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i•

LIBRARY
P W M 5030
JUN 141972
TREASURY DEPARTMENT

527479

- 3> • s>;>.#,.M.*l«fi-JW-»_*. »<&:'>

from the sale or other disposition of Treasury bills does not have any special

treatment, as such, under the Internal Revenue Code of 1954. The bills are subje

to estate, inheritance, gift or other excise taxes, whether Federal or State, bu

are exempt from all taxation now or hereafter imposed on the principal or intere
thereof by any State, or any of the possessions of the United States, or by any

local taxing authority. For purposes of taxation the amount of discount at which

Treasury bills are originally sold by the United States is considered to be inte

Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the amo

of discount at which bills issued hereunder are sold is not considered to accrue

until such bills are sold, redeemed or otherwise disposed of, and such bills are
cluded from consideration as capital assets. Accordingly, the owner of Treasury

bills (other than life insurance companies) issued hereunder need include in his

income tax return only the difference between the price paid for such bills, whe

on original issue or on subsequent purchase, and the amount actually received ei

upon sale or redemption at maturity during the taxable year for which the return
made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe the
terms of the Treasury bills and govern the conditions of their issue. Copies of
the circular may be obtained from any Federal Reserve Bank or Branch.

- 2decimals, e. g., 99.925. Fractions may not be used.

It is urged that tenders be

made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Breaches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-

cept for their own account. Tenders will be received without deposit from incorpo

rated banks and trust companies and from responsible and recognized dealers in in
ment securities. Tenders from others must be accompanied by payment of 2 percent

the face amount of Treasury bills applied for, unless the tenders are accompanied
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-

serve Banks and Branches, following which public announcement will be made by the

Treasury Department of the amount and price range of accepted bids. Those submit-

ting tenders will be advised of the acceptance or rejection thereof. The Secretar

of the Treasury expressly reserves the right to accept or reject any or all tende

in whole or in part, and his action in any such respect shall be final. Subject t

these reservations, noncompetitive tenders for $ 200,000 or less for the addition
bills dated April 9, 1959 , ( 91 days remaining until maturity date on
October 8, 1959

) and noncompetitive tenders for $ 100,000 or less for the

"Ipig

3$@ft)

182 -day bills without stated price from any one bidder will be accepted in full
at the average price (in three decimals) of accepted competitive bids for the respec-

tive issues. Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on July 9. 1959 in cash or

other immediately available funds or in a like face amount of Treasury bills mat
es July Qjvlg59

Cash and exc

hange tenders will receive equal treatment.

Cash adjustments will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sale

or other disposition of the bills, does not have any exemption, as such, and los

fflB&xx±ia_KSBft_*Bc
TREASURY DEPARTiMEuT
Washington

A
'

y^^

y^j
^

RELEASE A. M. NEWSPAPERS,
Thursday. July 2 J 9 5 9
The Treasury Department, by this public notice, invites tenders for two series

of Treasury bills to the aggregate amount of frl.T600.000.000 , Pr thereabouts, f
cash and in exchange for Treasury b^Llls maturing July 9^959 >

ln the

™oymt

of $1.600.093,000 y as follows:
91

-day bills (to maturity date) to be issued

July 9,1959

, >

in the amount of $ 1.200,000.000 y P* thereabouts, representing an additional amount of bills dated April 9.1959 y
and to mature October 8. 1959 y originally issued in the
amount of $400.047.000

y the additional and original bills

to be freely interchangeable.
182 -day bills, for $400,000,000 y or thereabouts, to be dated
July 9, 1959
3ps5

y and to mature
~

January 7' I960
3$J&fc

The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
will be payable without interest. They will be issued in bearer form only, and

denominations of $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (mat
value).

Tenders will be received at Federal Reserve Banks and Branches up to the closin
Daylight Saving
hour, one-thirty o'clock p.m., Eastern/gtaadzrak time, Monday, July 6, 1959
Tenders will not be received at the Treasury Department, Washington.

