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10
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v.348
u.s.
Department of the Treasury
PRESS RELEASES
GTON, D.C.. 20220. (202) 622-2960
Adv 6:30 p.m. EDT .
Remarks as prepared for delivery
Delivery expected at 8:25 p.m. EDT
June 1, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
NEW YORK ECONOMIC CLUB
NEW YORK N.Y.
Open any serious newspaper or listen to any broadcast in the past few months and
there are stories on the budget, taxes, government programs under attack in Washington,
Russia, Mexico, India, Japan, foreign aid, tragically Oklahoma City, Waco, and a long list
of like matters. These may seem disparate subjects, but underlying them are three great
debates now under way that will affect the future of our country in the years and decades
ahead. The Treasury is deeply involved in all three. Let me start hy expressing my
strong beliefs about each issue.
Firstly, we must, in my view, continue forceful deficit reduction, but on a path
determined by a thoughtful weighing of the tradeoffs among all factors involved in
creating a healthy economy, not on the basis of arbitrary dates and arbitrary cuts.
Secondly, we must engage with the global economy rather than turn inward. Thirdly, we
must support law enforcement rather than undermine it.
Before I talk about these choices, let me very briefly set the scene. Most here
and abroad believe the United States is better positioned economically than it has been
for at least the past 25 years. Government officials and business people I talk to feel
that our private sector has substantially improved its global competitive position over the
past decade, and our public policy has also changed dramatically during the past 2.5
years. We've reversed a 20-year history of rising deficits and brought down the deficit,
down substantially. We've put education, training and other public investments critical to
the future of the country at the center of the federal budget. We've opened markets
through GATT, NAFf A and nascent efforts in Asia and Latin America. We've reduced
the work force of the federal government through re-invention that will, when completed,
lead to the smallest civilian federal workforce since John F. Kennedy was President.
The statistics have also been good:
RR-341
(MORE)
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2
•
The economy has grown 3.5 percent per annum during the past 2.5 years, versus
1.4 percent during the previous 4 years.
•
Inflation has been under 3 percent during the past 2.5 years, versus the 4 percent
average during the previous 4 years.
•
Unemployment is at 5.7 percent, versus 7.1 percent when the current
Administration took office.
•
Over 6 million jobs were created during the past 2.5 years, versus 2.4 million the
preceding 4 years; and
•
The deficit has fallen from 5 percent of GOP at the end of the prior
Administration to about 2.7 percent now, and it is projcctl'll under the current
budget to be 2.1 percent by the end of this decade.
The reason I've gone through this scene setting is that we somctimes forget how
stark the difference is between our economic circumstances now and what they were a
short three years ago. Having said that, the key now is to focus wi th great intensity on
positioning our economy for the future, and on our social fabric.
Let me pause for a moment to comment on our social fabric. Polls and focus
groups show that most Americans do not feel our current prosperity in their lives. One
poll about six months ago reported that 60 percent of the American people still thought
we were in a recession. For many, if not most Americans, the American dream is felt to
be in jeopardy. Hard-working Americans worry about their families, about college and
retirement, about wages and foreign competition. And, they worry about their personal
safety. Worse, they believe that nobody cares.
One cause of these fears is the increasing inequality in income levels. In the
1950s, '60s and early '70s, all income levels rose at roughly the same rate. But since
then, the lowest 60 percent have seen real incomes fall, and only the upper 40 percent
have had rising real incomes. This widening gap feeds anger and alienation. People lose
hope. Some come to oppose international engagement. They may become more fearful
and less tolerant of their neighbors.
We must provide those many who are anxious and angry an effective response,
not just to their fears, but to their hopes and dreams for a better life. What is at stake
here is not only a healthy economy, but our social fabric. Each of the three imperatives
I have described is central to that task.
3
Let me start with the debate over the budget. The outcome of that debate is
central to whether or not we improve standards of living in the United States. The
choice is between a process of building a budget based on the policy tradeoffs -- with
heavy emphasis on deficit reduction -- that will best promote our economic objectives
and building a budget backward to meet an arbitrary balanced budget date.
The President's February budget message, and his oft-stated commitment since is
to continue forceful deficit reduction, while at the same time making the public
investments absolutely critical for the nation's economic future -- investments in
education and training, in apprenticeship programs, child nutrition and the like. And, he
has made it clear for 2 and 1/2 years that key to achieving a balanced budget is
controlling federal health care expenditures, but again, in a sensible fashion and in the
context of broader health care reform, rather than through draconian and arbitrary cuts
that will result in severe beneficiary impacts and cost shifting and other distortions. So,
once again, the difference is between building a budget that goes to balance based on
policy choices, and building a budget based on arbitrary dates, regardless of the policy
effects. Education, training and the inner cities will of necessity, suffer substantially, and
that is economically non-sensible.
Education is vital in reducing income disparity and promoting economic growth.
In 1979, the difference between a high school diploma and a college degree was a 39
percent higher salary each year for the college graduate. By 1993, that disparity had
reached 80 percent.
In a global economy, with an information revolution changing the work place and
placing greater demands on the work force, it makes no sense to balance the budget by
cutting student loans, apprenticeship programs, worker training, school nutrition
programs, and incentives for education and educational reform.
About six weeks ago I was in Indonesia for a meeting of finance ministers of
Asian and Pacific nations. There were 18 of us around the table. Most were countries
which fifteen or twenty years ago were impoverished and today are vastly improved and
growing rapidly. It is an amazing success story. One thing these economies have in
common is the intense focus on education, which they view as a key element in their
development.
Congress is proposing the very different approach I've already describe, to cut the
deficit to zero by an arbitrary date, with all the arbitrary, non-policy-driven cuts that
must of necessity be made. The House proposal exacerbates this problem because the
requirement for deficit reduction is larger in order to absorb the cost of the enormous
and, in our judgment, economically unwise tax cuts.
4
You wouldn't set arbitrary goals for your companies, all based on one of the many
variables that will affect the fortunes of your company. And we shouldn't do it for our
country.
The second debate over the direction of this nation -- the second choice to be
made -- is on the issue of the extent of our international engagement. Growing global
economic links and competition from foreign companies have left some Americans
behind and have increased anxiety for many more. Just as there is a great divide in the
debate over what and where to cut, so too is there a great debate about whether and
how much America should remain engaged and lead in the world.
We believe strongly that international engagement is in American's economic and
national security interests.
There are three key elements in economic engagement: promoting open markets
and free trade, promoting economic reform and development in the developing and
transitioning nations, and leading in dealing with problems in global markets that can
undermine our economic and national security interests.
There is a new isolationism afoot in this anxious age, and it lllLlst be aggressively
countered. Recall if you will how difficult it was to get the trade treaties through
Congress. Let me talk a moment about an issue you might not have considered recently,
support for reform and growth in developing countries.
There is legislation on both sides of Capitol Hill which endangers the President's
ability to conduct foreign affairs. Secretary Christopher, Secretary Perry, Ambassador
Albright and I have recommended that the President veto any legislation of that nature.
Those bills would harm our ability to support the reform and development efforts of the
international financial institutions. That in turn would harm American businesses,
restrict opportunities for exports, and undermine American jobs.
The World Bank, the development banks, and the IMF are playing a key role in
promoting economic reform and economic growth, and our influence in these
organizations, through the Treasury-appointed representatives on their boards, is
enormous. As a result, the money we provide is highly leveraged, as is our impact on
reform and development. Since its creation the World Bank has lent $130 to every $1
dollar the United States has put in and the international institutions encourage economic
reform and political reforms that are in America's interests.
Forty percent of our exports go to developing countries -- that is about $190
billion a year -- and our largest and potential markets are developing countries like
China and India.
5
Take the case of India -- a tremendous developing nation with a middle class
roughly equivalent to the entire population of the United States. In 1991, with the
assistance of the IMF, India began a dramatic economic transformation. It is reaching
out to the world and changing within. The results are now obvious. India is growing, at
about 5 percent last year, and our exports to India are rising.
The development programs of the World Bank are also making a difference in
India. I visited a village in northwest India where the World Bank is supporting a
watershed development project. With simple soil conservation techniques people who
live in deep poverty are taking control of their lives, improving their living standards and
making a better life for their children.
There is an extensive effort to assist in the transformation ()f the economies of
eastern Europe and the former Soviet Union. I was in Russia and then Ukraine with
President Clinton last month. I discussed with the Russian economic leadership the
absolute need to stay focussed on privatizing and investment and trade -- through
enforcing serious laws of contract, ensuring stockholders that their names won't vanish
from stock registration books, opening up to foreign banks, and similar measures.
I can absolutely assure you that when I spoke to government officials and business
people in Russia and Ukraine, they viewed the importance of the World Bank and the
other development banks as critical to continued reform and economic growth.
Reducing or eliminating their support is totally non-sensible. in terms of our interests, but
unfortunately on track in both houses.
Moreover, there is more to heing engaged than negotiating trade agreements and
encouraging development and economic reform.
The third element, as I mentioned, is dealing with the prohlems in global financial
markets that threaten our economic interests and national security. That also takes
leadership, the kind shown by the President in moving aggressively in our self-interest to
assist Mexico and prevent a spill-over effect on other developing economies.
International engagement creates better jobs and better living standards for
Americans. That's a message that needs spreading far and wide in this country, and I'm
going to do my part in explaining how it will benefit Americans and American business
at every opportunity.
So, those are two critical choices over the direction of the country which are being
debated now in Washington and across the country. It is critical that our approach be to
bring down the deficit, support education and other programs critical to positioning our
economy for the long run, and engaging the global economy through trade, reform and
development, and leadership in dealing with the problems of the glohal financial
markets.
6
There is a third area where Americans are anxious and feel insecure, and feel
alienation and anger: crime. And despite the seeming agreement on law and order,
there are powerful forces at work undermining the federal law enforcement effort and
this must be forcefully condemned.
Crime -- from handgun violence to drugs, from counterfeiting and fraud to money
laundering -- takes not just an emotional toll on this country, but a tremendous financial
toll as well. Look at it in terms of the needless hospital bills, the cost of prisons, the bill
for security guards for employees. Look at it in terms of children at risk from drugs.
Look at it in terms of additional costs and burdens on our businesses and financial
institutions. All of this is a cost that puts us at a productivity disadvantage relative to
many nations which do not have similar problems.
I knew about the financial and policy side of Treasury's \\/ork, and its reputation
for excellence, well before I ever went into the Treasury Building. In the past five
months I've also learned a great deal about the law enforcement side of Treasury's
portfolio. We have the second largest law enforcement operation in the federal
government, including the Secret Service, the Customs Service, the Bureau of Alcohol,
Tobacco and Firearms, the enforcement side of the IRS, and our Financial Crimes
Enforcement Network, and our Federal Law Enforcement Training Center.
Law enforcement is now being undermined in a very dangerous way, and it is
deeply troubling that some have even suggested that the Oklahoma City terrorist
bombing is somehow justified by Waco or other matters. I went to the memorial service
for those killed in the Oklahoma City bombing and met with the families of the eight
Secret Service and Customs employees who were killed there. Any attempt to link that
bombing with any alleged justification is outrageous, but that link has gained at least
some resonance even beyond fringe extremists. That resonance is grounded in the
alienation and anger I've already discussed that too many Americans feel. Moreover,
law enforcement officers are being portrayed as representatives of an oppressive federal
government -- especially in the effort to control guns, to repe<.il the ban on
semi-automatic assault weapons, and to oppose requiring explosive materials to contain
identifying information that would facilitate identification of terrorists.
The ATF particularly has come under attack. I will tell you that the ATF deals
with some of the most dangerous criminals in America -- the people who possess and are
fully ready to use illegal firearms. All federal law enforcement officers have difficult and
dangerous jobs and they need our support and respect. When there are problems, as
there inevitably will be in any organization, ... especially organizations where the jobs
themselves are so dangerous, those problems should and will be addressed, but none of
that should detract from the overriding importance of support and respect for people
whose difficult and dangerous jobs are central to protecting the rest of us.
