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TABLE 29.-Gold and short-term dollar resources of foreign countries as of June 30,
1 Official gold holdings; for countries whose holdings have not been published, available estimates have been used.
2 Deposits and other short-term dollar resources, as reported by banks and bankers in the United States to the Federal Reserve banks and the U. S. Treasury.
3 Includes $10,000,000 held by Ethiopia, Liberia, Greenland, and unidentified countries.
CHAPTER III. STATUS OF AMERICAN INVESTMENTS IN FOREIGN COUNTRIES
This chapter is based on a survey of available data regarding the status of American investments in foreign countries in response to item 7 of Senate Resolution 103. It is nonstatistical and primarily legal.
Item 7. The legal and actual status of American direct investments under the laws and current practices of the respective foreign countries in which such investments have been made.
The discussion has been divided into three parts. First is a discussion of the provisions of treaties between the United States and foreign countries to the extent that they affect American direct investments abroad. Second is a brief survey of foreign laws and decrees that affect American-owned property, together with available data regarding the administration of such laws and decrees if it is in any manner discriminatory against this country. In addition to this material on direct investments, there is appended, as the third part of this chapter, a note on the status of defaults on foreign bonds publicly offered in the United States.
A. TREATY PROVISIONS
So far as the legal status of American direct investments abroad is concerned, the laws of the respective foreign countries are affected by applicable treaty provisions in force between the United States and such foreign countries. Such provisions may be classified, in general, as follows: (1) those which expressly accord rights to nationals or corporations to engage in commercial activity, enterprise, or business; (2) those which, while not expressly according such rights, do extend (a) most-favored-nation treatment, either conditional or unconditional, so that for all practical purposes American nationals or corporations would be entitled to the rights in question if the nationals or corporations of any third country were accorded such rights, or (b) national treatment, according the same rights as the rights of nationals or corporations of the country in which the activity is carried on; and (3) those which modify or implement the local law in connection with the exercise of an expressed or implied right.
ESTABLISHMENT OF AND PARTICIPATION IN CORPORATIONS
Under the first heading in the attached tabulation, those countries are identified with which treaty provisions deal specifically with rights concerning the establishment of, and participation in, corporations. The earliest of the 11 treaties indicated in that column is the one with Germany concluded on December 8, 1923. Articles XII and XIII of that treaty are typical. Article XII relates to the recognition of the juridical status of corporations of one country which have central. offices in the other country, it being provided, nevertheless, that the
right of such corporations to establish themselves within such other country and to establish branch offices and fulfill their functions therein shall depend upon, and be governed solely by, the consent of the government of such other country as expressed in its national, state, or provincial laws. Article XIII relates to the rights of the nationals of one of the countries, reciprocally and upon a most-favorednation basis and upon certain conditions, with respect to the organization of and participation in corporations.
These specific provisions are in addition to provisions of the customary type relating to entry, residence, and establishment (covered under heading II). In earlier treaties it was not customary to refer to corporations specifically. In fact, many of the existing treaties of the United States were made at times when corporations were virtually unknown in international commercial relations. The position has been taken that treaty provisions which accord certain rights to nationals or citizens of foreign countries with respect to establishment or the carrying on of trade or business do not apply, in general, to corporate bodies. The general principle applicable in this country to a corporation doing business beyond the limits of the sovereign authority under which it was created has always been that the corporation, being the mere creation of local law, can have no legal existence beyond those limits. (See, e. g., Paul v. Virginia, 8 Wall. 168, 181.) It is an accepted doctrine in this and in other countries that foreign corporations may be subjected to conditions and restrictions not imposed upon domestic corporations and are forbidden to engage in some activities permitted to domestic corporations. It is true that there has been an evolution in American public law away from the extreme or harshly restrictive theory in regard to foreign corporations, with a tendency toward adoption of the doctrine of compulsory recognition.
Treaty provisions dealing specifically with this matter are, as indicated above, of comparatively recent origin, and corporations as such are not in a tenable position in claiming rights under treaty provisions which accord rights to nationals or citizens without specifying that corporations shall be accorded similar rights. This is true despite the fact that where the treaty provisions are readily capable of a liberal interpretation, so as to cover corporate activity, there is an increasing tendency to extend to corporations privileges which are not inconsistent with local law. Apart from the 11 treaties mentioned above, the provisions in force between the United States and foreign countries respecting the legal status of corporations and their right to carry on business are comparatively few.
RECIPROCAL TRADE AGREEMENTS
The third heading in the tabulation refers to "Provisions otherwise modifying or implementing law." This is in the nature of a catch-all column to cover provisions, not otherwise covered in other columns, which might have some bearing, directly or indirectly upon the status of American direct investments abroad by requiring or facilitating the modification or implementation of local law. For the most part, the provisions which are referred to in the fifth column are those which are contained in reciprocal trade agreements and have relation (1) to the establishment or maintenance by either
contracting party of a monopoly for the importation, production, or sale of a particular commodity; or (2) to the establishment or maintenance by either contracting party of any form of exchange controls (control of the means of international payment); for example, articles VIII and IX, respectively, of the trade agreement of 1939 with Venezuela (Executive Agreement Series 180).
It would be impossible in the case of most of the provisions to undertake any authoritative statements as to how the provisions would apply under specific circumstances, inasmuch as this involves interpretations, sometimes by the courts. Nevertheless, it appeared advisable to include some reference to them because of their possible application.
DOUBLE TAXATION CONVENTIONS AND AGREEMENTS
For over a quarter century section 131 of the United States Internal Revenue Code has provided that income and profits taxes paid to foreign governments may be credited against income tax otherwise due to the United States Government. This provision is most helpful to American foreign investment. However, it has been found desirable to supplement it with bilateral treaties for the avoidance of double taxation and for administrative cooperation for the prevention of tax evasion.
Conventions relating to taxes on income are in force between the United States and four countries, namely, the United Kingdom, Canada, France, and Sweden. Conventions relating to taxes on the estates of deceased persons-commonly referred to as estate taxes or death duties are in force between the United States and two countries, namely, the United Kingdom and Canada.
The imposition and collection of taxes upon the same income or upon the same estate by both the United States and a foreign country may, and often does, result in double taxation of a severe character. The conventions above mentioned have been concluded and brought into force for the purpose of avoiding such double taxation, so far as practicable, modifying certain conflicting principles of taxation for this purpose, and establishing certain procedures for the exchange of information in relation to taxation. It is considered (1) that provisions of income-tax conventions constitute a definite step toward the removal of undesirable impediments to international trade and stabilize to a considerable degree the conditions under which nationals and corporations of one of the countries carry on their business and investment operations in the other country, and (2) that the provisions of estate-tax conventions go far toward eliminating double taxation in connection with the settlement in either country of estates in which nationals and corporations of the other country have interests. The avoidance of double taxation is achieved, in general, by either of two methods, namely, (1) by the specific exemption of certain types of income or property from taxation in one of the countries, or (2) by the allowance of a credit by one of the countries for taxes paid to the other country upon certain types of income or property. The double taxation conventions are somewhat unique in comparison with other international agreements. While not diminishing in any respect any right, deduction, or credit which taxpayers may have under existing legislation, the conventions have for their primary object the modification