Each tender

must be for an even multiple of $1,000, and in the case of competitive tenders
price offered must be expressed on the basis of 100, with not more than three

RELEASE A. M. NEWSPAPERS,
THURSDAY, JULY 2, 1959

A-565

The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$ 1,600,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing July 9, 1959,
In the amount of
$ 1,600,093,000, as follows:
91-day bills (to maturity date) to be issued July 9, 1959,
in the amount of $ 1,200,000,000, or thereabouts, representing an
additional amount of bills dated April 9, 1959*
and to
mature October 8, 1959* originally issued in the amount of
$ 400,047,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $400,000,000, or thereabouts, to be dated
July 9. 1959,
and to mature January J, I960,
The bills of both series will be Issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and
at maturity their face amount will be payable without Interest.
They will be issued in bearer form only, and in denominations of
$1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (maturity
value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty o'clock p.m., Eastern Daylight
Saving
time, Monday, July 6, 1959
. Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99.925. Fractions may not
be used. It Is urged that tenders be made on the printed forms and
forwarded In the special envelopes which will be supplied by
Federal Reserve Banks or Branches on application therefor.
Others than banking Institutions will not be permitted to submit
tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
Dr trust company.

- 2 Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public
announcement will be made by the Treasury Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these"reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
April 9, 1959,
(91 days remaining until maturity date on
October 8, 1959)
and noncompetitive tenders for $ 100,000
or less for the 182-day bills without stated price from any one
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders In accordance with the bids must be
made or completed at the Federal Reserve Bank on July 9, 1959,
in cash or other immediately available funds or In a like face
amount of Treasury bills maturing July 9, 1959•
Cash and
exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing
bills accepted in exchange and the Issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills.does not have any special treatment, as such,
under the Internal Revenue Code of 1954. The bills are subject to
estate, inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold Is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life Insurance companies) Issued hereunder
need include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
oOo
return is made, as ordinary gain or loss. »
Treasury Department Circular No. 4l8, Revised, and this notice,
prescribe the terms of the Treasury bills and govern the conditions
Federal
of theirReserve
Issue. Bank
Copies
or Branch.
of the circular may be obtained from any

Wkj^ f-

RELMSE A. M. NEWSPAPERS,
Thursday, July 2, 1959.

The Treasury Department announced last evening that the tenders for $3,000,090,OC

or thereabouts, of Tax Anticipation Series 258-day Treasury bills to be dated Jul

1959, and to mature March 22, I960, which were offered on June 29, were opened at
Federal Reserve Banks on July 1.
The details of this issue are as follows?
Total applied for - 14,299,054,000
Total accepted
- 3,000,328,000

(includes 1327,239,000 entered on a
noncompetitive basis and accepted in
fall at the average price shown below)

Range of accepted competitive bids?
High
Low

- 97.239 Equivalent rate of discount approx. 3.853*per annum
n
n
-97.033
*:.-***,"
"
4.140* n
"
- .ea:

Average

- 97-080

"'•DO:

4.075£ *

(9 percent of the amount bid fer at the low price was accepted)
Federal Reserve
District

Total
Applied for

Total
Accepted

Boston
Hew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

# 158,271,000
1,995,727,000
173,472,000
397,009,000
120,994,000
145,566,000
549,412,000
96,495,000
128,120,000
98,527,000
152,310,000
283,151,000

14,299,054,000

13,000,328,000

TOTAL

128,971,000
1,174,542,000
157,217,000
324,209,000
113,284,000
129,846,000
417,143,000

75,W,uuQ
111,770,000
84,992,000
145,305,000
137.981,000

TREASURY DEPARTMENT
WASHINGTON, D.C
RELEASE A. M. NEWSPAPERS,
Thursday, July 2. 1959.

A-566

The Treasury Department announced last evening that the tenders for $3,000,000,000,
or thereabouts, of Tax Anticipation Series 258-day Treasury bills to be dated July

1959, and to mature March 22, I960, which were offered on June 29, were opened at t
Federal Reserve Banks on July 1.
The details of this issue are as follows:
Total applied for - #4,299,054,000
Total accepted
- 3,000,328,000

(includes #327,239,000 entered on a
noncompetitive basis and accepted in
full at the average price shown below)

Range of accepted competitive bids;
High
Low

- 97.239 Equivalent rate of discount approx. 3.853* per annum
n
- 97.033
n
u
n
«t
4.l4o* «
n

Average

- 97.080

4.075* «

(9 percent of the amount bid for at the low price was accepted)
Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Total
Applied for

Total
Accepted

$ 158,271,000
1,995,727,000
173,472,000
397,009,000
120,994,000
145,566,000
549,412,000
96,495,000
128,120,000
98,527,000
152,310,000
263,151,000

$ 128,971,000
1,174,542,000
157,217,000
324,209,000
113,284,000
129,846,000
417,11*3,000
75,068,000
111,770,000
84,992,000

TOTAL $4,299,054,000

$3,000,328,000

i45,305,ooo
137i981,000

- 3-

g
2gS__?EffiK>5Q_«My____C
local taxing authority. _\Dr purposes of taxation the amount of discount at which
Treasury bills are originally sold by the United States is considered to be interest
Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the amount
of discount at which bills issued hereunder are sold is not considered to accrue
until such bills are sold, redeemed or otherwise disposed of, and such bills are
excluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such bills, whether
on original issue or on subsequent purchase, and the amount actually received either
upon sale or redemption at maturity during the taxable year for which the return is
made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe the
terms of the Treasury "bills and govern the conditions of their issue. Copies of the
circular may he obtained from any Federal Reserve Bank or Branch.