7
In conclusion, I have outlined the approaches I believe we must take with respect
to the three critically important debates, if our economy and our nation are to be healthy
in the 21st Century.
The Treasury is deeply involved in each of these areas, and we are doing
everything within our power to advance the objectives I have advocated this evening, but
every voice must be heard as these critical decisions are made. All of you here tonight
are highly influential and can have a real impact on the outcome of these struggles.
There is too much at stake in the future of our country for anyone who can have an
effect to remain silent. So I would urge that each of you here this evening determine
how you can help by supporting local candidates, by working with media people you
know, by speaking in public forums, and in any other way available to you.
Thank you.
-30-
DEPARTMENT
OF
THE
TREASURY (.;. . . ~~.,
1789
TREASURY
NE W S
_
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
June 5, 1995
Contract: Scott Dykema
(202) h22-2960
U.S., IRELAND TO NEGOTIATE NEW TAX TREATY
The United States and Ireland have agreed to negotiate a new income tax treaty,
the Treasury Department said Monday.
A first round of talks is scheduled for the week of July 2'+, ]YY5 in Dublin.
The current treaty was signed in ]949 and is one of the oldest U.S. tax treaties
still in force. The new treaty likely will better reflect current tax policies of the two
countries, including rates of withholding tax and mutual agreement procedureS under
which tax authorities can resolve cases of double ULxatioIl.
Interested persons are invited to send comments to: the Department of the
Treasury, Office of the International Tax Counsel, Room 30M. 15()() Pennsylv:tpia f-\ve ,
N.W., Washington, D.C 20220.
-30-
RR-342
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY~~l
TREASURY
NE W S
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 5, 1995
Contact: Michelle Smith
(202) 622-2960
RUBIN REPORTS U.S. FIRMS BENEFIT FROM MOB CONTRACTS
Treasury Secretary Robert Rubin said on Monday that a Treasury report confirms that
U.S. firms benefit greatly from contracts awarded by the Multilateral Development Banks
(MOBs).
"U.S. participation in the development banks serves our political and security
interests; it helps increase U.S. exports and create U.S. jobs," Secretary Rubin said.
The Treasury report, "The Multilateral Development Banks: Increasing U.S. Exports
and Creating U.S. Jobs," outlines the important role that the development banks have played
in building major new markets for U.S. exports in Asia, Africa and Latin America. It also
emphasizes ground breaking private sector initiatives that the development banks have
undertaken in Central and Eastern Europe. The report includes a state-by-state listing of
MOB transactions broken out by city and specific firms.
"The important role the development banks play in developing and expanding markets
should be key to congressional deliberations on providing funding for these vital institutions,"
Secretary Rubin said.
Secretary Rubin emphasized that developing countries are now the most rapidly
expanding U. S. export market and that all indications are that economic growth will continue
to accelerate in these countries over the next decade.
"We live in an increasingly interconnected world of more than 5.5 billion people.
Because of the development banks, a great many of these people are increasing their incomes
and becoming better customers for American goods and services." Secretary Rubin said.
The MOBs include the World Bank, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank and the European Bank for
Reconstruction and Development.
-30RR-343
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The
Multilateral
Development
Banks
Increasing U.S. Exports
and Creating U.S. Jobs
u.S.
Department of the Treasury
Washington, D.C.
May 1995
For ,ale 0, the l· S. GU\ emment PnnDng Offile
Supenntendent of Document>. :-'Iall Stup SSOP. \\·,,-,hmgtun. DC 20..)()2·932g
ISBN 0-16-048078-7
TABLE OF CONTENTS
PART I
THE MULTILATERAL DEVELOPMENT BANKS INCREASING U.S. EXPORTS
AND CREATING U.S. JOBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PART II
STATE-BY-STATE LISTING OF U.S. FIRMS . . . . . . . . . . . . . . . . . . . . . . 13
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 100
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 101
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 107
New York. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 108
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 124
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 126
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 131
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 133
Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 140
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 141
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 142
Tennessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 144
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 159
Virginia . . . .
Washington. .
West Virginia
Wisconsin . . .
Undetermined
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..........................................
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..........................................
160
166
167
168
171
PART III
INTERNATIONAL TRADE ADMINISTRATION . . . . . . . . . . . . . . . . . . . 173
PART IV
CONTACT LIST FOR U.S. AND FOREIGN COMMERCIAL SERVICE
PART V
CONTACT LIST FOR MULTILATERAL DEVELOPMENT BANKS . . . . . . . 191
. . . . 177
PART I
THE MULTILATERAL DEVELOPMENT BANKS
INCREASING U.S. EXPORTS
AND CREATING U.S. JOBS
1
THE MULTILATERAL
DEVELOPMENT BANKS
Increasing U.S. Exports
and
Creating U.S. Jobs
The multilateral development banks are playing a leading role in
increasing U.s. exports and creating U.s. jobs. Over the past several
years, exports have been responsible for generating between 40 and
50 percent of the real growth in U.S. gross domestic product.
The multilateral development banks have sparked groundbreaking
private sector initiatives in Central and Eastern Europe. They are
building major new markets for U.s. firms in Asia, Africa, and Latin
America, and working to remove impediments to economic growth
in developing countries.
This is an important U.s. export story. It begins with contracts won
by U.S. firms to provide goods and services for a wide range of
projects financed through the multilateral development banks. In the
past two years, nearly $5.0 billion have gone to thousands of U.S.
firms as a direct result of their participation in multilateral development bank funded projects.
This is an
important U.S.
export story.
U.s. firms also benefit from the work the development banks have
done in creating a friendlier economic environment for the private
sector in developing countries. U.S. firms have increased their participation in equity and loan investments sponsored by the development banks, and they are beginning to take advantage of newlyenhanced instruments such as partial loan guarantees.
U.s. Firms Win Major Contracts
u.s. firms have always been among the most important commercial
beneficiaries of multilateral development bank lending. Funds from
the development banks have gone to major U.S. corporations, including General Electric, General Motors, Motorola, IBM, AT&T, Allied
Signal, Westinghouse and others. These large publicly-held firms
have facilities in a number of different states and employ tens of
thousands people. The work they get through the development
banks and the follow-on work that is generated in developing counties have had a highly-positive impact on the performance of the U.S.
economy.
A significant portion of development bank funding also goes to
smaller companies. Many of these smaller firms are privately-held,
with one or two plants and 200-300 employees. The work they get
from the multilateral development banks is an important source of
3
Development Bank
funds go to major
corporations and
smaller companies
Caterpillar gets
$250 million in
export sales each
year
McDermott wins
important
contracts in China
and India
income, and it makes a large contribution to employment in the communities where their facilities are located.
Caterpillar of Peoria, Illinois, estimates that it gets $250 million. in
export sales of construction equipment each year as a result of Its
participation in multilateral development bank projects. Development
bank financing has been responsible for Caterpillar sales of $11.8
million in Indonesia, $10 million in Egypt, $10 million in Zimbabwe,
and $7 million in Mongolia.
McDermott International of New Orleans, Louisiana, a manufacturer
of power generation equipment and supplies, is another important
participant in development bank lending. In the early 1990s, McDermott
was the lead firm in an international consortium that developed the
Oso off-shore oil condensate project for the World Bank in Nigeria.
In 1994, McDermott won another World Bank contract for $155 million
to provide boilers for an electric power project in China. Earlier this
year, a McDermott subsidiary won an Asian Development Bank
contract for $220 million for a pipeline project in India.
The development bank contracts won by U.S. firms like Caterpillar
and McDermott create high-paying jobs in the cities and towns in
which these companies have plants and facilities. Positive economic
effects also spread to thousands of other firms in hundreds of other
communities around the nation through subcontracting and the award
of additional contracts to other suppliers.
Subcontractors and Suppliers
IBM teams with
smaller firms to
win contracts in
Thailand and
Argentina
GE suppliers are
"hidden" U.S
exporters
Two multilateral development bank contracts recently awarded to the
IBM Corporation of Armonk, New York, provided major economic
benefits for a number of subcontractors in other states including
Arkansas, Ohio and California. Teaming with these smaller firms, IBM
was successful in entering new data networking and retrieval markets
in Thailand and Argentina. It is now pursuing follow-on contracts that
should result in additional commercial benefits.
General Electric, one of the largest recipients of multilateral development bank contracts, estimates that more than 60 percent of the value
of its total exports are purchased from its U.s. suppliers. In 1992, these
suppliers received $9.5 billion from the sales of their products to
various GE divisions which exported final products to foreign markets.
The GE Power Systems Division buys $1.6 billion in intermediate
goods and services from 4,670 suppliers in 50 states and the District of
Columbia, incorporating them into an export program that covers
many developing countries. These power generation suppliers and
others like them are lithe hidden exporters" of the United States. They
have benefited significantly from their participation in the work of the
multilateral development banks.
4
Building New Markets
The heart of development bank lending is the work that is done
to improve economic management and promote economic
policy reform in developing countries. This is the most valuable
part of their work; it leads to greater growth in developing
countries, building new markets and giving an important stimulus to U.S. exports.
The multilateral development banks are the only institutions engaged
in this type of activity. Through a unique combination of loans and
policy guidance, they have given the economies of developing countries greater strength and flexibility and enhanced the flow of international trade and investment. Once new economic management and
policies are in place, many developing countries are able to expand
their economic output and become better customers for a broad range
of U.s. goods and services. Between 1987 and 1993, U.s. exports to
developing countries more than doubled from $91 billion to $197
billion.
Developing countries have become our most rapidly expanding
external market, purchasing 40 percent of all U.S. exports. They are
responsible for creating or sustaining nearly 4 million U.s. jobs each
year. These increases in U.S. exports and the jobs they have generated
could not have taken place without the multilateral development
banks and the work they do in promoting economic reform.
Doubling of u.s.
exports could not
have taken place
without the
development banks
IDA and India
The International Development Association (IDA), the concessional
loan window of the World Bank Group, has been one of the leading
players in promoting economic reform. Its work in the less developed
countries has made it an essential element in the multilateral development bank system. It is difficult to see how the development bank
system could continue to function effectively in the absence of IDA
reform programs.
India provides an important example of how IDA reform programs have worked to the economic advantage of the United
states, increasing export and investment opportunities for U.S.
firms. Under IDA lending, beginning in 1991, India cut its
maximum tariffs from 400 percent to 65 percent and liberalized
its investment rules.
Since then, the United States has become the largest foreign investor in
this large and growing South Asian market. Major U.s. firms like
Motorola and IBM are beginning to penetrate an economy which was
once almost completely closed to them. U.s. exports to India went
from $1.9 billion to $2.9 billion in one year and, late last year, Commerce Secretary Brown was able to announce new contracts for U.S.
firms amounting to more than $7.0 billion.
5
Motorola and IBM
penetrate an
economy once
almost completely
closed to them
Other Countries Under IDA Refonn
Other countries successfully implementing IDA economic reform
programs include Kenya, Uganda and Cote d'Ivoire in Africa. In 19
Sub-Saharan counties under IDA economic reform programs, gross
domestic product increased at an average annual rate of 4.5 percent
between 1988 and 1993.
In other Sub-Saharan countries not under IDA economic reform, gross
domestic product actually declined over that same period. IDA economic reforms work, and they work to the economic advantage. of ~he
United States. In Africa and elsewhere, these programs are begInnIng
to build future markets for U.S. exports.
IDA has 20 graduates, including some of the largest and most .important emerging markets for U.s. exports such as Korea, Indones~a,.
.
Thailand and Turkey. In 1993, these countries purchased $42 bIlhon In
U.s. exports and current IDA borrowers took an additional $20 billion.
Private Sector Is Key
Support for the private sector is the key to economic growth for developing countries and countries in transition in Central and Eastern
Europe and the former Soviet Union. U.s. policy has strongly encouraged a friendlier environment for private business in developing and
transition countries.
We have also sought to increase development bank support for a
strong and sustained flow of private resources to these countries. We
believe it is the most important contribution we can make to their
economic progress.
