INTERNATIONAL DOUBLE TAXATION

FRIDAY, FEBRUARY 28, 1930

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS, Washington, D. C. The committee met at 10.30 a. m., Hon. Willis C. Hawley (chairman) presiding.

The CHAIRMAN. This is a hearing on H. R. 10165, a bill to reduce international double taxation, proposing the simplification of procedure in relation to the taxes due from our citizens abroad and due from foreigners in this country. The Chair offers for the record a copy of the bill and a copy of the formal report of the Treasury on the subject. The Treasury has had charge of the negotiations generally in connection with this matter and the Secretary of the Treasury, Hon. A. W. Mellon, is here present, and we will be very much delighted, Mr. Secretary, to hear any statement you may desire to make. (The bill, H. R. 10165, and the report above referred to, are as follows:)

[H. R. 10165, Seventy-first Congress, second session]

A BILL To reduce international double taxation

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the income of an individual who is a resident of a foreign country, or of a corporation created or organized in or under the law of a foreign country, shall be exempt from taxation by the United States if the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, determines that such foreign country grants an equivalent exemption in respect of income of individuals who are residents of the United States, and of domestic corporations, except that the following shall not be exempt from taxation under this section:

(a) Income derived from any business, trade, or profession which is allocable to a permanent establishment in the United States;

(b) Compensation for labor or personal services performed in the United States;

(c) Income derived from real property located in the United States or from any interest in such property, including rentals and royalties therefrom, gains from the sale or other disposition thereof, and interest on obligations (other than obligations of a corporation) secured by such property.

SEC. 2. Compensation paid by a foreign country to its citizens for labor or ersonal services performed in the United States shall not be included in gross income and shall be exempt from taxation by the United States if the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, determines that such foreign country grants an equivalent exemption in respect of the compensation paid by the United States to its citizens for labor or services performed in such foreign country; and compensation paid by the United States which is thus exempt from taxation by a foreign country shall not be excluded from gross income under section 116 (a) of the revenue act of 1928.

SEC. 3. Pensions paid by a foreign country to an individual who is a resident of the United States shall not be included in gross income and shall be exempt from taxation by the United States if the Commissioner of Internal Revenue,

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with the approval of the Secretary of the Treasury, determines that such foreign country grants an equivalent exemption in respect of pensions paid by the United States to residents in such foreign country.

SEC. 4. The income of an individual who is a resident of a foreign country, or of a corporation created or organized in or under the law of a foreign country, which consists exclusively of earnings derived from the operation of aircraft shall not be included in gross income and shall be exempt from taxation by the United States if the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, determines that such foreign country grants an equivalent exemption to residents of the United States and to domestic corporations.

SEC. 5. (a) For the purposes of this act, a tax imposed in respect of the income of a corporation shall not be considered as imposed on the shareholder, whether or not such tax may be recouped by the corporation from the shareholder; but a tax imposed in respect of dividends distributed by a corporation shall be considered as imposed on the shareholder.

(b) If it is determined under this act that a foreign country grants an equivalent exemption and any income from sources within such country is on that account exempt from tax in such country, then such income shall not be considered as income from sources without the United States for the purposes of section 131 of the revenue act of 1928.

SEC. 6. The exemption under section 1 of this act shall be effected by the exclusion or deduction of the exempted items from gross income, in accordance with such regulations as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may prescribe. In the case of items of income which are subject to withholding at the source and which are exempt from taxation by the United States under this act, the Commissioner of Internal Revenue is authorized, if he determines to effect the exemption by way of deduction, to give effect to such exempton by refunding or crediting as an overpayment any tax paid in respect thereof, or by relieving the withholding agent of his obligation to withhold. There shall not be allowed as a deduction from gross income any deduction properly allocable to or chargeable against items of income which are exempt from tax by this act.

SEC. 7. Any determination under this act that a foreign country grants an equivalent exemption shall, unless revoked, be applicable to the taxable year in which such determination is made and to each taxable year thereafter.

SEC. 8. (a) Notwithstanding the fact that it is determined under section 1 of this act that a foreign country grants an equivalent exemption in respect of a taxable year, an individual shall not be granted, for any part of such taxable year, the exemption under section 1 of this act unless he has been, for at least six months during such taxable year, a resident of such foreign country.

(b) As used in this act the term "permanent establishment" includes real centers of management, statutory offices or seats, branches, mines, oil wells, factories, workshops, warehouses, offices, agencies, and other fixed places of business; but the fact that an individual who is a resident of a foreign country, or a corporation created or organized in or organized under the law of a foreign country, has business dealings in the United States through a bona fide commission agent or broker shall not be held to mean that such individual or corporation has a permanent establishment in the United States. Income allocable to permanent establishments in the United States shall be determined in accordance with regulations prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury. If, in the opinion of the commissioner, a corporation has its real center of management in a country other than that in or under the laws of which it was created or organized, such corporation may be treated as if organized where its real center of management is situated. (c) The terms used in this act shall have the same meaning as when used in the revenue act of 1928.

(d) This act may be cited as the "International double taxation relief act of 1930."

Hon. WILLIS C. HAWLEY,

Chairman Committee on Ways and Means,

House of Representatives.

FEBRUARY 18, 1930.

MY DEAR MR. CHAIRMAN: In the annual report of the Secretary of the Treasury for the fiscal year ended June 30, 1929, some of the principles involved in the plans proposed for relief from international double taxation were dis