- 2 -

All bidders are required to agree not to purchase or to sell, or to make any

agreements with respect to the purchase or sale or other disposition of any bill
Daylight Saving
of this issue, until after one-thirty o'clock p.m., Eastern/StonritaKL time, Wednesday, July 8, 1959 .
Immediately after the closing hour, tenders will be opened at the Federal Re-

serve Banks and Branches, following which public announcement will be made by th

Treasury Department of the amount and price range of accepted bids. Those submit

ting tenders will be advised of the acceptance or rejection thereof. The Secreta

of the Treasury expressly reserves the right to accept or reject any or all tend
in whole or in part, and his action in any such respect shall be final. Subject

these reservations, noncompetitive tenders for $ 400,00CK or less without stated

price from any one bidder will be accepted in full at the average price (in thre

decimals) of accepted competitive bids. Payment of accepted tenders at the price

offered must be made or completed at the Federal Reserve Bank in cash or other i
mediately available funds on July 15, 1959 , provided, however, any qualified

depositary wiH be permitted to make payment by credit in its Treasury tax and lo

account for Treasury bills allotted to it for itself and its customers up to any

amount for which it shall be qualified in excess of existing deposits when so no
fied by the Federal Reserve Bank of its District.
The income derived from Treasury bills, whether Interest or gain from the sale

or other disposition of the bills, does not have any exemption, as such, and los
from the sale or other disposition of Treasury bills does not have any special

treatment, as such, under the Internal Revenue Code of 1954. The bills are subje

to estate, inheritance, gift or other excise taxes, whether Federal or State, bu

are exempt from all taxation now or hereafter imposed on the principal or intere
thereof by any State, or any of the possessions of the United States, or by any

- 2 Immediately after the closing hour, tenders will be opened at the
Federal Reserve Banks and Branches, following which public announcement will be made by the Treasury Department of the amount and price
range of accepted bids. Those submitting tenders will be advised of
the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action "in any such respect shall be
final. Subject to these reservations, noncompetitive tenders
for $400,000 or less without stated price from any one bidder will
be accepted in full at the average price (in three decimals) of
accepted competitive bids. Payment of accepted tenders at the prices
offered must be made or completed at the Federal Reserve Bank in cash
or other immediately available funds on July 15, 1959,
provided, however, any qualified depositary will be permitted to
make payment by credit In its Treasury tax and loan account for
Treasury bills allotted to it for itself and its customers up to any
amount for which it shall be qualified in excess of existing deposits
when so notified by the Federal Reserve Bank of- its District.
The income derived from Treasury bills, whether interest or gain
from the sale or other disposition of the bills, does not have any
exemption, as such, and loss from the sale or other disposition of
Treasury bills does not have any special treatment, as such, under the
Internal Revenue Code of 1954. The bills are subject to estate,
inheritance, gift or other excise taxes, whether Federal or State, but
are exempt from all taxation now or hereafter imposed on the principal
or interest thereof by any State, or any of the possessions of the
United States, or by any local taxing authority. For purposes of
taxation the amount of discount at which Treasury bills are originally
sold by the United States is considered to be interest. Under
Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the
amount of discount at which bills Issued hereunder are sold is not
considered to accrue until such bills are sold, redeemed or otherwise
disposed of, and, such bills are excluded from consideration as capital
assets. Accordingly, the owner of Treasury bills (other than life
insurance companies) Issued hereunder need include in his income tax
return only the difference between the price paid for such bills,
whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during
the taxable year for which the return
oOois made, as ordinary gain or loss,
Treasury Department Circular No. 4l8, Revised, and this notice,
prescribe the terms of the Treasury bills and govern the conditions
of their issue. Copies of the circular may be obtained from any
Federal Reserve Bank or Branch.

•to
c^

ULEASE A. K. NEHSPAPERS,
Tuesday,^ July 7, 1959.