IDA lends
$1.6 billion per
year to support
private sector
Between 1988 and 1993, IDA's average annual lending in support of
more favorable and competitive business environments in developing
countries was $1.6 billion. That was nearly 30 percent of its total
lending over that period. Leverage from IDA's investment operations
in agriculture, mining, energy and the industrial sectors was used to
identify and help overcome a number of specific obstacles to private
investment.
This U.s. policy is showing results. Privatization programs are going
forward quickly in Central and Eastern Europe and in many parts of
the former Soviet Union. Developing countries have been cutting red
tape, opening the doors to their markets to U.s. firms for the first time.
A growing number of U.S. firms are benefiting from the increasing
multilateral development bank support for free markets and private
sector initiatives and participating in joint ventures.
Support for Private Sector Grows
In 1994, more than $1.7 billion, 73 percent of the loans from the European Bank for Reconstruction and Development, went to the private
sector. The Bank also increased its equity investments in borrowing
6
countries and the financing it provides to local entrepreneurs through
financial intermediaries there.
The European Bank is working with US West International of Denver,
Colorado, to finance an $80 million telecommunications project in
Hungary. It is also joining with Coca-Cola of Atlanta, Georgia, to
provide financial support for a bottling plant in Albania.
Private sector programs are going forward rapidly in other parts of the
world. In 1994, the International Finance Corporation (IFC), the
private sector arm of the World Bank Group, made loan and equity
investments of $2.5 billion. These investments supported 231 projects
in 65 developing countries.
European Bank
works with
US West on
telecommunications
in Hungary
An additional $1.8 billion was raised through the IFC's loan syndication program and underwriting activities. The total value of the
operations receiving support through the IFC was $18.5 billion.
The IFC is cooperating with AT&T on a joint venture to set up a cellular phone system in Sri Lanka. It is working with Sprint to improve
telephone exchanges in Poland and it has joined with Tenet Hec.lthcare
Corporation of Santa Monica, California in constructing and equipping
a 530 bed private hospital project in Bangkok, Thailand.
The World Bank and the Asian Development Bank are extending their
guarantee programs to promote private sector participation in the
expansion and replacement of infrastructure in Asia and Latin
America. These new programs, which began in 1994 and 1995, provide partial guarantees for policy and credit risk.
Thus far, the World Bank has extended a partial risk guarantee for a
power project in Pakistan and two partial credit guarantees for
projects in China and the Philippines. It was under one of these partial
credit guarantees, that Westinghouse Corporation of Pittsburgh,
Pennsylvania won a $155 million contract to supply turbines for a
power project in China. U.s. firms should get additional benefits in
the future as a result of new co-financing and guarantee programs now
being put into place in the development banks.
Opportunities In Infrastructure
The growing need for physical infrastructure in developing countries
is creating new export opportunities for many U.s. companies. With
rising population pressures and rapid economic growth, developing
countries are investing more than $200 billion each year in infrastructure. The need is greater because older systems have become overloaded and much of the infrastructure constructed in the 1960's is now
wearing out and must be replaced.
The growth in demand for electric power has been particularly strong
in larger countries like China, India, and Indonesia; but other developing countries also face very critical shortages of energy. Demand is
accelerating for telecommunications, potable water, sanitation and
sewerage, solid waste collection and disposal, and piped gas. Require-
7
[Fe and AT&T
cooperate on joint
venture in
Sri Lanka
Westinghouse gets
credit guarantee
from the World
Bank
ments are also rising rapidly for other traditional civil works such as
urban and rural roads, dams and canal works, railways, ports, waterways and airports.
Cost of new
infrastructure in
Asia to be more
than $1.0 trillion
ENRON does
BOT project for
ADB in
Philippines
In Asia alone, before the end of the decade, the cost of new physical
infrastructure is expected to be more than $1.0 trillion. This market
presents an unparalleled opportunity for U.s. firms, and they ~re wellpositioned to take advantage of it. They have done very well In the
past in getting a number of large contracts for important infrastr~cture
work through development bank financing. They will also benefit
from the work the development banks have done in promoting domestic capital markets in their borrowing countries and in encouragi~~
deregulation and changes in pricing policies and rules of competItion
for public utilities.
Many developing countries are entering into new arrangements
with private companies including build, operate and transfer or
BOT agreements. The Enron Corporation of Houston, Texas did the
first BOT power project in Batangas, Philippines, through the Asian
Development Bank's private sector window. This introduction by
the Bank led to a second BOT agreement for Enron in the Philippines.
Other Large Contracts
U.s. companies have been very successful in winning contracts to
provide fertilizers for a large number of agricultural projects in South
Asia funded through the Asian Development Bank and the World
Bank. In 1992, the Cargill Corporation of Minneapolis, Minnesota,
won a number of these contracts for projects in India, China and
Bangladesh which totaled more than $20 million.
Phospate
Chemicals Export
Association
exports more than
$68 million
Sun Microsystems
gets winning bid
for computer
project
Seminole Corporation of Stamford, Connecticut (which was acquired
by Cargill in 1993) won contracts worth more than $56 million in
Bangladesh and Pakistan between 1990 and 1994. Over the same
period, the Phosphate Chemicals Export Association (which includes
Occidental Chemical Company, Texas Gulf, and IMC Global) exported
more than $68 million in fertilizers for projects in Pakistan and
Bangladesh.
U.S. firms have received more contracts from the multilateral development banks than any other member country. In addition to the corporations already cited, they include Foster Wheeler, Dresser Rand,
Halliburton/Brown and Root, and Deere and Company.
A major contract went to Sun Microsystems of Mountain View, California which participated in a winning bid of $34 million for a tax computerization project in the Philippines. MW Kellogg of Houston, Texas
is receiving disbursements on a $190 million contract it won in 1991 for
a fertilizer facility in East Java in Indonesia.
8
Small and Medium-Size Firms
Small and medium-size firms also benefit from multilateral development bank business. American Cast Iron Pipe, a company with 3000
employee-owners in Birmingham, Alabama, is providing pipe and
fittings for clean water and sewerage projects in Latin America and the
Caribbean. These projects are funded through the World Bank and the
Inter-American Development Bank.
Morrison Textile Machinery Company, which employs 135 people in
Fort Lawn, South Carolina, has won contracts to provide bleaching
and other equipment for industrial projects in India funded through
the World Bank and the International Development Association.
M&W Pump Corporation, which employs 200 people in Deerfield
Beach, Florida, is providing fluid pumps and motors for other development bank-funded projects in Latin America and Asia.
Rising Demand For Services
American Cast
Iron Pipe gets
clean water
projects in Latin
America
Morrison Textiles
wins contracts for
industrial projects
in India
A great deal of development bank work has gone to U.S. firms that
provide specialized services such as consulting engineers, accounting
firms, legal firms, and firms which provide financial and merchant
banking expertise. Commercial banks, insurers, and freight forwarders also benefit. International trade in services like these and others is
projected to rise very rapidly.
U.S. consulting and engineering firms have been in the forefront of
many projects in developing countries that are funded through the
multilateral development banks. They become involved at the earlier
stages of the project cycle for major infrastructure projects, preparing
feasibility and pre-feasibility studies, final designs and bid documents.
They may also supervise implementation of the project on behalf of the
borrower.
Wilbur Smith Associates of Columbia, South Carolina is developing
a long-term strategy for expansion of Thailand's road network over
the next 20 yel'rs that is being financed through the World Bank.
This firm has just completed a traffic management study for Sierra
Leone and is providing technical assistance through IDA for highway maintenance in Ghana and rehabilitation of transportation
systems in Angola.
Louis Berger of East Orange, New Jersey wrote the final designs and is
now supervising construction of a Hungarian toll road project which is
being funded through the European Bank for Reconstruction and
Development. Berger has just completed preparatory work on the
Buenos Aires-Colonia toll bridge project which will link Argentina and
Uruguay. This project, which is expected to total $1.0 billion, is being
funded through the International Finance Corporation and a number
of private sector partners.
Other engineering consultants benefiting from development bank
work over the past several years include Morrison-Knudsen of San
9
Wilbur Smith
develops road
network strategy
in Thailand
Louis Berger
completes
preparatory work
on toll bridge in
Argentina
Francisco, California; Black and Veatch of Kansas City, Missouri; Harza
Engineering of Chicago, Illinois; Stanley Associates of Muscatine,
Iowa; and De Leuw, Cather of Washington D.C. U.S. consultants won
$257 million in contracts from the World Bank and IDA over the past
two years.
Developing Countries Are Fastest Growing
Markets
Market-oriented
economies will be
more open to U.S.
trade and
investment
In emphasizing the importance of free markets and the private sector,
the development banks are continuing to create the economic environment that is essential for greater growth in developing countries. This
work will result in more open and market-oriented economies that will
grow more rapidly in the future and be more receptive to U.s. trade
and investment.
Eighty-five percent of the world's population now lives in developing
countries, and some of these countries have achieved the highest
economic growth rates in the world. The largest and most profitable
new opportunities for U.s. trade and investment are among the developing countries. We should not back away from those opportunities
and risk the loss of business that would result for U.s. firms.
Over the next ten years, developing countries as a group are projected
to grow at almost twice the rate of the industrial countries. It has been
estimated that their share of world output could increase to 25 percent
by the year 2004.
Developing
countries to grow
at twice the rate of
industrial
countries
Over this period, high-performing economies in East Asia are expected
to lead the way with growth rates of 7.7 percent and the South Asian
economies at around 5.4 percent. Even Sub-Saharan Africa, which is
just beginning to improve its economic performance under IDA reform
programs, is expected to grow by average annual rates of 3.8 percent
over the next ten years.
By the year 2010, developing countries as a group could account for
half of global consumption and half of global capital formation measured in purchasing power parity terms. By this measure, three of the
developing countries - China, India, and Indonesia - could also be
among the world's six largest economies.
Globalization Increases Opportunities
Integration of markets and the introduction of new technologies now
permi~ capital to move ra~idly from one market to another, increasing
globahzatIon of the world s economy. Developing countries are
providing a major thrust for this process with their growing commitment to economic ~eform and initiatives promoted by the development
banks that emphaSIze open markets and the role of the private sector.
They are becoming more closely tied into the international economic
system.
10
Implementation of the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA) is giving particular impetus to the acceleration of
international trade and investment. Over the next decade, the growth
in merchandise trade is expected to average 6 percent annually.
The developing countries' merchandise trade is expected to rise by
more than seven percent over that same period. This increase in trade
will present new opportunities for u.s. firms as they seek to consolidate their share of established markets and secure footholds in new
markets. How U.S. firms are able to relate to the work of the development banks will be one of the principal determinants of success in the
developing country markets.
Growth in
merchandise trade
to average 6
percent annually
Cost-Effective Internationalism
With international economic interests coming to the forefront of
U.S. foreign policy concerns, and at a time of very severe budgetary
constraint, the development banks are assuming greater importance. They are highly leveraged and cost-effective examples of
international cooperation, providing important benefits to the U.S.
economy.
Each year, the development banks mobilize four dollars from other
member countries for each dollar that we contribute. Most of that
money comes from Europe and Japan. In addition, the development
banks raise almost all their funds for ordinary capital lending from the
world's private capital markets.
These two factors give the development banks the capability to lend a
large multiple of the U.s. contribution. They lower the budgetary cost
of our participation in the banks substantially every year.
U.S. Commercial Interests
We live in an increasingly interconnected world of more than 5.5
billion people. The great majority of those people -more than 85
percent -live in developing countries. Thanks to the work of the
multilateral development banks, many people in developing countries
have increased their incomes in recent years. They have become better
customers for a broad range of goods and services that our country
produces for export. U.S. firms need to remain engaged in their
markets.
All indications are that economic growth will continue to accelerate in
developing countries over the next decade. U.S. firms are competitive
internationally. They have an important opportunity to build on the
commercial gains they are already making in developing countries and
begin to develop new trade and investment opportunities there.
