.

Mr. RAMSEYER. Do you mean then, in line 3, any individual, whether a foreigner or United States citizen?

Mr. MILLS. Yes; who is a foreign resident.

Mr. RAMSEYER. That is either United States citizen or Swiss citizen, in Switzerland?

Mr. MILLS. Yes.

Mr. RAMSEYER. The business he does in Switzerland is not to be taxed here?

Mr. MILLS. That is right.

Mr. RAMSEYER. Then a Swiss corporation, either owned by the Swiss or Americans doing business in Switzerland, is not to be taxed here?

Mr. MILLS. Oh, you can not make that sweeping statement; you have to read all the provisions of the bill. They are not to be taxed on certain types of income derived in the United States; but, on the other hand, if that Swiss corporation maintains a permanent establishment in the United States, then it has to pay a tax on the income that is properly allocable to the business done in the United States.

Mr. RAMSEYER. I know; I have read the bill through once, and there are certain exemptions, but I want first to get at the use of these terms. Now in line 3 what do you mean by individual and, in line 4, what do you mean by corporation?

Mr. MILLS. Well the word "individual" means an individual, no matter what his nationality, and he is to be taxed on dividends, interests, royalties, at the place of residence. It is true that the corporation if it does business through a permanent establishmentor the individual who maintains a permanent establishment-in this country, is to be taxed on the income that is properly allocable to the establishment in this country.

Mr. RAMSEYER. In the first six lines it deals with individuals and corporations who are resident abroad.

Mr. MILLS. Yes.

Mr. RAMSEYER. And, speaking of corporations, limits it specifically to corporations organized in or under the laws of the foreign country. Now you say they shall be exempt. Of course, you do not mean that a Swiss citizen or a Swiss corporation doing business in

Switzerland, with no business here. It would be absurd to try to cover individuals and corporations and businesses wholly in another country; certainly you have no reference to that kind of a situation. Mr. MILLS. We certainly have, Mr. Ramseyer. A Swiss citizen who owns stock in an American corporation or derives interest from American bonds is taxable in the United States to-day.

Mr. RAMSEYER. Well, but the first four lines there have reference to an individual abroad and to a business abroad and to a corporation abroad. Further on you make some provisions covering what you have explained; but here, in the first page, you certainly, in line 3, have in mind a certain kind of individuals. That is what I am trying to get at. And in line 4 you must have in mind a certain kind of corporation.

Mr. MILLS. We have in mind a now resident individual and a foreign corporation.

Mr. RAMSEYER. Then when you get down further, line 9, with respect to the income of individuals resident in the United States, that means either foreigners or citizens, I presume?

Mr. MILLS. Yes.

Mr. RAMSEYER. Now, then, if we want to tax the business abroad of individuals or corporations resident abroad, if that country will not tax the individuals or corporations here, it would only apply to foreign individuals and corporations owned by foreigners here. Now, in line 3, you have individual in the singular: in line 9 you speak of individuals in the plural. Is there any significance in that?

Mr. MILLS. Why, I do not think there is any significance.

Mr. RAMSEYER. Then why not have it plural in both places or singular in both places?

Mr. MILLS. I take it you could with respect to the income of an individual who is a resident of the United States-I take it that the meaning would be the same. Doctor Adams did most of the actual drafting. There is no significance in the use of the plural, is there, in the second place?

Doctor ADAMS. No.

Mr. RAMSEYER. You are loaded down there with experts in the Treasury Department and everything that comes up here has a peculiar significance and I am trying to get at that.

Mr. MILLS. I do not think there is any significance in the use of the singular in the first place and the plural in the second place.

Mr. RAMSEYER. If the committee ever sits down and reads this bill section by section, we will have the service of your experts to explain what you mean by these various terms?

Mr. MILLS. Yes, I presume the usual procedure will be followed of discussing it line for line.

Mr. ESTEP. Mr. Mills, I do not know that I have got this clear after these questons. Supposing that an American citizen went over to England and took up his permanent residence abroad and held stock in a number of American corporations: At the present time he is an American citizen residing in England and pays to the Government an income tax from the dividends derived from those stocks and bonds.

Mr. MILLS. He does.

Mr. ESTEP. And he also, as I understand it, pays an income tax in England?