•• The Treasury ©apartmentarm^unc-ed laet evaning tot t h # tender© for %mo BOVJM® 01
Treasury bills, o m seriee to be_an "additional -ismm of the bills dated April 9, 1959,
and- tne other aeries toto®dated- July 9, 1959, which were offered on July 2, were opeaa
at the Federal Reserve Banka on; <Jt*ly 6. leader® Kere invited for H,200,000,000, or
thereabout®, of 91-day hillm- BM~ tor f400,0oo,000, or thereabouts, of 182-day bills, tl
details of the two aeries mem m®'-toXX®m% ••

imm

OP ACCEPTED

CQH>EfITi?E BRSt

91»4&y Treasury- bills
maturing October 8, 1959

I82~4ay Tre&imry bill©
maturing Jamary 7, I960

Price
High
Low
.Average

-^3

99*186 a/
99.150
99.174 ,

Ajjprox« Iquiv.
Annual Rate

3.220*
3.363$

Price
98.018 hf

97.966 ~*
97*$U .,.

Ipprox. E«_aiv,
Amiufel late
3.901$
4.©23j«
3.964H

a/ Excepting one tender of 1*8,000.
W Excepting one tender of #5,000:
Ife-jjereesit ef the anaupt of 91-day bill® bid for at tha Xm price wan accepted
8®,percent of tha a»oimt of 182-day Mils bid for at the low'frltta was accepted
TOiAl* TWEES .AffLlM- FOB A¥t ACCEPTED m FEDBRAt lESlOTS DISTRICTSs
pistariet
' .

•.

Batten- Hew York
Philadelphia
Clevel&sMl
Richmond
Atlanta
Chicago
§t. kouia
.Minneapolis
Kansas City
Balla®
fean Franeisc©
m m ,

for ,..: ' Accented

Applied For

Accepted

I 1,393,000
594,003,000

I 1,393,000
312,003,000
6,836,000
11,846,000
2,401,000
1,760,000
25,773,000
2,615,000

_ ,

I
24,142,000
1,1423,628,000
27,173,000
33,536,000
9,066,000
21,302,000
157,773,000
20,308,000
8,502,000
40,964,000
14,190,000
63,0^4,000

14,142,000
845,128,000
13,473,000
33,536,000
9,066,000
21,302,000
116,773,000.,
2u,3Q8,QQO
S,302,000

4o.,?64,ooo

14,190,000
63,064,000
,fl,843,94S,GOO rJl,2C»,746,0OC^/

11,846,000
2,401,000
, I,Y6u,000
57,473,GGU

.- 2,ol5,OU<
* 2,?56,0OO
6.X999yt>j
3,25?,vX>u
P3ll66j,uuu
$.713,707,000

2,?56,ooo
6,199,000
• 3,2>9,000
. 23,166,000
fi;wG,007,000d/

Include® ^200,456,000 rwircoiapetitive:! tenders accepted at 'the average pric
includes -*33, 240,000"noncompetitive tenders 'acceptt-d at the" average price ot 97.996

pKUorr<y.

TREASURY DEPARTMENT
WASHINGTON, D . C
RELEASE A . M . NEWSPAPERS,
Tuesday, July 7, 1959.

A-565

The Treasury Department announced last evening that the tenders for two series of
Treasury bills, one series to be an additional issue of the bills dated April 9, 1959,
and the other series to be dated July 9, 1959, which were offered on July 2, were opened
at the Federal Reserve Banks on July 6. Tenders were invited for $1,200,000,000, or
thereabouts, of 91-day bills and for $400,000,000, or thereabouts, of 182-day bills. Th
details of the two series are as follows?
RANGE OF ACCEPTED
COMPETITIVE BIDS:

91-day Treasury bills
maturing October
8, 1959
mm-

182-day Treasury bills
maturing January 7, I960

Price

Approx. Equiv. t
Annual Rate
j

Price

Approx. Equiv.
Annual Rate

High
Low
Average

99.186 a/
99.150 ~
99,174

3.220$
3.363$
3.266$

I
:
;

98.028 of
97.966 ""
,97.996

3.901$
4.023$
3.964$

a/ Excepting one tender of f58,000
B"/ Excepting one tender of 15,000
26 percent of the amount of 91-day bills bid for at the low price was accepted
80 percent of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AMD ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Applied For

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$ 24,142,000
1,423,628,000
27,173,000
33,536,000
9,066,000
21,302,000
157,773,000
20,308,000
8,802,000
40,964,000
14,190,000
63,064,000

TOTALS

$1,843,948,000

Accepted
14,142,000
845,128,000
13,473,000
33,536,000
9,066,000
21,302,000
116,773,000
20,308,000
8,802,000
40,964,000
14,190,000
63,064,000
$1,200,748,000c/