11
Development
banks raise almost
all funds for
ordinary capital
from private
capital markets
Access to finance
is essential if U. S.
firms are to
compete
successfully
Access to finance is essential if U.s. firms are to compete successfully
for trade and investment opportunities in developing countries. It
would be a serious mistake to close them off from the resources of the
multilateral development banks - one of the largest and most important sources of finance now available for U.s. firms doing business
internationally.
U.s. participation in the development banks is an investment in our
country's economic future. The returns from that investment will be
increasing U.S. exports to developing countries, resulting in more
high-paying export-related jobs and a higher standard of living for our
people here at home. We cannot afford to walk away from the development banks and the economic opportunities they make possible.
12
PART II
STATE-BY-STATE LISTING
u.S. FIRMS
AND
CONTRACTS FROM
THE MULTILATERAL DEVELOPMENT BANKS
13
THE MULTILATERAL DEVELOPMENT BANKS
Part II of this report is a list of U.S. firms or individuals that have won contracts or received
disbursements from the multilateral development banks. The list also includes entries for U.S. firms
that have participated in equity or loan transactions to promote private sector activities in the work of
the multilateral development banks over the last several years. The list is based on information
generated by the development banks through their internal procurement reporting systems and made
available for inclusion in this report.
This list is not complete; only a portion of the data on contracts, disbursements and other transactions
has been identified in the report. Treasury has been working closely with all of the development
banks to improve the effectiveness of their internal reporting systems, seeking to assure that the
procurement information provided in the report is as complete and accurate as possible.
The multilateral development banks from which we have received information are:
IBRD
The International Bank for Reconstruction and Development (IBRD) or World Bank
lends money for projects and programs in developing countries worldwide at marketrelated rates of interest. In its most recent fiscal year it made loans of just under $17
billion.
IDA
The International Development Association (IDA), part of the World Bank Group,
lends money at concessional rates of interest to the world's poorest and least creditworthy countries. In its most recent fiscal year it made loans of $7.8 billion.
IFC
The International Finance Corporation, the World Bank's private sector affiliate,
offers loan and equity financing in support of private sector projects at market rates.
During fiscal year 1994, the IFC offered $2.5 billion in new financing in support of
231 projects valued at $15.8 billion.
MIGA
The Multilateral Investment Guarantee Facility, part of the World Bank, offers
investment insurance for non-commercial risks in developing countries. During fiscal
year 1994, MIG A wrote new insurance contracts of $373 million dollars in support of
$1.3 billion in investment in developing countries.
IDB
The Inter-American Development Bank (lOB) makes loans at market-related rates of
interest to higher income and more credit-worthy developing memher countries in
Latin America and the Caribbean. In 1994, the Bank approved $5.5 billion in loans
of this type and about $500 million in loans to poorer counties in the region at
concessional rates of interest from its Fund for Special Operations (FSO).
IIC
The Inter-American Investment Corporation, the lOB's private sector affiliate, offers
loan and equity financing in support of small private sector projects at market rates.
During fiscal year 1994, the IIC offered $40 million in new financing.
15
ADB
The Asian Development Bank (ADB) makes loans at market-related rates of interest to
borrowing member countries in the Asian and Padfic region. In 1994, the Bank
approved $2.5 billion in loans at market rates.
ADF
The Asian Development Fund (ADF), part of the Asian Development Bank, made
$1.2 billion in loans at concessional rates of interest to poorer borrowing member
countries in the Asian region.
EBRD
The European Bank for Reconstruction and Development (EBRD) takes equity
positions and makes loans at market-related rates of interest in its operating countries
in Central and Eastern Europe and in the former Soviet Union. In 1994, the Bank
approved 91 operations of this type amounting to $2.4 billion, including $1. 7 billion
in the private sector.
AFDB
The African Development Bank makes loans at market-related rates of interest to
member countries in Africa. It also lends at concessional rates of interest through the
African Development Fund (AFDF).
16
ALABAMA
AMOUNT ($'000) BANK
CITY
COMPANY
Alabama City
Courtaulds Fibers Inc.
Birmingham
Altec Industries Inc.
20,700
IDB
Birmingham
Altec Industries Inc.
12,681
IBRD/IDA
Birmingham
Altec Industries Inc.
221
Birmingham
American Cast Iron Pipe Co.
12,566
Birmingham
American Cast Iron Pipe Co.
840
Birmingham
American Cast Iron Pipe Co.
69
IBRD/IDA
Birmingham
American Cast Iron Pipe Co.
27
IBRD/IDA
Birmingham
Guzzler Manufacturing Inc.
Birmingham
PBR Hotel - BE&K - Radisson Int'l
Birmingham
Project Management Consultants Inc.
Birmingham
Taylor Warton Inc.
Birmingham
Teco Inc.- Southeast Division
156
IDB
Birmingham
Universal Electric Co.
243
IDB
Birmingham
Universal Electric Co.
119
IDB
Decatur
Wolverine Tube Inc.
468
IBRD/IDA
Huntsville
Intergraph Corp.
746
IBRD/IDA
Huntsville
Intergraph Corp.
510
IDB
Huntsville
Intergraph Corp.
290
IBRD/IDA
Huntsville
Intergraph Corp.
236
IDB
Huntsville
SCI Manufacturing
331
IBRD/IDA
Huntsville
Wyle Labs Science Services & System Group
3,705
IBRD/IDA
128
366
12,000
387
1,319
17
IBRD/IDA
IDB
IBRD/IDA
IDB
IDB
EBRD
IDB
IBRD/IDA
ALABAMA
AMOUNT ($'000)
BANK
CITY
COMPANY
Huntsville
Wyle Labs Science Services & System Group
791
IBRD/IDA
Huntsville
Wyle Labs Science Services & System Group
780
IBRD/IDA
La Batre
Ocean Marine Inc.
2,296
Leeds
Anderson Products
981
Leeds
Anderson Products
30
IDB
Mobile
OPICO
495
IDB
Mobile
OPICO
99
IBRD/IDA
Mobile
OPICO
36
IBRD/IDA
Mobile
Undetermined
14
ADB
Montgomery
Kershaw USA
915
Prattville
Continental Eagle Corp.
Unspecified
A.W. Williams Inspection Co.
Unspecified
2,300
AFDB
ADB
IBRD/IDA
AFDB
8
IBRD/IDA
Duncan Industries
35
IBRD/IDA
Unspecified
Hagen & Miller Chemicals
73
ADB
Unspecified
J. Grunblatt
54
IBRD/IDA
Unspecified
Undetermined
467
IBRD/IDA
Unspecified
Undetermined
13
IBRD/IDA
State Total
77,495
18
ARIZONA
CITY
COMPANY
Phoenix
Huma Gro
Tempe
AMOUNT ($'000) BANK
67
IBRD/IDA
Edib Kirdar Assoc.
200
IBRD/IDA
Tempe
Edib Kirdar Assoc.
100
IBRD/IDA
Tucson
Syntellect Inc.
83
IBRD/IDA
Unspecified
Undetermined
1,216
1,666
State Total
19
ADB
ARKANSAS
CITY
COMPANY
Fayetteville
James Moore
Fayetteville
University of Arkansas
Morrilton
AMOUNT ($'000)
5
BANK
IDB
87
IBRD/IDA
Winrock Int'l
617
IBRD/IDA
Morrilton
Winrock Int'l
100
IBRD/IDA
Unspecified
Robert Wheaton
50
IBRD/IDA
Unspecified
Rolf F.H. Bolt
116
IBRD/IDA
Unspecified
Siemens
334
IBRD/IDA
Unspecified
Undetermined
3,486
IBRD/IDA
State Total
4,795
20
CALIFORNIA
CITY
COMPANY
Anaheim
Bermad Control Valves Inc.
Anaheim
AMOUNT ($'000) BANK
374
IBRD/IDA
Budde Int'l Inc.
3,191
IBRD/IDA
Anaheim
Budde Int'l Inc.
ISO
IBRD/IDA
Anaheim
Budde Int'l Inc.
24
IBRD/IDA
Anaheim
Budde Int'l Inc.
2
Arcadia
Engineering Science Inc.
2,272
IBRD/IDA
Arcadia
Engineering Science Inc.
1,607
IBRD/IDA
Arcadia
Engineering Science Inc.
1,018
IBRD/IDA
Bakersfield
Pruett Industries Int'l
139
IBRD/IDA
Berkeley
B.G. Technologies
Berkeley
Sierra Misco Inc.
Brawley
California Livestock Co.
Burbank
PSI Telecommunications Inc.
509
ADB
Burbank
PSI Telecommunications Inc.
312
ADB
Burbank
PSI Telecommunications Inc.
201
ADB
Burbank
Shamrock Capital Investors II
5,200
Carlsbad
Artecom
14
IDB
Cerritos
Yasesu
21
IDB
Chico
Summa Int'l Data Systems
191
IBRD/IDA
Circle Cerritos
Reliance Exports Int'l
631
IBRD/IDA
Concord
Yeary & Assoc. Inc.
322
IBRD/IDA
Coronado
W. H. Thompson
38
IDB
285
IBRD/IDA
1,679
IBRD/IDA
50
21
IDB
EBRD
EBRD
CALIFORNIA
AMOUNT ($'000) BANK
CITY
COMPANY
Coronado
W . H. Thompson
14
IBRD/IOA
Costa Mesa
Keith Companies
42
lOB
Cyprus
Golden Earth Corp.
Oavis
University of California
El Monte
Sparling Instruments
344
lOB
ElToro
Advance American Technology
208
IBRD/IDA
Escondido
Transworld Communication
586
lOB
Ewerville
Sybase
97
lOB
Exeter
Bowsmith Inc.
33
lOB
Freemont
Logittech Inc.
Fresno
Conti Cotton
Fullerton
Beckman Instruments Inc.
66
lOB
Fullerton
Beckman Instruments Inc.
53
lOB
Hawthorne
Pipe Technology Inc.
90
lOB
Hayward
Edison Hubbard Corp.
7,116
Hayward
Edison Hubbard Corp.
526
AOB
Hollywood
Advanced Semiconductor Inc.
309
IBRO/IDA
Hollywood
Advanced Semiconductor Inc.
247
IBRD/IOA
Hollywood
Advanced Semiconductor Inc.
27
IBRD/IDA
Huntington Park
Trico Industries Inc.
182
Huntington Park
Trico Industries Inc.
91
IBRD/IOA
Inglewood
American Leina Co.
199
IBRD/IOA
318
3
IBRD/IDA
ADF
lOB
147
22
IBRD/IDA
IBRD/IDA
ADB
CALIFORNIA
CITY
COMPANY
Invisie
Parmelex Inc.
Irvine
Advance Logic Research
53
IDB
Irvine
Advance Logic Research
38
IDB
Irvine
AST Research Inc.
25
AFDB
Irvine
Astron Corp.
32
IDB
Irvine
Crown Pacific Int'l Inc.
Irvine
Fluor Daniel Inc.
Irvine
Toshiba American Information
Lafayette
Swanson & Oswald Assoc.
160
IBRD/IDA
Lafayette
Swanson & Oswald Assoc.
92
IBRD/IDA
Lafayette
Swanson & Oswald Assoc.
46
IBRD/IDA
Laguna Hills
LCP Int'l Institute
1,536
IBRD/IDA
Laguna Hills
LCP Int'l Institute
503
IBRD/IDA
Laguna Hills
LCP Int'l Institute
42
IBRD/IDA
Larkspur
Agland Investment Services Inc.
42
IDB
Larkspur
Agland Investment Services Inc.
13
IIC
Larkspur
Agland Investment Services Inc.
10
IIC
Livermore
PMC Engineering Co.
98
IDB
Long Beach
Astrophysics Research
466
IDB
Long Beach
BWIP Pump Int'I Inc.
7,235
Long Beach
BWIP Pump Int'I Inc.
79
Long Beach
Kalibur Inc.
