tion that the general purpose of the treaty was. . . to facilitate commercial exchange through elimination of double taxation resulting from both countries levying on the same transaction or profit; an additional purpose was the prevention of fiscal evasion.” Maximov, supra, at 54, 83 S.Ct. at 1057.

The fact is that the plaintiff is not confronted with a problem of double or burdensome taxation that the treaty was designed to alleviate or eliminate. There is no double tax on the income of the plaintiff since it is not taxed in France. There is no obstacle to trade or commercial intercourse in the context of this case, and considerations of fiscal evasion are not involved. "We cannot . . . read the treaty to accord unintended benefits inconsistent with its words and not compellingly indicated by its implications." Maximov, supra at 55, 83 S.Ct. at 1057. "Our interpretation affords every benefit negotiated for by the parties to the Convention on behalf of their respective residents and prevents an unintended tax windfall to a private party." Maximov, supra at 56, 83 S.Ct. at 1058.

[6] The plaintiff claims, based on the treaty, that an adverse decision would violate the rule of comity. This is not so because the only tax authority involved is that of the United States. If the United States surrendered its authority in accordance with the plaintiff's claim, it would gain nothing for which it negotiated under the treaty. Also, France has no interest in this matter because its authority to tax is not involved. France disclaimed its right to tax the income in dispute. United States' interests and benefits are the only ones involved relative to the Convention, therefore a result unacceptable to the plaintiff, either based on the Convention or indirectly structured through an unfavorable choice of law, in no way violates the principles of comity. The decision merely protects the principle of the Convention, avoidance of double taxation.

U.S.-Poland

On October 8, 1974, the United States and Poland signed an income tax treaty in Washington similar to other recent U.S. tax conventions. It incorporates the same basic principles with respect to the taxation of business income, personal service income and income from investments, and includes provision for nondiscriminatory tax treatment and for reciprocal administrative cooperation.

Under this treaty, which is subject to Senate approval, profits derived by a resident of either country would be subject to tax by the other country only to the extent that the profits were attributable to a "permanent establishment” in that other country. Employees would not be taxable by the other country on their personal service income unless the services were performed there during a stay lasting longer than six months of the year. The rates of tax imposed on dividends, interest and royalties would be reciprocally limited to 15 percent on

portfolio dividends, 5 percent on dividends from a share holding of 10 percent or more, zero (exemption) in interest, and 10 percent on royalties and film rentals. In the absence of the treaty, the U.S. tax rate would be 30 percent of the gross amount and the Polish tax, imposed at graduated rates, also reaches 30 percent of the gross amount.

The tax treaty, if approved by the Senate, and ratified by the President, would take effect as of January 1, 1974, and would remain in force for a minimum of five years. It then would continue in force indefinitely, unless terminated by either party.

U.S.-Italy

On December 18, 1974, the United States and Italy announced agreement that following the adoption of changes in Italian tax legislation, the 1955 U.S.-Italy Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (TIAS 3679; 7 UST 2999; entered into force October 26, 1956) will be considered to be applicable to the Italian income tax on physical persons and to the Italian income tax on juridical persons as of January 1, 1974, the date when the two new taxes came into effect.

Accordingly, the Italian tax on dividends paid by an Italian corporation to a U.S. resident or to a U.S. corporation not having a permanent establishment in Italy will be limited to 50 percent (or to 5 percent in the case where the U.S. corporation owns 95 percent of the voting power of the Italian corporation paying the dividend and which satisfies such other qualifications as the Convention provides.)

The royalties paid by an Italian licensee to U.S. residents or corporations not having a permanent establishment in Italy will not be subject to the income tax on physical persons nor to the income tax on juridical persons. Similarly, in the case of dividends and royalties paid from U.S. sources to Italian residents or corporations, the same limitations or exemptions are to apply as regards U.S. taxes. The local tax on income owed in Italy by U.S. residents or corporations is to be applied on the basis of the annual tax declaration of such residents or corporations. That tax is not subject to any withholding at the

source.

Dept. of the Treasury News, Dec. 18, 1974.

Foreign Investment in the United States

On January 23, 1974, William J. Casey, Under Secretary of State for Economic Affairs, made a statement before the Subcommittee on International Finance of the Senate Committee on Banking, Housing

and Urban Affairs, with respect to foreign investment in the United States. The following are excerpts from his statement:

From the earliest days of the Republic we have maintained a policy of welcoming foreign investment. As part of our efforts since the 1930's to forge an open world economy, we have urged others to do the same. We have been a moving force behind the OECD (Organization for Economic Cooperation and Development) Code of Liberalization of Capital Movements; we have entered into a network of bilateral treaties of friendship, commerce, and navigation or of amity and economic relations to secure and to grant national treatment to foreign investment; through our tax laws and bilateral tax treaties we have sought to achieve neutrality with regard to whether income is earned in this country or abroad. We have encouraged foreign investment because of its contribution to economic development and questioned the wisdom of policies such as expropriation, which if adequately compensated sends capital out of a country, and if not, has an adverse effect on private investment flows.

To abandon our traditional hospitality toward foreign investment would make it difficult to resist restrictions against our own economically much more significant foreign investment. Even more important, it would bring into question the U.S. commitment to the type of open world economy which we are trying to achieve through the current international monetary and trade negotiations.

We have 130 treaties of the type known as FCN-friendship, commerce, and navigation-beginning with France in 1778. The basic concept in all these treaties is either national treatment or mostfavored-nation treatment. National treatment means the same treatment a country gives its own citizens. Most-favored-nation treatment means the treatment that a country extends to nationals of the foreign country which is entitled to the most favorable treatment, which may be less favorable than national treatment.