Applied For

Accepted

$ 1,393,000
594,003,000
6,836,000
11,846,000
2,401,000
1,760,000
57,473,000
2,615,000
2,756,000
6,199,000
3,259,000
23,166,000

$ 1,393,000
312,003,000
6,836,000
11,846,000
2,401,000
1,760,000
25,773,000
2,615,000
2,756,000
6,199,000
3,259,000
23,166,000

1713,707,000

$4GO,007,OOOd/

c/ Includes $200,456,000 noncompetitive tenders accepted at the average price of 99.174
3/ Includes $33,240,000 noncompetitive tenders accepted at the average price of 97.996

» >

TREASURY DEPARTMENT
Washington

STATEMENT BY DAVID. A. LINDSAY,
ASSISTANT TO THE SECRETARY, BEFORE
THE COMMITTEE ON WAYS AND MEANS OF THE
HOUSE OF REPRESENTATIVES ON H. R. 5
10:00 A.M., JULY 7, 1959
Ue are pleased to appear before your Committee today to
present the view of the Treasury Department on H. R. 5*

bill

entitled "Foreign Investment Incentive Tax Act of 1959".? introduced on January 7> 1959 by Mr. Boggs. The purpose of the bill
is to provide tax relief for foreign income in order to provide
incentives for expansion of United States investment abroad.
The need to enlist resources and talents of American enterprise in helping to improve the economies of the less developed
countries is particularly important today with a hostile Communist
bloc actively pressing a massive economic offensive against the
free world.
Secretary Dillon stated, in testimony before your Committee's
Subcommittee on Foreign Trade Policy last December, that he regards
the problem of achievement in freedom of higher living standards in
the lesser developed countries as the primary economic and political
problem of the 20th Century. He observed that it is a problem in
which the interests of our Government and our business community
coincide, so that a real opportunity exists for a joint effort in
attacking it.

A-569

- 2 -

During the last decade, there has been an increasing flow
of United States capital to Canada and Western Europe. Almost
half of our private foreign investments are in these more developed areas. A relatively small percentage of our private investment abroad has been and is going to the less developed critical
areas in Asia, the Middle East and Africa.
In the light of these considerations, the Secretary of the
Treasury submitted a report on H. R. 5 which was developed in
cooperation with the State and Commerce Departments. The Secretary
stated in this report that measures which the Treasury would support, include:
(l) The deferral of tax on Income derived by a foreign business corporation which ohtains substantially all of its income from
investments in one or more of the less developed areas of the free
world.
(2) Ordinary loss treatment for losses incurred by original
investors on stock of such a foreign business corporation.
(3) The early implementation, by treaty or by negotiated
agreement authorized by legislation, of the principle of a credit
for tax sparing in order to make it possible for American firms
Investing in an underdeveloped country to benefit from the tax
inducements offered by such a country to attract new capital.

- 3It generally is recognized that tax incentives alone cannot
successfully stimulate private investment in the critical less
developed areas of the free world. There are many obstacles
which impede the flow of private investment to less developed
countries. These include political instability, risk of expropriation, problems of currency convertibility, inflation, in
some instances high foreign tax rates, and the natural attraction
of capital to areas where a profitable return is comparatively
assured.
We believe that some of these problems can be minimized,
however, by provision for ordinary loss treatment for investment
losses in the less developed areas coupled with the expansion of
our investment guaranty program. Implementation of the tax sparing principle should make more effective efforts of certain countries to provide tax incentives of their own to attract new investment. Deferral of tax on profits reinvested should encourage
relative permanence and expansion of the successful enterprises
in such areas.
H. R. 5 contains a number of provisions designed to encourage
private Investment abroad. A major difference between H. R. 5 and
the Treasury Department recommendations is that the tax provisions
of H. R. 5 would have world-wide application outside of the United
States, whereas the Treasury proposals are limited in application
to the less developed areas.