AMOUNT ($'000) BANK
394
2,567
IBRD/IDA
58
IBRD/IDA
4
126
23
IBRD/IDA
IDB
IBRD/IDA
IDB
IBRDIIDA
CALIFORNIA
AMOUNT ($'000)
BANK
CITY
COMPANY
Long Beach
Pacific Valves Inc.
214
IBRD/IDA
Long Beach
V.E. Kuster Co.
165
ADB
Long Beach
V.E. Kuster Co.
162
IBRD/IDA
Long Beach
V.E. Kuster Co.
38
lOB
Los Angeles
Arthur Anderson & Co.
828
ADB
Los Angeles
Booz, Allen & Hamilton Inc.
1,531
IBRD/IDA
Los Angeles
Chevron Chemical Co.
4,270
IBRD/IDA
Los Angeles
Dames & Moore
Los Angeles
Dokken Engineering Co.
Los Angeles
Eagle Packaging Group
Los Angeles
515
lOB
1,913
IBRD/IDA
129
IBRD/IDA
Edison Hubbard Corp.
7,302
IBRD/IDA
Los Angeles
Edison Hubbard Corp.
5,093
IBRD/IDA
Los Angeles
Golden West Nuts Inc.
98
IBRD/IDA
Los Angeles
Grad Inc.
819
IBRD/IDA
Los Angeles
Institute for Tax Administration
Los Angeles
Int'l Computer & Communication
132
IBRD/IDA
Los Angeles
J .R. Scheidner & Co.
333
IBRD/IDA
Los Angeles
L.A. Gear Inc.
1,237
IBRD/IDA
Los Angeles
Marketex Computer Corp.
285
IBRD/IDA
Los Angeles
Maypo Pump Corp.
Los Angeles
Shita Electric Ind. Co.
130
IBRD/IDA
Los Angeles
Silicon Graphics
889
IBRD/IDA
28
96
24
AFDB
lOB
CALIFORNIA
CITY
COMPANY
Los Angeles
Silicon Graphics
389
IBRD/IDA
Los Angeles
Silicon Graphics
215
IBRD/IDA
Los Angeles
Tandem Computer Inc.
1,867
IBRD/IDA
Los Angeles
Time Warner
Los Angeles
United States Borax & Chemical Corp.
223
IBRD/IDA
Los Angeles
University of California
342
IBRD/IDA
Los Angeles
University of Southern California
30
IBRD/IDA
Martinez
Walker Associates
105
IBRD/IDA
Martinez
Walker Associates
36
IBRD/IDA
Menlo Park
Barrett Consulting Group
Menlo Park
Stanford Research Institute Int'l
3,852
IBRD/IDA
Menlo Park
Stanford Research Institute Int'l
2,753
IBRD/IDA
Menlo Park
Stanford Research Institute Int'l
1,555
IBRD/IDA
Menlo Park
Stanford Research Institute Int'l
339
IBRD/IDA
Milpitas
InCl Imaging Systems
323
IBRD/IDA
Mission Viejo
Inventors Int'l
74
Montebello
Peerless Pump
781
IBRD/IDA
Monterey Park
Sida Corp.
980
ADB
Monterey Park
Sida Corp.
475
IBRD/IDA
Mountain View
Maromatic Co.
158
IBRD/IDA
Mountain View
Sun Microsystems
500
IBRD/IDA
Mountain View
Sun Microsystems
399
IBRD/IDA
AMOUNT ($'000) BANK
20,000
449
25
EBRD
ADB
ADB
CALIFORNIA
AMOUNT ($'000)
BANK
CITY
COMPANY
Mountain View
Sun Microsystems
Napa
Napa Pipe Corp.
National City
Medosa Inc.
330
IBRD/IDA
Northridge
JBL Int'I
160
IDB
Novato
Envirocare Int'l
220
IBRD/IDA
Oakland
California Int'l Trade & Consult. Co.
1,679
IBRD/IDA
Orange
Systems Integrated Int'l
2,674
IBRD/IDA
Orange
Systems Integrated Int'l
1,394
IBRD/IDA
Orange
Systems Integrated Int'l
201
IBRD/IDA
Orange
Varco Int'I
2,176
IBRD/IDA
Palo Alto
Asset Management Co.
Palo Alto
Chemtex Int'l Inc.
Palo Alto
129
43,580
10,000
IDB
ADB
EBRD
410
IBRD/IDA
Hewlett Packard Co.
1,024
IBRD/IDA
Palo Alto
Hewlett Packard Co.
387
IBRD/IDA
Palo Alto
Hewlett Packard Co.
100
IBRD/IDA
Palo Alto
Stefan Weiss
Palo Alto
Valtex Int'l Corp.
785
EBRD
Palo Alto
Valtex Int'I Corp.
393
IBRD/IDA
Palo Alto
Valtex Int'l Corp.
224
IBRD/IDA
Palo Alto
Varian Associates Inc.
562
IBRD/IDA
Palo Alto
Varian Associates Inc.
223
IBRD/IDA
Palo Alto
Varian Associates Inc.
146
IBRD/IDA
4
26
IDB
CALIFORNIA
CITY
COMPANY
Pasadena
Engineering Science Inc.
1,443
IBRD/IDA
Pasadena
Engineering Science Inc.
1,369
ADB
Pasadena
Engineering Science Inc.
1,165
ADF
Pasadena
Engineering Science Inc.
645
ADF
Pasadena
Engineering Science Inc.
640
ADF
Pasadena
Engineering Science Inc.
590
ADB
Pasadena
Engineering Science Inc.
122
ADF
Pasadena
Engineering Science Inc.
56
IBRD/IDA
Pasadena
Jacobs Engineering Group Inc.
56
IIC
Pasadena
James M. Montgomery Consulting
652
IBRD/IDA
Pasadena
James M. Montgomery Consulting
458
IBRD/IDA
Pasadena
James M. Montgomery Consulting
214
IBRD/IDA
Pasadena
James M. Montgomery Consulting
147
IBRD/IDA
Pasadena
Kinemetrics Inc.
376
IBRD/IDA
Pasadena
Kinemetrics Inc.
354
IBRD/IDA
Pleasanton
Computerland Corp.
151
IBRD/IDA
Redwood City
Fluor Daniel Inc.
124
IBRD/IDA
Redwood Shores
Oracle Corp.
Richmond
AMOUNT ($'000) BANK
25
IDB
Geothermex Inc.
1,545
IDB
Richmond
Geothermex Inc.
1,545
IDB
Riverside
Bear Medical Systems Inc
137
IDB
Rocklin
Hewlett Packard Co.
248
IBRD/IDA
27
CALIFORNIA
CITY
COMPANY
Rosemead
United Manda Inc.
Sacramento
AMOUNT ($'000) BANK
254
IBRD/IDA
Dokken Engineering Co.
1,913
IBRD/IDA
Sacramento
Dokken Engineering Co.
1,203
IBRD/IDA
Sacramento
Ebara InCl Corp.
1,926
IBRD/IDA
San Diego
Gamma-Metrics
601
IBRD/IDA
San Diego
Grabil InCl
180
IBRD/IDA
San Diego
Humphrey Inc.
374
IBRD/IDA
San Diego
IVAC Corp.
San Diego
Solar Turbines Int'l
5,977
IBRD/IDA
San Diego
Solar Turbines Int'l
3,045
IBRD/IDA
San Diego
Solar Turbines Int'l
2,276
IBRD/IDA
San Diego
Solar Turbines Int'l
417
IBRD/IDA
San Diego
Solar Turbines InCl
172
IBRD/IDA
San Diego
Solar Turbines Int'l
35
IBRD/IDA
San Diego
Space Electronics Inc.
25
EBRD
San Francisco
Bank of America
27,500
San Francisco
Bechtel InCl Inc.
2,742
IBRD/IDA
San Francisco
Bechtel InCl Inc.
2,290
IBRD/IDA
San Francisco
Bechtel InCl Inc.
2,252
IBRD/IDA
San Francisco
Bechtel Int'l Inc.
1,351
IBRD/IDA
San Francisco
Bechtel InCl Inc.
1,124
IBRD/IDA
San Francisco
Bently Engineering Co.
43
40
28
IDB
IFC
IDB
CALIFORNIA
CITY
COMPANY
San Francisco
BHP-Utah Minerals Inc.
763
IBRD/IDA
San Francisco
Capital Investment Group
900
EBRD
San Francisco
Century Bank
10
ADF
San Francisco
Century Bank
2
ADB
San Francisco
Century Bank
2
ADF
San Francisco
Century Bank
1
ADF
San Francisco
EQE Int'I Inc.
245
IBRD/IDA
San Francisco
EQE Int'I Inc.
241
IBRD/IDA
San Francisco
Geomatrix Consultants Inc.
666
IDB
San Francisco
Geomatrix Consultants Inc.
585
IBRD/IDA
San Francisco
Hambrecht & Quist InCl
San Francisco
Manalytics Int'I
San Francisco
Marubeni America Corp.
San Francisco
Morrison-Knudsen Engineering Corp.
914
ADF
San Francisco
Morrison-Knudsen Engineering Corp.
861
ADF
San Francisco
Morrison-Knudsen Engineering Corp.
774
IBRD/IDA
San Francisco
Morrison-Knudsen Engineering Corp.
385
IBRD/IDA
San Francisco
Morrison-Knudsen Engineering Corp.
290
IBRD/IDA
San Francisco
Transcisco Trading Co.
1,007
IBRD/IDA
San Francisco
Transcisco Trading Co.
113
IBRD/IDA
San Francisco
Walden Group
7,500
IFC
San Francisco
Walden Group
10
IFC
AMOUNT ($'000) BANK
3,188
26
1,195
29
IFC
EBRD
IBRD/IDA
CALIFORNIA
AMOUNT ($'000) BANK
CITY
COMPANY
San Jose
Dataquest Inc.
San Jose
Digital Microwave Corp.
896
IBRD/IDA
San Jose
EPRO
136
IBRD/IDA
San Jose
Finnigan Materials
568
IBRD/IDA
San Jose
VLSI Technology Inc.
190
IBRD/IDA
San Juan
WYSE Technology
169
IDB
San Leandro
Cooper Lighting
288
IDB
San Pedro
Zuanich & Associates
13,000
IFC
Santa Barbara
Moseley Associates Inc.
5,653
ADB
Santa Cruz
Global Technology Inc.
524
IBRD/IDA
Santa Cruz
Global Technology Inc.
270
IBRD/IDA
Santa Cruz
Global Technology Inc.
38
IBRD/IDA
Santa Cruz
Menonita Development Associates
Santa Monica
National Medical Enterprises Inc.
Santa Monica
Rand Corp.
Simi Valley
Tandon Associates Inc.
363
IBRD/IDA
Stockton
California Cedar Products
114
IBRD/IDA
Stockton
Carando Machine Works
164
IBRD/IDA
Sun Valley
Astro Arc Co.
Sunnyvale
4
EBRD
200
IDB
27,240
IFC
72
IDB
44
IDB
Ashtech Inc.
122
IDB
Sunnyvale
EG&G Int'l
359
IBRD/IDA
Sunnyvale
EG&G Int'l
109
IDB
30
CALIFORNIA
CITY
COMPANY
Sunnyvale
Handar Inc.
Temecula
Enrique Herrera
9
IDB
Torrance
Epson American Inc.
2
IDB
Torrance
Laserionics
185
IDB
Torrance
Microtek Lab Inc.
2
IDB
Torrance
Ohra Corp.
3,190
IBRD/IDA
Torrance
Ohra Corp.
1,871
IBRD/IDA
Torrance
Ohra Corp.
208
IBRD/IDA
Torrance
Ohra Corp.
100
IBRD/IDA
Torrance
Telemobile
66
IDB
Torrance
Tylan General Inc.
5
IDB
Unspecified
Air Shields Vickers
354
IBRD/IDA
Unspecified
American Pipe & Construction Int'l
159
IBRD/IDA
Unspecified
Apple Computers Inc.
