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of existing law so as to extend additional benefits to taxpayers or the "freezing" of existing law in order that taxpayers may be relieved of unnecessary apprehension regarding their tax status abroad.
The income-tax conventions with Sweden, France, and the United Kingdom contain national-treatment provisions whereby nationals (citizens or subjects) of one of the countries residing within the other country are accorded treatment, in regard to taxes, no less favorable than the treatment accorded the nationals (citizens or subjects) of such other country. In the case of the convention with France these provisions are extended to apply to corporations, but are restricted expressly to the taxes which are the specific subject of the convention. In the case of the convention with the United Kingdom, the latest to enter into force, the national-treatment provisions are broad, covering taxes of every kind or description whether National, Federal, State, Provincial, or municipal, and extending not only to nationals in the sense of United States citizens and British subjects but also to all legal persons, including corporations, partnerships, and associations. In the more recent discussions with representatives of foreign governments with a view to determining the possible bases for double taxation conventions, it has been the established policy of the United States representatives to propose the inclusion of a broad nationaltreatment provision along the following lines:
The nationals of one of the contracting states shall not, while resident within the other contracting state, be subjected therein to other or more burdensome taxes than are the nationals of such other contracting state residing in the territory of such other state. The term "nationals" as used in this article includes citizens and likewise all corporations, partnerships, and other legal entities created or organized in, or under the laws in force in the territory of, the respective contracting states. The term "taxes" as used in this article means taxes of every kind or description, whether national, state, provincial, or municipal.
As indicated in the last column of the tabulation, the United States has agreements with 13 countries relating solely to relief from double taxation on shipping profits. It has been customary for these agreements to be effected by exchanges of diplomatic notes. So far as the United States is concerned, the agreements are made under existing law, as expressed in section 212 (b) of the Revenue Act of 1928 (45) Stat. 791), as follows:
The income of a nonresident alien individual which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States, shall not be included in gross income and shall be exempt from taxation under this title.
The agreements made with other countries under this provision of law have the character, in each case, of a joint declaration by the two countries that under their respective laws the profits derived by nonresident aliens, nationals of the other country, and by corporations of the other country from the operation of ships documented under the laws of such other country are exempt from taxation.
Agreements regarding air transportation, commercial aviation, and air navigation were not included in the attached tabulation. However, in order to complete the record it should be pointed out that such agreements, which contain provisions affecting the rights and obliga
tions of American air lines with respect to the operation of aircraft within or over the territory of foreign countries, may have a bearing upon the legal or actual status of American direct investments abroad. It appears that any determination regarding the application of such agreements would depend upon the particular circumstances.
The following bilateral agreements are in force between the United States and foreign countries:
(1) Air transport agreements with Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Czechoslovakia, Denmark, Ecuador, Egypt, France, Greece, Iceland, India, Ireland, Lebanon, New Zealand, Norway, Paraguay, Peru, Philippine Republic, Portugal, Siam, Spain, Sweden, Switzerland, Syria, Turkey, Union of South Africa, United Kingdom, and Uruguay.
(2) Commercial aviation agreement with Colombia.
(3) Air navigation agreements with Canada, Denmark, France, Germany, Ireland, Italy, Liberia, Norway, Sweden, Union of South Africa, and United Kingdom.
(4) Agreements regarding recognition of certificates of airworthiness for imported aircraft with Belgium, Canada, Denmark, Germany, New Zealand, Norway, Sweden, Union of South Africa, and United Kingdom.
(5) Agreements relating to issuance of pilots' licenses with Canada, Denmark, Norway, Sweden, Union of South Africa, and United Kingdom.
(6) Air facilities service agreements with Australia, Burma, Ceylon, Czechoslovakia, Denmark, France, Italy, Netherlands, Norway, Siam, Spain, Sweden, Switzerland, and United Kingdom.
(7) Provisional arrangements with Finland, Iran, Italy, and Saudi Arabia granting unilateral rights to United States air lines.
The following multilateral agreements are in force between the United States and numerous foreign countries:
(1) Inter-American convention concerning commercial aviation, adopted at Habana February 28, 1928, effective for the United States August 26, 1931 (Treaty Series 840). Denounced by the United States, effective November 29, 1947.
(2) International convention for the unification of certain rules relating to international transportation by air, and additional protocol, signed at Warsaw October 12, 1929, effective for the United States October 29, 1934 (Treaty Series 876).
(3) International sanitary convention for aerial navigation, signed at The Hague April 12, 1933, effective for the United States, November 22, 1935 (Treaty Series 901).
(4) International sanitary convention for aerial navigation, 1944, signed at Washington for the United States January 5, 1945, effective for the United States May 29, 1945, modifying the convention (above) of April 12, 1933 (Treaty Series 992).
(5) Protocol, signed at Washington for the United States April 30, 1946, effective for the United States August 6, 1946, prolonging the international sanitary convention for aerial navigation, 1944 (Treaties and Other International Acts Series 1552.)
(6) International Civil Aviation Conference documents, signed at Chicago December 7, 1944:
(a) Convention on international civil aviation, effective for the United States April 4, 1947 (Treaties and Other International Acts Series 1591.)
(b) Interim agreement on international civil aviation, effective for the United States, June 6, 1945 (Executive Agreement Series 469). (c) International air services transit agreement, effective for the United States February 8, 1945 (Executive Agreement Series 487).