In recent years, national treatment has been the norm, supplemented by specific provisions to assure that, irrespective of the treatment actually accorded to nationals, the nationals and companies of the other party receive treatment no less favorable than that required by international law. These are reciprocal; the rights which we seek for American investors abroad must be those we seek to accord to foreign investors in the United States. However, national treatment is always subject to reasonable exceptions, and how it is applied varies with circumstances in each country. Treaties are the products of negotiation. They reflect the concerns not only of the United States but also of the country with which the treaty was concluded. Although FCN treaties still provide for most international obligations in the area of foreign investment, we may expect that in this, as in other areas of international economic activity, bilateralism will eventually give way to more pervasive multilateral agreements.

To date, the principal multilateral agreement is the Code of Liberalization of Capital Movements, or Capital Movements Code,

adopted by the OECD in 1961. All OECD members except Canada adhere to the code. Its purpose is to extend the liberalization of capital movement worldwide. It makes little attempt to establish sanctions for noncompliance and in fact expressly prohibits retaliation against states which lodge reservations or involve derogationsin short, do not want to comply in one respect or another.

The basic obligations set forth in the code are: first, to abolish progressively restrictions on movements of capital "to the extent necessary for effective economic cooperation"; second, to accord the same treatment to all nonresident-owned assets; and third, to permit liquidation of nonresident-owned assets and the transfer of the proceeds therefrom. By liberalization is meant the granting, upon request, of any authorization required for a specific type of transaction as well as the transfer of funds to accomplish the transactions. Countries may enter reservations at any time with regard to certain specified transactions. With regard to others, also listed, the country must enter its reservation when it adheres or when that type of transaction is added to the list.

These obligations are far less restrictive than the obligations contained in our bilateral treaties. At the most, a country is required to extend most-favored-nation treatment to other member states with respect to the transactions listed in the two lists. Although the Code contains a normative standard, "liberalization," there is no obligation to accord fully liberalized treatment with respect to any transaction, but only to move toward liberalization at a rate to be determined by the country itself.

At our request, the OECD Council has decided that the provisions of the code do not apply to an action by one of our States which comes within the jurisdiction of that State. As far as our Federal Government is concerned, we have lodged a reservation with respect to the liberalization of direct investment transactions by aliens in sectors from which they are excluded by statute.

All this highlights the need for some international consensus on foreign investment issues-a consensus recognizing the important positive role that foreign investment plays in the world economy and permitting agreement on some ground rules to be observed by both governments and corporations.

Given the wide national and regional differences in economic development, legal systems, and other factors, we consider it premature to try to develop a single new international forum for handling the whole range of foreign investment issues-better, we think, to tackle investment issues individually and in the forum judged most appropriate to the purpose. On a number of investment issues, it will be easier to obtain a consensus among the developed countries, certainly for the time being.

The OECD Capital Movements Code has been useful, but it is only a beginning. It does not cover the question of national treatment for foreign-owned enterprises once an investment has been made. Nor does it cover government incentives to attract investment

on the one hand and taxes to restrict it on the other. Nor do our FCN treaties go far enough. Their highly qualified statement of national treatment may be an adequate solution to the treatment of our foreign investment once it is in place. The permitted exceptions to national treatment vary, however, from treaty to treaty. There are many countries with whom we have no FCN treaty at all. Canada, our most important investment partner, is the outstanding example. Given the rapid growth for foreign investment, the important lacunae in existing international agreements, and the domestic pressures in a number of countries to adopt more restrictive policies, the administration has placed a high priority on sitting down with the other developed countries to determine where we go from there. We have taken a leading role in the review of investment issues now underway in the OECD under the general coordination of the Executive Committee meeting in Special Session, called the XCSS. In the five meetings which we in the XCSS have held since December 1972 and in two ancillary meetings of government investment experts, we have pressed for the establishment of consultation machinery which would give any member country a forum to air its concerns about the investment policies, either restrictive or encouraging, of another member country. We hope that the consultation machinery will include a review procedure. Considerable progress has been made in this direction. Much hard work remains to be done over the coming months.

Of great importance, too, is the work going forward in the OECD on multinational corporations. This involves highly technical problems for the most part. Because the complexity of these issues is not widely realized, more heat than light is often shed in public discussions. I am pleased that the various specialized committees of the OECD are intensifying their analyses of these problems, with the results to serve as a well-documented and wellstudied basis for considering the extent to which we can in fact develop balanced guidelines for the relationships of governments and companies, and the avoidance of problems which can spill over into our foreign relations.

We recognize of course that some foreign investment matters will have to be treated in broader fora which include the developing countries and the Socialist states. Accordingly, we are cooperating in the studies of foreign investment and multinational corporation activities currently going forward in the various member organizations of the U.N. family-ECOSOC, ILO, UNCTAD, and UNCITRAL. . . .

Hearings, Subcommittee on International Finance, U.S. Senate Committee on Banking, Housing and Urban Affairs, 93d Cong., 2d Sess., Jan. 23, 1974; the Dept. of State Bulletin, Vol. LXX, No. 1808, Feb. 18, 1974, pp. 170-175. The text of the Capital Movements Code, adopted by the OECD Council in 1961, is at OECD/C (61) 96.

Public Law 93-479 (88 Stat. 1450), approved October 26, 1974, authorizes and directs the Secretaries of Commerce and the Treasury