624
IBRD/IDA
Unspecified
Business Dynamics
41
IBRD/IDA
Unspecified
Chevron Chemicals Int'l
16,489
IBRD/IDA
Unspecified
Chevron Chemicals Int'l
822
IBRD/IDA
Unspecified
Chevron Chemicals Int'l
511
IBRD/IDA
Unspecified
Connell Bros. Co.
2,169
IBRD/IDA
Unspecified
Continental Field
4,550
IBRD/IDA
Unspecified
Dionex Corp.
110
IBRD/IDA
Unspecified
Donald Chauls
158
IBRD/IDA
AMOUNT ($'000)
999
31
BANK
IBRD/IDA
CALIFORNIA
AMOUNT ($'000)
BANK
CITY
COMPANY
Unspecified
Donald Chauls
63
IBRD/IDA
Unspecified
Duong Kich Nhuong
85
IBRD/IDA
Unspecified
Enresa Group
16
IBRD/IDA
Unspecified
ESI-Nippon-Basic
533
IBRD/IDA
Unspecified
Futton Inc.
283
IBRD/IDA
Unspecified
Interbridge
259
IBRD/IDA
Unspecified
Jose Da Silva Goncalves
120
IBRD/IDA
Unspecified
Macro Computers
339
IBRD/IDA
Unspecified
Mahmood S. Suleiman
6
IBRD/IDA
Unspecified
Mayeusis-Field
822
IBRD/IDA
Unspecified
Michael D. Broten
71
IBRD/IDA
Unspecified
R.N. Seemel
110
IBRD/IDA
Unspecified
R.Y. Santos
2,203
IBRD/IDA
Unspecified
Spar Communication Group
6,480
ADB
Unspecified
Star-Dynamic Int'l Inc.
1,995
IBRD/IDA
Unspecified
Stauffer Chemical Co.
107
IBRD/IDA
Unspecified
Stokes Engineering Co.
126
IBRD/IDA
Unspecified
S. B1aj
33
IBRD/IDA
Unspecified
Undetermined
27,496
IBRD/IDA
Unspecified
Well Head Inc.
607
ADB
Venice
Int'l Parts
219
IBRD/IDA
Woodside
Robert Trent Jones II
650
IIC
32
CALIFORNIA
COMPANY
AMOUNT ($'000) BANK
State Total
384,651
33
COLORADO
AMOUNT ($'000) BANK
CITY
COMPANY
Arvada
Denver Instrument Co.
Arvada
Sundstrand Fluid Handling
238
IBRD/IDA
Boulder
Economics Institute
161
AFDB
Boulder
Gustavson Assoc.
171
IBRD/IDA
Boulder
Gustavson Assoc.
135
IBRD/IDA
Boulder
Gustavson Assoc.
27
IBRD/IDA
Boulder
Lighting Eliminators & Co.
304
IBRD/IDA
Boulder
Pedro J. Restrepo
Denver
Anderman Smith Overseas Inc.
Denver
A.B. Wiltlef & Sons
127
Denver
Behre, Dolbear & Co.
69
Denver
ECL-Bergeson Petroleum Technology
263
IBRD/IDA
Denver
ECL-Bergeson Petroleum Technology
158
IBRD/IDA
Denver
Intra Information Technologies
Denver
3
52
40,000
ADF
lOB
EBRD
IBRD/IDA
EBRD
45
EBRD
Newmont Gold Co.
10,000
MIGA
Denver
Newmont Mining Corp.
55,000
EBRD
Denver
Newmont Mining Corp.
55,000
EBRD
Denver
United Int'l Holding
23,950
EBRD
Denver
United Int'I Holding
10,400
EBRD
Denver
US West Int'I
10,000
EBRD
Denver
US West Int'l
2,000
EBRD
Denver
U.S. Bureau of Reclamation
1,142
IBRD/IDA
34
COLORADO
CITY
COMPANY
Denver
U.S. Bureau of Reclamation
704
IBRD/IDA
Denver
U.S. Bureau of Reclamation
501
IBRD/IDA
Denver
U.S. Bureau of Reclamation
278
IBRD/IDA
Denver
U.S. Bureau of Reclamation
201
IBRD/IDA
Denver
U. S. Bureau of Reclamation
t04
IBRD/IDA
Englewood
Advance Geophysical Corp.
112
IBRD/IDA
Englewood
Adventure Travel Society
37
Englewood
Air Drilling Services Inc.
2,444
ADB
Englewood
Air Drilling Services Inc.
2,444
lOB
Englewood
Air Drilling Services Inc.
1,481
lOB
Englewood
CH2M Hill Int'l Corp.
Englewood
Cyprus Amax
52,500
EBRD
Englewood
Cyprus Climax Metals Co.
50,000
MIG A
Englewood
Minproc Eng. Inc.
Englewood
US West Int'l
Golden
Atlas Copco N.A.
Lakewood
Pincock, Allen & Holt
322
Lakewood
Pincock, Allen & Holt
83
EBRD
Lakewood
Pincock, Allen & Holt
71
IBRD/IDA
Littletown
Harms Brady Geological Cons.
664
IBRDIIDA
Littletown
Harms Brady Geological Cons.
601
IBRD/IDA
Littletown
Terraplus USA Inc.
274
IBRDIIDA
AMOUNT ($'000) BANK
240
215
tO,OOO
62
35
lOB
IBRD/IDA
IBRD/IDA
EBRD
lOB
IBRDIIDA
COLORADO
CITY
COMPANY
Unspecified
Donald Gentry
Unspecified
Engineering Consultant Inc.
Unspecified
Fred Barnard
Unspecified
AMOUNT ($'000) BANK
IBRD/IDA
120
IBRD/IDA
19
IBRD/IDA
PRC Engineering Construction
207
IBRD/IDA
Unspecified
PRC Engineering Construction
205
IBRD/IDA
Unspecified
T.M. Taylor
34
IBRD/IDA
Unspecified
Undetermined
2,205
IBRD/IDA
Unspecified
Undetermined
462
335,836
State Total
36
ADB
CONNECTICUT
CITY
COMPANY
Danbury
Union Carbide Interamerica
Farmington
Aid to Artisans Inc.
Greenwich
CAM USA Inc.
Greenwich
Nitron Int'I Corp.
Greenwich
AMOUNT ($'000)
1,909
26
4,399
BANK
IBRD/IDA
IDB
AFDB
743
IBRD/IDA
Pasternak, Baum & Co.
2,922
IBRD/IDA
Greenwich
Pasternak, Baum & Co.
245
IBRD/IDA
Greenwich
Pittston Coal Export Corp.
4,249
IBRD/IDA
Hartford
Aetna Life & Casualty
Hartford
America Natural Soda Ash Co.
Hartford
Chemical Trading Inc.
Hartford
Great Southern Paper
Hartford
Miltemberg & Samton Inc.
Middlebury
Uniroyal Chemical Co.
Milford
BIC Corp.
Milford
20,000
IFC
630
IBRD/IDA
1,149
IBRD/IDA
410
IBRD/IDA
2,000
IBRD/IDA
50
AFDB
670
IBRD/IDA
Dorr-Oliver Inc.
66
IBRD/IDA
Norfolk
Muehlstein Int'l
1,084
IBRD/IDA
Norfolk
Perkin-Elmer Corp.
632
IBRD/IDA
Norfolk
Perkin-Elmer Corp.
350
IBRD/IDA
Norfolk
Perkin-Elmer Corp.
153
IDB
Norfolk
Perkin-Elmer Corp.
102
IBRD/IDA
Norfolk
Perkin-Elmer Corp.
79
Norwalk
Hobbs Int'l
2,655
37
ADB
IDB
CONNECTICUT
CITY
COMPANY
Ridgefield
Dapco Industries
Rocky HilI
Energy Maintenance Corp.
Stamford
AMOUNT ($'000) BANK
5,338
IBRD/IDA
109
IBRD/IDA
Clarendon
1,327
IBRD/IDA
Stamford
GTE Services Corp.
6,500
EBRD
Stamford
InCI Executive Services Corp.
8
IIC
Stamford
InCI Executive Services Corp.
8
IIC
Stamford
Irene Taafaki
132
ADF
Stamford
ITT Rayonier Inc.
326
IBRD/IDA
Stamford
Olin Corp.
6,500
IBRD/IDA
Stamford
Peabody Engineering Corp.
Stamford
Seminole Fertilizer Corp.
9,177
ADF
Stamford
Seminole Fertilizer Corp.
1,049
ADB
Storrs
University of Connecticut
17
ADB
Storrs
University of Connecticut
7
AFDB
Stratford
Dictaphone Corp.
42
IDB
Trumbull
Nash Int'l Co.
47
IIC
Unspecified
Griffiths Associates Inc.
134
IBRD/IDA
Unspecified
James Chemical Engineering Inc.
131
IBRD/IDA
Unspecified
Skaarup Oil Corp.
29
IBRD/IDA
Unspecitied
Technoserve
216
IBRD/IDA
Unspecified
Undetermined
9,278
IBRD/IDA
Wall ingford
Coronetrics Medical Systems
201
38
29
IDB
IDB
CONNECTICUT
CITY
COMPANY
Watertown
Paul Vonclx
Weston
Stokes Engineering Co.
174
IBRD/IDA
Westport
America Natural Soda Ash Co.
695
IBRD/IDA
Westport
Phoenix Packaging Resources Inc.
g
IIC
Westport
Phoenix Packaging Resources Inc.
6
IIC
Wilton
Louis Dreyfus Corp.
2,315
IBRD/IDA
Wilton
Louis Dreyfus Corp.
2,146
IBRD/IDA
Windsor
Combustion Engineering Inc.
466
IBRD/IDA
AMOUNT ($'000) BANK
21
90,959
State Total
39
EBRD
DELAWARE
AMOUNT ($'OOO)
BANK
CITY
COMPANY
Unspecified
Undetermined
419
IBRD/IDA
Wilmington
Billion Corp.
38
IBRD/IDA
Wilmington
Booz, Allen & Hamilton Inc.
126
IBRD/IDA
Wilmington
Du Pont de Nemours
44,825
Wilmington
Du Pont de Nemours
2,277
IBRD/IDA
Wilmington
Du Pont de Nemours
380
IBRD/IDA
Wilmington
Du Pont de Nemours
337
IBRD/IDA
Wilmington
Du Pont de Nemours
236
IBRD/IDA
Wilmington
Himont Inc.
Wilmington
Medical Products
Wilmington
Nynex Network Systems Co.
4,000
IFC
74
IDB
607
53,319
State Total
40
IFC
IBRD/IDA
WASHINGTON, D.C.
CITY
COMPANY
Arlington
Nathan Associates
Washington, DC
Academy for Educational Development Inc.
Washington, DC
ACDI
Washington, DC
Aegis Capital Management, Ltd
60
ADB
Washington, DC
Amex Int'I Inc.
74
AFDB
Washington, DC
Amideast
Washington, DC
Appropriate Technology InCI
Washington, DC
Audre Engleman
Washington, DC
Brownstein, Zeioman & Lore
18
IDB
Washington, DC
Bryan Cave
18
IBRD/IDA
Washington, DC
CARE Small Business Assistance
4,000
EBRD
Washington, DC
CARE Small Business Assistance
153
EBRD
Washington, DC
CARE Small Business Assistance
97
EBRD
Washington, DC
Carlos De Castro
47
IBRD/IDA
Washington, DC
Catherine Reid
6
IBRD/IDA
Washington, DC
CEELI
4
EBRD
Washington, DC
Checchi & Co.
332
AFDB
Washington, DC
Chemonics Int'I
2,009
ADB
Washington, DC
Chemonics Int'I
1,926
ADF
Washington, DC
Chemonics Int'I
1,168
ADF
Washington, DC
Chemonics Int'I
700
ADB
Washington, DC
Chemonics Int'l
14
AMOUNT ($'000) BANK
119
IDB
8
IDB
671
188
30
107
41
IBRD/IDA
IBRD/IDA
IDB
IBRD/IDA
IBRD/IDA
WASHINGTON, D.C.