Countries with which the United States has treaties or other agreements containing provisions which appear to have a bearing on the legal status of American direct investments in foreign countries are marked with an X
2 The possible effect of the war upon the operation of the treaties with these countries is not dealt with.
B. LEGAL STATUS OF DIRECT INVESTMENTS IN FOREIGN COUNTRIES The statements concerning conditions in individual countries should be evaluated bearing in mind the following:
(1) Under present conditions in Europe the value of the statutory rights of foreign investors depends entirely on administrative procedure. This is particularly true of all laws concerning rights to do business, since the ability to do business depends on administrative action in allocation of foreign exchange, raw materials, etc.
(2) In many important instances, for example, in the matter of foreign exchange control, the statutes and regulations only contain the authority for administrative action, while the actual decisions and practices affecting American business undergo frequent changes on which up-to-date information is often not available.
(3) Statutes concerning the taxation of businesses are lengthy, complicated, and subject to changes. The matter of taxation therefore has been gone into only where taxes on foreign business materially differ from those applicable to domestic businesses.
(4) Statutes concerning the right of foreigners to do business and the formalities to be complied with by foreign businesses are frequently voluminous and complicated, but are usually similar to each other in that they concern the proof of the legal status in the country of domicile, the appointment of a fully authorized representative in the foreign country, proof that the bylaws do not interfere with the public interest, an undertaking to abide by local laws and certain regulations concerning publication of financial statements, changes in the bylaws of capitalization, and sometimes a prohibition to acquire land in frontier districts. For this reason the matter has been gone into only where there is special evidence of discrimination or other subjects of particular interest. In many cases the formalities applicable to the establishment of a foreign business can be minimized by incorporating a local subsidiary.
THE UNITED KINGDOM AND THE BRITISH DOMINIONS
Right to do business.-The British Companies Act of 1939, as amended, contains no provisions designed to discriminate between nationals and foreigners in the formation and operation of British companies. Furthermore, an American corporation or other person in establishing a British subsidiary encounters no special nationality requirements such as with respect to directors and shareholders.
When a foreign corporation establishes a place of business within the United Kingdom, it must, within 1 month, register as a branch of the foreign corporation with the Registrar of Companies. This involves the filing of certified copies of its charter, articles of association, etc., the payment of registration fees, and the submission of the annual statement of the company. Such an organization is accorded under the law substantially the same privileges and is subject to the same requirements as a British enterprise.
In all of the Dominions of the British Commonwealth the company laws are adaptations of the .1939 British Act (a consolidating and amending act) or earlier British legislation on this subject. Consequently, the company laws of the Dominions are to a large extent similar to the United Kingdom act and contain no discriminatory provisions against foreigners.
Many of the controls over industrial activities exercised during the war in the United Kingdom continue in effect in modified form, such as the allocation of certain raw materials in short supply, control of industrial construction, and the location of new industries. Many products, especially consumer goods remain subject to price controls. In the administration of these controls American branch plants are apparently being treated on the same basis as national enterprises.
The Borrowing Control and Guarantees Act, 1946, applying both to residents and citizens of the United Kingdom and to resident foreigners in the United Kingdom provides that the borrowing of money or the issuance of securities in excess of £50,000 in any year requires the prior consent of the British Treasury. In addition, under the Exchange Control Act, 1947, all loans of any kind made by United Kingdom residents to any corporation or branch business resident in the scheduled territories which is by any means controlled by residents outside the scheduled territories are subject to the permission of the British Treasury. (Scheduled territories are roughly equivalent to those formerly comprising the sterling area.) Consequently, American subsidiaries and branches operating in the United Kingdom and scheduled territories cannot borrow money in the British money market, whether in the form of bank loans or of securities, without the consent of the British Treasury and subject to such conditions as may be imposed.
There is no Commonwealth companies law in Australia so that foreign companies desiring to establish a place of business in Australia are, as in the United States, subject to the licensing requirements of the individual States, or they may incorporate a subsidiary under the Companies Act of one of the States. The latter type of company is subject to licensing requirements when establishing a place of business in other Australian States to the same extent as an exAustralian company. There are no discriminatory provisions in the companies acts of any of the Australian States.
Three methods are available for an American corporation intending to operate in Canada: (1) Registration of a branch as an extra-Provincial company in a Canadian Province; (2) formation of a Provincial company as a subsidiary; and (3) formation of a Dominion company as a subsidiary. As among the States of the United States, a foreign corporation (whether incorporated in a foreign country or in another Province) is required to take out a license in each Province in which it carries on business through a branch establishment. There are no nationality restrictions in the several Canadian company laws.
As of August 15, 1947, two separate Dominions were established, designated as India and Pakistan, which, by June 30, 1948, will decide whether they desire to continue as Dominions of the British Commonwealth, or to sever this tie completely. The existing Indian Companies Act, based on British company law principles, does not contain nationality restrictions. It may be stated that there exists in both India and Pakistan considerable sentiment for the imposition of requirements for local participation in industrial enterprises operated by foreign nationals, but this is counterbalanced to some extent by the recognition of a need to encourage foreign technical assistance in the development of the industrialization programs.
Taxation. United States tax conventions with the United Kingdom for the avoidance of double taxation with respect to income taxes