The substantive provisions of H- R. 5 are: Deferral of tax
on foreign income for private domestic foreign business corporations; liberalization of present restrictions on tax-free transfers
of property to foreign corporations; a 14 percent reduction in tax
rates for foreign business corporations; modification of the
foreign tax credit to include an over-all limitation wherever such
limitation would be more advantageous than the per country limitation imposed by present law; a credit for taxes spared by foreign
countries to attract American industries; and nonrecognition of
gain on involuntary conversion of property of foreign subsidiaries.
For convenience, we shall cover each of the provisions of
H. R. 5 in order of appearance in the bill.
Tax Deferral (Section 2)
This provision would permit the creation of a special domestic
corporation — referred to as a foreign business corporation —
which would be entitled to tax deferral on its foreign earnings
until they are repatriated.
Setting aside our fiscal situation, the problem of revenue and
the question of encouraging investment abroad, there is substantial
merit to section 2 of H. R. 5*
Under existing law, deferral of income derived abroad is now
available to American companies operating through subsidiaries
incorporated in foreign countries. This is because a corporation

which is created under the laws of a foreign country and derives
its income abroad does not fall within the scope of our tax system. A tax is paid by the domestic parent only upon dividends
received from the foreign subsidiary if and when distributed.
This has been a basic feature of our income tax structure since
its enactment.
On the other hand, domestic corporations, individual residents and most of our citizens must pay tax currently on all
income, foreign and domestic alike, with provision however for
tax credit against United States tax for taxes imposed by foreign
countries on income derived within their borders. Under certain
circumstances domestic corporations have tax advantages, as, for
example, the offsetting of foreign losses against domestic income,
the availability of the percentage depletion deduction, and the
benefit of various tax treaties negotiated by the United States.
Because American firms are able to defer United States tax
by operating abroad through foreign subsidiaries, much of the
private investments abroad by citizens of this country has been
channeled through foreign corporations, with the exception of the
extractive industries. If, for example, an American firm contemplates the acquisition of a plant in a country having a tax rate
substantially lower than our corporate rate and if it expects to
leave a substantial part of Its profits of its foreign plant abroad,

- 6 it would ordinarily organize a foreign corporation to operate the
business so as to postpone indefinitely payment of tax to the
United States. In recent years a number of American firms investing abroad have done so through foreign holding companies located
in a "tax haven" country. The holding company, in turn, conducts
its business through foreign operating subsidiaries located in
various parts of the world. This method of operation permits, for
example, the transfer of earnings from a subsidiary in Western
Europe to one in South America, free of United States income tax.
In the absence of the intermediate holding company, the transfer
of funds from one foreign subsidiary to another would ordinarily
be treated as a taxable dividend to the United States parent
corporation followed by a capital contribution by the parent to
the second subsidiary.
Section 2 of H. R. 5 would permit foreign business corporations the same latitude available to foreign holding companies to
shift funds between countries or its subsidiaries with no intervening tax imposed by the United States. In this sense and also
in Its application to export income, section 2 is broader than
the deferral provisions contained in earlier bills, namely,
H. R. 8300 in 1954 and H. R. 7725 in 1955*
Although recognizing the merits of section 2 of H. R. 5,
the Treasury Department nevertheless is compelled to oppose unlimited deferral at this time because of the substantial revenue

ia
- 7 losses involved in extending the deferral provisions to include
investments in and exports to all regions of the world by
American firms. While the estimates are exceedingly difficult to
make, it is believed that section 2, if enacted, would involve a
revenue loss ranging from $300,000,000 to $500,000,000 annually,
depending upon the dividend policies followed by foreign business
corporations. If export income were entirely excluded the revenue
loss would be in the neighborhood of $100,000,000 a year. Revenue
losses of this magnitude cannot be accepted at this time without
contributing to an unsound fiscal position.
If section 2 is confined to less developed areas without limitation in regard to export income, the revenue loss would still be
in the order of $100,000,000. Apart from the impact on revenues,
to extend deferral to export income is to grant deferral in many
cases even though no significant activity is conducted abroad.
Accordingly, we are compelled to recommend that export income be
excluded but would be pleased to explore with the Committee, in
cooperation with the Committee staffs, the feasibility of limiting
the deferral provision to foreign business corporations which do
not earn more than 50 percent of their gross Income from exports.
Liberalization of Section 367 (Section 3)
Section 3 of the bill is designed to facilitate the creation
of a foreign corporation through the transfer of assets, other than

- 8 -

cash, which are currently in use either in the United States or
abroad, without the recognition of any gain or loss upon such
transfer. Under section 367 of existing law, the transfer of
assets to a foreign corporation cannot be accomplished on a taxfree basis unless prior approval is obtained that the exchange
does not have as one of its principal purposes the avoidance of
United States tax. This provision was enacted in 1932 and according to the report of the Ways and Means Committee at that time
was designed to close- "a serious loophole for avoidance of taxes".
Section 3 would make section 36? inapplicable in the case of
transfers of foreign business property and certain stock investments to foreign corporations. Thus, under the bill, a domestic
corporation with separate foreign manufacturing subsidiaries in
various countries could transfer its stock in all these companies
to a foreign holding company organized in a "tax haven" country
without recognition of gain. Each of the subsidiaries may have
accumulated substantial earnings free of United States tax and
paid little or no dividends to the American parent corporation.
In the absence of a favorable ruling under section 367^ the transfer of stock of the operating companies to the foreign holding
company in exchange for stock of the holding company would be a
taxable exchange.