AMOUNT ($'000)
BANK
CITY
COMPANY
Washington, DC
Clusa
52
IBRD/IDA
Washington, DC
Communities Group
15
IBRD/IDA
Washington, DC
Conservation Int'l
144
IBRD/IDA
Washington, DC
Cooperative Housing Foundation
50
IDB
Washington, DC
Coopers & Lybrand
37
IDB
Washington, DC
Coopers & Lybrand
14
IDB
Washington, DC
C. Polansky
Washington, DC
9
IBRD/IDA
De Leuw Cather Int'l
550
IBRD/IDA
Washington, DC
De Leuw Cather Int'I
200
IDB
Washington, DC
De Leuw Cather Int'!
148
IBRD/IDA
Washington, DC
De Leuw Cather Int'l
124
IBRD/IDA
Washington, DC
De Leuw Cather Int'!
79
IBRD/IDA
Washington, DC
Deloitte Touche Tohmatsu Int'!
341
IBRD/IDA
Washington, DC
Deloitte Touche Tohmatsu Int'I
52
IDB
Washington, DC
Deloitte Touche Tohmatsu Int'l
19
IDB
Washington, DC
Deloitte Touche Tohmatsu Int'l
11
IDB
Washington, DC
Devres Inc.
163
IBRD/IDA
Washington, DC
DMJM Int'l
211
ADB
Washington, DC
Dow, Lohnes & Albertson
83
IDB
Washington, DC
Earth Satellite Corp.
11
IDB
Washington, DC
Ernst & Young
148
Washington, DC
Ernst & Young
88
42
IBRD/IDA
IDB
WASHINGTON, D.C.
CITY
COMPANY
Washington, DC
Eugene Rotberg
Washington, DC
Export Import Bank & unspecified U. S. banks
22,000
IFC
Washington, DC
Export Import Bank & unspecified U.S. banks
18,877
IFC
Washington, DC
Foster Wheeler Int'! Corp.
Washington, DC
Georgetown University
513
IDB
Washington, DC
Georgetown University
29
IDB
Washington, DC
Hamilton, Rabinovitz & Alschuler Inc.
95
IDB
Washington, DC
Howrey & Simon
50
IDB
Washington, DC
Information for Investment Decisions
216
IDB
Washington, DC
Information for Investment Decisions
189
IDB
Washington, DC
Information for Investment Decisions
135
IDB
Washington, DC
Information for Investment Decisions
133
IDB
Washington, DC
Information for Investment Decisions
85
IDB
Washington, DC
Information for Investment Decisions
66
IDB
Washington, DC
Inter Connect Associates
I
IIC
Washington, DC
Int'I Center for Research for Women
56
IDB
Washington, DC
Int'l Center for Research on Women
51
IDB
Washington, DC
Int'I Center for Research on Women
51
IDB
Washington, DC
Int'l Food Policy Research Institute
48
IDB
Washington, DC
Int'l Road Federation
21
IBRD/IDA
Washington, DC
10 Consultants
Washington, DC
John Cleave
AMOUNT ($'000) BANK
11
95
5
44
43
EBRD
IBRD/IDA
IIC
EBRD
WASHINGTON, D.C.
AMOUNT ($'000) BANK
CITY
COMPANY
Washington, DC
J .M. Ruisanchez
92
IBRD/IDA
Washington, DC
Kessler Int'l Corp.
49
IBRD/IDA
Washington, DC
KPMG Peat Marwick
99
AFDB
Washington, DC
K&M Engineering & Consulting
4,471
EBRD
Washington, DC
Lauren Cooper Assoc.
56
IBRD/IDA
Washington, DC
Lem Truong
66
IBRD/IDA
Washington, DC
Louis Berger Int'l Inc.
4,761
IDB
Washington, DC
Louis Berger Int'l Inc.
3,153
ADB
Washington, DC
Louis Berger Int'l Inc.
2,883
IDB
Washington, DC
Louis Berger Int'l Inc.
2,379
IDB
Washington, DC
Louis Berger Int'l Inc.
2,008
IDB
Washington, DC
Louis Berger Int'l Inc.
1,940
IDB
Washington, DC
Louis Berger Int'l Inc.
1,940
IDB
Washington, DC
Louis Berger Int'l Inc.
914
IDB
Washington, DC
Louis Berger Int'l Inc.
790
IDB
Washington, DC
Louis Berger Int'l Inc.
396
IDB
Washington, DC
Management Systems Int'l
585
IBRD/IDA
Washington, DC
Management Systems Int'l
31
IDB
Washington, DC
Management Systems Int'l
25
IDB
Washington, DC
McCarthy Sweeney & Harkaway
425
IBRD/IDA
Washington, DC
Medical Care Development Inc.
800
AFDB
Washington, DC
Merrklein & Assoc.
60
44
IBRD/IDA
WASHINGTON, D.C.
CITY
COMPANY
Washington, DC
Miller & Holbrooke
24
IDB
Washington, DC
Moussa Kouruma
58
IBRD/IDA
Washington, DC
Mustafa Soykan
135
IBRD/IDA
Washington, DC
M. Chambers
108
IBRD/IDA
Washington, DC
National Academy of Science
85
IBRD/IDA
Washington, DC
National Rural Electrification Int'l Ltd
3
IBRD/IDA
Washington, DC
Overseas Private Inv. Corp & unspecified US banks
Washington, DC
AMOUNT ($'000) BANK
24,000
IFC
PADCO
2,085
IDB
Washington, DC
PADCO
1,170
IDB
Washington, DC
PADCO
823
IDB
Washington, DC
PADCO
6
IDB
Washington, DC
Partnership for Productivity Int'I
493
IDB
Washington, DC
Planecon Inc.
Washington, DC
Price Waterhouse Int'I
250
Washington, DC
Price Waterhouse Int'I
47
IBRD/IDA
Washington, DC
Private Sector Initiatives
17
IDB
Washington, DC
RCG Hagler Bailly Inc.
792
Washington, DC
Resource Industries Ltd
9
Washington, DC
Rhea Corp.
48
IIC
Washington, DC
Ronald A. Schwarz
25
IBRD/IDA
Washington, DC
Seatec Int'I Ltd
Washington, DC
Smithsonian Institution
10,655
222
80
45
EBRD
ADB
ADB
IBRD/IDA
ADB
IDB
WASHINGTON, D.C.
AMOUNT ($'000)
BANK
CITY
COMPANY
Washington, DC
Socimer Int'! Inc.
224
lOB
Washington, DC
Socimer Int'l Inc.
10
lOB
Washington, DC
Socimer Int'l Inc.
5
lOB
Washington, DC
Steptoe & Johnson
49
Washington, DC
Steptoe & Johnson
4
EBRD
Washington, DC
Teleconsult Inc.
858
AFDB
Washington, DC
Teleconsult Inc.
184
IBRD/IDA
Washington, DC
Teleconsult Inc.
39
EBRD
Washington, DC
Teleconsult Inc.
33
IIC
Washington, DC
V ndetermined
Washington, DC
V rban Institute
93
lOB
Washington, DC
Vrban Institute
25
lOB
Washington, DC
V rban Institute
9
lOB
Washington, DC
V .S. Bureau of the Census
30
lOB
Washington, DC
V.S. Department of Agriculture
48
ADF
Washington, DC
V.S. Department of Agriculture
10
ADF
Washington, DC
V.S. Department of Agriculture - Graduate School
15
AFDB
Washington, DC
V.S. Internal Revenue Service
Washington, DC
V.S. National Park Service
Washington, DC
Vincent G. Theel
Washington, DC
Washington Development Capital
Washington, DC
World Wildlife Fund
7,726
132
2,321
11
39,215
63
46
IBRD/IDA
IBRD/IDA
lOB
EBRD
ADF
EBRD
IBRD/IDA
WASHINGTON, D.C.
CITY
COMPANY
Washington, DC
WTIG Investment Group
AMOUNT ($'000) BANK
2
177,233
State Total
47
IIC
FLORIDA
AMOUNT ($'000)
BANK
CITY
COMPANY
Alachua
Driltech Inc.
1,148
Alachua
Driltech Inc.
120
Boca Raton
American Equipment Co.
1,081
IBRD/IDA
Boca Raton
American Equipment Co.
800
IBRD/IDA
Boca Raton
American Equipment Co.
46
IBRD/IDA
Boca Raton
Dole Fresh Fruit Co.
249
IBRD/IDA
Boca Raton
Intergraph Corp.
236
IDB
Clermont
Philipps
39
IDB
Coral Gables
Alcoa Inter-America Inc.
3,305
IBRD/IDA
Coral Gables
Cargill Americas Inc.
2,073
IBRD/IDA
Coral Gables
Caribe General Electric Co.
61
IDB
Coral Gables
Crown Agents Services Ltd
23
IDB
Coral Gables
Dow Chemical Int'l Inc.
2,482
IBRD/IDA
Coral Gables
Exxon Caribbean Sales
5,337
IBRD/IDA
Coral Gables
Oflany Services Corp.
Coral Gables
Rohm & Haas Co.
Coral Gables
R. R. General Textile
Coral Gables
28
IBRD/IDA
AFDB
IDB
101
IBRD/IDA
1,658
IBRD/IDA
South American Hardwood Co.
968
IBRD/IDA
Coral Springs
Argo American Export Sales
992
IDB
Coral Springs
Argo American Export Sales
413
IDB
Coral Springs
Argo American Export Sales
331
IDB
Coral Springs
Argo American Export Sales
164
IDB
48
FLORIDA
CITY
COMPANY
Coral Springs
Argo American Export Sales
123
IDB
Coral Springs
Argo American Export Sales
72
IDB
Daytona
American Telephone & Telegraph Global
99
IDB
Deerfield Beach
Essex Exports
1,224
IDB
Deerfield Beach
Essex Exports
966
IDB
Deerfield Beach
Essex Exports
892
IDB
Deerfield Beach
Essex Exports
513
IDB
Deerfield Beach
Essex Exports
395
IDB
Deerfield Beach
Essex Exports
250
IDB
Deerfield Beach
Essex Exports
14
IDB
Deerfield Beach
Globaltronics Inc.
36
IDB
Deerfield Beach
M&W Pump Corp.
110
IIC
Fort Lauderdale
Ford New Holland
337
IDB
Fort Lauderdale
Ford New Holland
167
IDB
Fort Lauderdale
Ford New Holland
144
IDB
Fort Lauderdale
Horizon Development Corp.
366
IBRD/IDA
Fort Lauderdale
Massey Ferguson Exports
139
IDB
Fort Lauderdale
Massey Ferguson Exports
104
IDB
Fort Lauderdale
Motorola Inc.
1,025
Fort Lauderdale
Motorola Inc.
570
IDB
Fort Lauderdale
Motorola Inc.
142
IDB
Fort Lauderdale
Nour Sirker
3
IDB
AMOUNT ($'000) BANK
49
IBRD/IDA
FWRIDA
AMOUNT ($'000) BANK
CITY
COMPANY
Fort Lauderdale
Water Consultants In1'l
Fort Meade
US Agri-Chemicals Corp.
Gainesville
Donald Dickson
Gainesville
Maquinaria Y Tractores
Gainesville
Tropical & Research Development Inc.
Gainesville
University of Florida
13
ADF
Hialeah
Grain Machinery Mfg. Corp.
39
IDB
Hialeah
Maple In1'l Inc.
137
IDB
Hialeah
Rem InCI
49
IDB
Hollywood
Cisco
245
lOB
Hollywood
Interdisciplinary Project Consulting Inc.
306
IDB
Hollywood
Interdisciplinary Project Consulting Inc.
36
IDB
Hollywood
Interdisciplinary Project Consulting Inc.
35
IDB
Hollywood
Interdisciplinary Project Consulting Inc.
9
IDB
Hollywood
Walpeco
50
IDB
Jackson
John Deere Int'l
Jacksonville
88
1,948
AFDB
IBRDIIDA
5
IDB
71
IDB
333
IBRD/IDA
337
IBRD/IDA
Besco Inc.
3,327
IBRD/IDA
Jacksonville
Besco Inc.
