851.512 American Stock Exchange
Brokers/15
The Ambassador in France (Straus) to
the Secretary of State
No. 2758
Paris, May 14, 1936.
[Received May
25.]
Sir: Referring to the Department’s telegraphic
instruction No. 502 of December 21, 2 p.m., 1935, regarding the
assessment of the French stock exchange transfer tax on transactions
executed upon the New York Stock Exchange, and to the Embassy’s note No.
1663 addressed on January 7, 1936, to the Ministry for Foreign Affairs,
a copy47 of
[Page 108]
which was transmitted under
cover of my despatch No. 2440 of January 9, I have the honor to state
that a response has now been received from the French Government to the
aforecited note. The Ministry for Foreign Affairs’ reply, dated May 11,
is enclosed in copy and translation.
The Ministry’s note was today shown to Comte René de Chambrun, one of the
attorneys for American brokerage houses in Paris. M. de Chambrun asserts
that it is true, as alleged in the communication, that French
professionals have as a general rule paid the tax on transactions
effected abroad but that it is not quite fair to attempt to assimilate
American brokers in Paris to the French houses in that the French firms
deliver to their clients receipts for the orders executed on their
behalf, whereas the American broker acts merely as a transmitting agent
and the receipts are sent direct to the client by the brokerage house in
the United States rather than by the broker in Paris.
Despite the fact that the French Government has not acceded to the
American representations M. de Chambrun expresses himself as somewhat
encouraged at the nature of the Ministry’s note in that it does not
entirely close the door to our request. He invites particular attention
to the circumstances that the French authorities have only affirmed
their inability to give favorable consideration to the matter “from a
purely fiscal standpoint”. He believes that the use of this phrase
denotes a hesitancy in risking the possible driving out of American
brokerage firms. In particular he feels that the reply affords recourse
to two alternative methods of adjustment of the difficulty, the first
being the possibility that the Government of the United States may be
disposed to enter into negotiations with the French Government, prepared
to offer some slight reciprocal favor in tax matters as suggested in the
last paragraphs of the French note, or second, that failing an agreement
between the respective Governments, the American brokers themselves may
decide to compromise by indicating their willingness to give some type
of satisfaction to the French fisc through the payment of an appropriate
form of tax.
As to the statement that the subject is now before the French courts, it
appears that the test case, that of the Enregistrement against
Saint-Phalle, is still pending before the Tribunal Civil de la Seine.
The attorneys for Saint-Phalle have recently secured a three months’
adjournment of the case and M. de Chambrun remarks that the attorneys
have no desire to press the matter, it being to the advantage of their
client to secure delay since the fiscal authorities have given them to
understand that in no case will an attempt be made to collect the tax
for a period prior to the handing down of the Court’s decision.
[Page 109]
While the Embassy has furnished above the initial reaction of M. de
Chambrun to the French note, he desires to consult his associate, Maître
Gide, and thereafter to submit a more studied opinion which will, when
received by the Embassy, be duly transmitted to the Department. The
Department may care to instruct me relative to the Ministry for Foreign
Affairs’ request to be informed whether, in the opinion of the American
Government, there is any ground for undertaking negotiations in the
realm of one or another of the tax problems outlined in the closing
portion of the note.
Respectfully yours,
[Enclosure—Translation ]
The French Ministry for
Foreign Affairs to the American
Embassy
File Y i 19
Paris, May 11, 1936.
By a note of January 7 last,48
the Embassy of the United States in Paris addressed to the Ministry
for Foreign Affairs a note regarding the application of the stock
exchange transfer tax to the transactions in securities executed on
the New York market through the intermediary of the Paris
representatives of American stock brokers.
The remarks formulated by the Embassy may be summed up as follows:
- 1
- —Until 1929, the tax in question has not been called for
in the case of transactions executed in New York or on other
foreign security markets;
- 2
- —The American transfer tax has never been assessed on
transactions effected on the Paris Bourse by persons
residing in the United States;
- 3
- —On the premise that the French tax is applicable only to
transactions on French territory, numerous American houses
opened up at great expense offices for the transmission of
orders to New York and have spent large sums in taxes and
salaries. The claims made against them for tax payment
threaten to result in the closing up of their
offices.
- 4
- —These claims give rise once more to the problem of double
taxation at the very moment when, as a result of the entry
into force49 of the
Convention of April 27, 1932, the American and French
Governments have evidenced their desire to put an end to the
problem.
In conclusion, the Embassy requests that the situation of the
American houses be reexamined and it expresses the desire that these
firms
[Page 110]
shall be not
threatened with a tax on transactions effected outside French
territory.
In reply to this communication, the Ministry for Foreign Affairs has
the honor to state that the question raised by the Embassy has been
given all due consideration by the competent French services, but
that the thorough examination which has been made does not enable
the Ministry to consider with favor, from a purely fiscal
standpoint, the solution proposed by the Embassy.
Contrary to the Embassy’s belief, the claims in question do not arise
from a new interpretation of the law of April 28, 1893, which
created the stock exchange transfer tax. As soon as this law came
into effect, the French Administration took the stand (Rapp. Instr.
de l’Enregistrement No. 2848 of November 23, 1893) that buying and
selling operations on a foreign exchange are subject to the tax just
as are those effected on a French exchange.
Like any administrative solution, this interpretation may, of course,
be open to discussion from a legal standpoint, but the fact remains
nevertheless that French professionals have, as a general rule,
strictly complied with it and, in consequence, have accepted and
paid the tax on transactions effected abroad in execution of orders
received in France. At the present time, the sums paid into the
Treasury from this source by French establishments are, in fact,
very important.
Consequently, it does not seem possible to accept the Embassy’s
objections in so far as they tend to consider those operations as
having never been recognized as taxable by the bureaus of the
Ministry of Finance.
On the strictly fiscal basis and considering that French law
establishes in fact no distinction between French professionals and
American intermediaries, that, on the other hand, the tax claimed
from the latter has been, and still is, collected from French
intermediaries operating in the same manner, the French
Administration does not see the possibility of demanding the
abandonment of those claims. Moreover, the question has been carried
into the judicial field and under the present legislative situation
there is no recourse but to leave to the courts the task of finding
the proper solution.
While it appears difficult for the French Government to give a
satisfactory reply to the Embassy’s request within the limitations
of the existing fiscal system, it does not mean that it refuses to
consider the problem from the international standpoint.
Undoubtedly, when they signed the Convention of April 27, 1932, the
two Governments intended to settle the question of fiscal
super-taxes only as concerns income taxes. Moreover, the Fiscal
Committee of the League of Nations recommended the negotiation of
international agreements only in the case of direct taxes. But
nothing, in
[Page 111]
the opinion of
the French Government, prevents the conclusion of a Convention
tending, either to suppress double taxation in the field of indirect
taxes or to establish for the latter special methods of
application.
Consequently, if the American Government is of the opinion that the
interests involved justify the opening of negotiations on this
subject, its request will be studied in Paris with the greatest
desire to accord it satisfaction. It goes without saying, however,
that in order to insure for such an agreement, should it be reached,
the necessary reciprocity, the French Ministry of Finance reserves
the right to request, in counterpart, certain concessions, notably
in connection with the application to French citizens either of the
principle of the income tax or the surtax, or of new measures
regarding nonresident individuals or foreign corporations, measures
at present under discussion before the American Congress.
The Ministry for Foreign Affairs requests the Embassy kindly to bring
the above considerations to the knowledge of its Government and to
state whether, in its opinion, negotiations might usefully be
undertaken between Paris and Washington on the subject of indirect
taxation.