-9 The Treasury would support a limited amendment to section
367 to permit tax-free transfers of foreign business property,
including stock of foreign subsidiaries, to a United States foreign business corporation. Possibly a change in the advance
ruling requirement might also be desirable in the case of transfers of business property from a foreign business corporation to
one or more of its foreign subsidiaries if "distribution" limitations were placed on the foreign subsidiary similar to those
provided in section 2 of the bill for the foreign business corporation itself.
We believe that such distribution limitations would largely
eliminate the present opportunities for tax avoidance in the
repatriation of the earnings of a foreign subsidiary either without tax or at capital gain rates. Under this approach, loans by
the foreign subsidiary to the shareholder of the foreign business
corporation and certain investments by the subsidiary in the
United States would be regarded as a constructive dividend distributed by the foreign business corporation. If changes such
as these were made, tax avoidance opportunities available through
foreign subsidiary operations would be considerably reduced and
greater leeway would be justified in connection with the proposed
liberalization of present restrictions on tax-free transfers of
property to foreign corporations.

- 10 -

While consideration might be given to permitting transfer
of property to other foreign corporations controlled by United
States interests, if similar "distribution" safeguards were
enacted, it would seem that broad liberalization in this area
would tend to defeat the purpose of limiting deferral under
section 2, as suggested by the Treasury, to foreign business
corporations operating in the less developed areas.
Reduction in Tax Rate (Section 4)
Section 4 would reduce the tax on foreign income by 14 percentage points. With certain modifications, this section of the
bill would apply the present Western Hemisphere trade corporation
provisions of the Code on a world-wide basis. Foreign source
income eligible for the reduced rate would include income from
exports, royalties, and passive portfolio investments. The
provision would apply equally to earnings from existing as well
as new investments.
An enterprise that is currently engaged in business in a
foreign country and which could qualify for treatment as a
"foreign business corporation" would be more likely to repatriate
foreign earnings if the tax on such repatriated profits were to
be at the reduced rate of 38 percent than would- be the case if
the tax were continued at the 52 percent rate. The incentive to
repatriate foreign income would probably have its greatest impact

- 11 -

in the less developed areas abroad where reinvestment of earnings
is most needed but where the risk of loss is comparatively acute.
The estimated revenue loss from the proposed 14 percentage
point rate reduction is in the order of $200 million a year. This
loss, it should be noted, would materialize without an increase in
investments abroad.
Because of the loss of revenue involved and because of the
doubtful effect of rate reduction as an effective incentive for
the expansion of private investment in the less developed areas,
the Treasury Department is opposed to the enactment of Section 4
of the bill.
Liberalization of the Foreign Tax Credit Limitation

(SectiQg jj

Section 5 of the bill would revise the present provisions of
the Code dealing with the foreign tax credit to give taxpayers the
benefit of the so-called "over-all" limitation, whenever such limitation would be more advantageous than the present "per country"
limitation. The new "over-all" limitation is similar to one which
was in the law until 1954 but with this difference — the pre-1954
provision was operative only if it reduced the credit that was
otherwise available under the application of the per country limitation while the present proposal would be operative only if it
increased the credit. The per country limitation gives companies
operating at a loss in some countries the right to continue to take

- 12 -

tax credits for the taxes paid in countries where they operate
profitably without having to offset for losses in the other
countries. The over-all limitation would give companies operating in countries with tax rates above the United States rates
the right to offset those higher taxes against income tax in
other countries where the tax rates are lower than the United
States rates.
The justification often given for the over-all limitation
is that foreign income should be treated as a whole. So
viewed, a consistent approach would require the elimination
of the per country limitation. It should be noted, however,
that taxpayers conducting their operations abroad through foreign holding companies, average the foreign tax rates applied
to the distributed earnings of their subsidiaries, and are in
effect using only the over-all limitation.
The proposed over-all limitation might provide some encouragement to investment In less developed areas abroad where some
of the countries most in need of capital impose taxes at rates
that are higher than our 52 percent corporate rate. On the
other hand, if section 5 were enacted, the immediate revenue
loss attributable to existing United States private investment
abroad might well be substantial.

24
- 13 Our estimates, based on the year 1955, are that the revenue
loss under section 5 would amount to approximately $45 million.
With respect to individual companies, the effect of such an
amendment would vary from year to year. We referred in our
report to a revenue loss of $19 million in 1955 for one company.
We are informed that there would be no loss for that company
today; in recent years the existing per country limitation has
been more favorable to that company than the over-all limitation.
There may not be a substantial difference in revenue impact
in comparing the over-all limitation on a consistent basis with
the per country limitation on a consistent basis, but there is
revenue loss where each company may use the more favorable
limitation each year regardless of consistency. Accordingly,
we oppose adoption of section 5 at this time.
In our report of May 6, we referred to possible amendments
to section 5 which we believe would considerably reduce the
impact on the revenue. Such amendments should be adopted only
if on thorough analysis they are deemed fair and appropriate.
We should like to explore this further with the Committee and
the Committee staffs.

Tax Sparing by Underdeveloped Countries (Section 6)
Under section 6 of the bill, a taxpayer deriving income from
abroad would be allowed a credit for taxes waived by a foreign
country as an inducement to render services or to engage in business in that country. The principle involved in this provision
is one to which the Treasury Department fully subscribes, and
which is incorporated in a number of tax conventions that are
currently in the process of negotiation. Tax treaties with tax
sparing provisions are currently in an advanced state with six
countries located in Latin America, the Middle East and Asia.
Preliminary negotiations have been held with four other countries
in Latin America and Asia.
Under existing law, a reduction in foreign tax as an incentive to induce new investment may result in a reduced foreign tax
credit and a commensurate increase in United States tax. The tax
incentive measures of less developed countries may thus be made
ineffective by the provisions of our own law. By giving recognition to such tax incentive laws, the tax treaty program can, within
appropriate limitations, remove this consequence of existing law
and help promote a desirable tax climate in other ways.
Our experience thus far indicates that this policy has stimulated greatly interest among underdeveloped countries in tax
treaties to eliminate double taxation and other tax obstacles to

- 15 -

international trade and investment. This tax credit device, utilized in connection with the negotiation of treaties would, we
believe, produce more productive results than if handled in a
unilateral statutory provision such as is incorporated in
section 6.
Nonrecognition of Gain or Involuntary Conversion
"of Property of a Foreign Subsidiary (Section f)
Section 7 of the bill would permit a domestic parent corporation that takes out insurance in this country on the property
of a foreign subsidiary to exclude from its taxable income the
insurance proceeds received upon the destruction or other involuntary conversion of the subsidiary's property, provided the
insurance money is reinvested abroad in property similar or
related in use to the converted property. Under existing law
taxable gain is realized upon receipt of insurance proceeds if
the recipient does not also own the property destroyed or otherwise converted.
It has been suggested that section 7 would encourage investment abroad in countries where it is difficult or impossible for
a subsidiary corporation to secure adequate insurance coverage by
permitting the domestic parent to carry the necessary insurance
without adverse tax consequence. If it is true that adequate
insurance protection cannot be obtained by foreign subsidiaries,
a change in our tax law along the lines proposed in section 7 ^ay
merit consideration. A change in existing law seems unwarranted

- 16 unless adequate information is developed as to the countries
involved and the nature of the restrictions which result in the
unavailability of insurance protection. It is our hope that
witnesses from the business community will, either during the
course of these hearings or shortly thereafter, come forth with
specific information indicating the extent of and the reasons
underlying the claimed inadequacy of insurance coverage abroad.
Other Recommendations
There are other provisions In the Code dealing with foreign
income where a modification would be desirable. Several of these
have been described in the Secretary's letter of May 6, and I
should like here merely to mention them briefly. Two deal with
the filing of information returns with respect to the formation
or reorganization of foreign corporations and with respect to
the ownership and changes in ownership of foreign personal holding companies. Our suggestions would simplify and improve the
effectiveness of the information returns currently required.
Another suggestion would correct what seems to be an error in
the 1954 redrafting of the provisions dealing with foreign personal
holding companies. Under some circumstances the aggregate taxes
imposed with respect to the income of a foreign personal holding
company may equal 115 percent of its income. We doubt that this
was intended by the Congress, and suggest that it be modified.

- 17 In conclusion, the Treasury Department favors adoption of
legislation which would, in fact, promote the flow of United
States investment into the less developed regions of the free
world. We believe that ordinary loss treatment for investment
losses in lesser developed countries, together with tax deferral
of reinvested profits and early implementation of the tax sparing principle should help to encourage United States firms to
operate in less developed areas.

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