1,159
IBRD/IDA
Jacksonville
Besco Inc.
715
IBRD/IDA
Jacksonville
Besco Inc.
347
IBRD/IDA
Jacksonville
Camp Dresser & McKee Int'I
56
IBRD/IDA
Jacksonville
FWC Supply
94
IBRD/IDA
50
FLORIDA
CITY
COMPANY
Jacksonville
FWC Supply - Div. of Florida Wire & Cable
395
IBRD/IDA
Kissimmee
Maxon Engineering Service
237
IDB
Lake Alfred
Clayton MacCoy
4
IDB
Lakeland
Bromwell & Carrier Inc.
244
IBRD/IDA
Lakeland
Davy-McKee Corp.
807
IBRD/IDA
Lakeland
Davy-McKee Corp.
286
IBRD/IDA
Lakeland
Jacobs Int'I Ltd
3,776
IBRD/IDA
Lakeland
Jacobs InCI Ltd
1,071
IBRD/IDA
Lakeland
Jacobs Int'I Ltd
357
IBRD/IDA
Longwood
Instruments Specialties Inc.
17
IIC
Medley
MIG Electric Manolo Garci
337
lOB
Melbourne
Harris Corp. - Farinon Division
2,442
IBRD/IDA
Miami
ABB Power T&D Co.
3,882
lOB
Miami
ABB Power T&D Co.
830
lOB
Miami
ABB Power T&D Co.
743
IBRD/IDA
Miami
ABB Power T&D Co.
534
IBRD/IDA
Miami
ABB Power T&D Co.
n
IDB
Miami
ABB Power T&D Co.
70
lOB
Miami
Alvimer Sri Trading Inc.
14
lOB
Miami
American Caribbean Corp.
194
IDB
Miami
American Caribbean Corp.
29
lOB
Miami
Americon Corp.
AMOUNT ($'000) BANK
119
51
IBRD/IDA
FLORIDA
CITY
COMPANY
Miami
Antony Braham
Miami
AMOUNT ($'OOO) BANK
157
IBRD/IDA
Arbrom Int'l Dist. Inc.
1,806
IBRD/IDA
Miami
Armstrong Export Inc.
144
lOB
Miami
Armstrong Export Inc.
60
lOB
Miami
Avianca
118
IBRD/IDA
Miami
A.P.C.
285
IBRD/IDA
Miami
Beeline Engineering & Construction
312
IBRD/IDA
Miami
Biomedical Int'l Corp.
785
lOB
Miami
Bode Export Corp.
195
IBRD/IDA
Miami
Calmaquip Engineering Corp.
418
IBRD/IDA
Miami
Caritrade Export Corp.
148
IBRD/IDA
Miami
Carmelo Mesa-Lago
Miami
Cartek Int'l Inc.
Miami
Cisco
Miami
Computation & Development, S.A.
501
IBRD/IDA
Miami
Comtech Supply Co.
173
IBRD/IDA
Miami
Condor Communications Inc.
275
IBRD/IDA
Miami
Cooper Power Systems Inc.
3,885
lOB
Miami
Cooper Power Systems Inc.
1,046
IBRD/IDA
Miami
Cooper Power Systems Inc.
748
lOB
Miami
Cooper Power Systems Inc.
652
IBRD/IDA
Miami
Cooper Power Systems Inc.
431
IBRD/IDA
52
7
lOB
86
lOB
1,296
lOB
FLORIDA
CITY
COMPANY
Miami
Cooper Power Systems Inc.
353
IDB
Miami
Cooper Power Systems Inc.
122
IDB
Miami
Cooper Power Systems Inc.
63
IBRD/IDA
Miami
Co riser of America
108
IBRD/IDA
Miami
Cosin Ltd
197
IBRD/IDA
Miami
Coulter Corp.
148
IDB
Miami
Cummings Americas Inc.
150
IBRD/IDA
Miami
Dewitt Tool Co.
68
IDB
Miami
Don Sherril & Associates
54
IDB
Miami
Dow Chemical InCI Inc.
131
IBRD/IDA
Miami
Dow Chemical Int'! Inc.
131
IBRD/IDA
Miami
Dowtow Air Park
512
IBRD/IDA
Miami
DPI World Trade Inc.
386
IDB
Miami
Edge Group
647
IDB
Miami
Epson Latin America Inc.
432
IBRD/IDA
Miami
Epson Latin America Inc.
116
IBRD/IDA
Miami
Epson Latin America Inc.
4
Miami
Ernst & Young
622
IBRD/IDA
Miami
Essex Exports
452
IBRD/IDA
Miami
Exim Overseas Inc.
169
IBRD/IDA
Miami
Export Medical Technology
Miami
Ezcony InCI
AMOUNT ($'000) BANK
48
257
53
IDB
IDB
IBRD/IDA
FLORIDA
CITY
COMPANY
Miami
E.H.O. Co.
Miami
E.Y.G. Int'l Corp.
Miami
Federico Poey
Miami
FELA Export Center
Miami
AMOUNT ($'Qoo)
79
113
BANK
lOB
IBRO/IOA
3
lOB
32
lOB
FERCA
1,694
lOB
Miami
Florida Chemical Ltd
1,070
lOB
Miami
Florida Chemical Ltd
603
lOB
Miami
Florida Chemical Ltd
440
lOB
Miami
Florida Chemical Ltd
221
lOB
Miami
Florida Chemical Ltd
201
lOB
Miami
Florida Chemical Ltd
200
lOB
Miami
Florida Chemical Ltd
200
lOB
Miami
Florida Chemical Ltd
193
lOB
Miami
Florida Chemical Ltd
188
lOB
Miami
Florida Chemical Ltd
182
lOB
Miami
Florida Chemical Ltd
176
lOB
Miami
Florida Chemical Ltd
148
lOB
Miami
Florida Chemical Ltd
142
lOB
Miami
Florida Chemical Ltd
124
lOB
Miami
Florida Chemical Ltd
115
lOB
Miami
Florida Chemical Ltd
105
lOB
Miami
Florida Chemicals & Trading Co.
1,163
lOB
54
FLORIDA
CITY
COMPANY
Miami
General Electric Co.
2,327
Miami
General Electric Co.
190
Miami
General Exposervices Corp.
1,441
lOB
Miami
General Exposervices Corp.
873
lOB
Miami
General Exposervices Corp.
97
lOB
Miami
General Motors Overseas Distributors
Miami
Global Products Int'l Inc.
24
lOB
Miami
Global Products InCI Inc.
10
lOB
Miami
Global Trading Corp.
516
lOB
Miami
Harris Corp.
2,250
IBRD/IOA
Miami
Harris Corp.
1,173
IBRD/IOA
Miami
Harris Corp.
1,086
IBRD/IOA
Miami
Hastings & Hastings
Miami
Hazen & Sawyer
2,072
lOB
Miami
Hazen & Sawyer
2,008
lOB
Miami
Hazen & Sawyer
2,008
lOB
Miami
Hazen & Sawyer - Saybey Associates
2,105
IDB
Miami
Hazen & Sawyer - Saybey Associates
384
IBRD/IDA
Miami
Helm Fertilizer
543
IBRDIIOA
Miami
Hewlett Packard Co.
1,376
IBRD/IDA
Miami
Hewlett Packard Co.
137
IDB
Miami
Hide & Leather Supply Inc.
348
IBRDIIDA
AMOUNT ($'000)
9,453
12
55
BANK
lOB
IBRO/IOA
IBRD/IOA
IIC
FLORIDA
AMOUNT ($'000) BANK
CITY
COMPANY
Miami
Hi-Tech Int'I
Miami
Hitech Solutions Inc.
150
IBRD/IDA
Miami
Industrial Instruments Export
476
lOB
Miami
Industrial Instruments Export
51
lOB
Miami
Ingersoll Rand Int'l
173
lOB
Miami
INTELEC Corp.
28
lOB
Miami
Inter-American Consulting Group
60
lOB
Miami
Inter-American Transport Equipment Co.
71
AFDB
Miami
Int'l Electrical Sales Corp.
Miami
Int'I High Tech Marketing Corp.
Miami
38
3,013
lOB
lOB
2
IBRD/IDA
Int'l High-Tech Marketing
141
IBRD/IDA
Miami
Intradeco Inc.
116
IBRD/IDA
Miami
Isrex Int'I
100
IBRD/IDA
Miami
I.C.S. Computer Bay
Miami
Jerry Bassin
997
IBRD/IDA
Miami
Joel Group Inc.
300
IDB
Miami
Junior Electronic Inc.
853
IBRD/IDA
Miami
J .C. Daly Inc.
21
IDB
Miami
J.C. Daly Inc.
7
IDB
Miami
Kasim Int'l Corp.
135
IDB
Miami
Kodak Export Ltd
173
IBRD/IDA
Miami
Komatsu Dresser Co.
493
IBRD/IDA
25
56
IDB
FLORIDA
CITY
COMPANY
Miami
Lab Enterprises Inc.
Miami
Leica Inc.
15
lOB
Miami
L.A. Computer Exchange
36
lOB
Miami
L.A. Computer Exchange
23
lOB
Miami
Machinery Corp. of America
518
IBRD/IOA
Miami
Malone & Hyde Inc.
264
IBRO/IOA
Miami
Manhattan Shirts
242
IBRO/IOA
Miami
Martino Tire Co.
29
Miami
Mass Global Inc.
500
IBRO/IOA
Miami
Matra Inc.
741
lOB
Miami
Matra Inc.
418
IBRO/IOA
Miami
Matra Inc.
76
lOB
Miami
Medi-Tech Int'l
60
lOB
Miami
Metropolitan Plastics
137
IBRD/IOA
Miami
Miami Equipment & Exp. Co.
777
lOB
Miami
Micro Measurements Tech.
86
lOB
Miami
Micromix
220
IBRD/IDA
Miami
Moore Export Sales
230
IBRD/IOA
Miami
MTJ Int'l Trading Corp.
269
IBRD/IOA
Miami
M.B.A. Inc.
Miami
Newstech Co.
Miami
Northern Telecom Co.
AMOUNT ($'000> BANK
115
12
57
IBRO/IOA
lOB
IIC
145
IBRD/IOA
1,128
IBRO/IOA
FLORIDA
AMOUNT ($'000) BANK
CITY
COMPANY
Miami
Northern Telecom Co.
915
IDB
Miami
Northern Telecom Co.
867
IBRD/IDA
Miami
Northern Telecom Co.
268
IBRD/IDA
Miami
Ohmeda Inc.
457
IBRD/IDA
Miami
Ohmeda Inc.
203
IDB
Miami
Olympus America Inc.
55
IDB
Miami
Omega In1'l
109
IBRD/IDA
Miami
Pacific Trading Overseas
108
IBRD/IDA
Miami
Paddington Paper & Supplies Inc.
764
IBRD/IDA
Miami
Paramount Trade Group
100
IDB
Miami
Penta Trade Inc.
198
IBRD/IDA
Miami
Perez Trading Co.
329
IBRD/IDA
Miami
Phelps Dodge Int'l Corp.
348
IBRD/IDA
Miami
Phoenix Trade Finance Corp.
132
IBRD/IDA
Miami
Pipe Steel of Florida Inc.
167
IBRD/IDA
Miami
Plastec U.S.A. Inc.
268
IBRD/IDA
Miami
Post, Buckley, Schuh & Jernigan
Miami
30
IDB
PPM-P&H Cranes Inc.
238
IDB
Miami
Precision Trading Corp.
113
IBRD/IDA
Miami
Quem Commercial Inc.
109
IBRD/IDA
Miami
Refricenter In1'l
63
IDB
Miami
Relma InCI Inc.
54
IDB
58
FLORIDA
CITY
COMPANY
Miami
RolmCorp.
Miami
Roso Int'I Corp.
Miami
AMOUNT ($'000)
109
BANK
IBRO/IOA
65
lOB
Scientific Supplies
270
lOB
Miami
Scientific Supplies
54
lOB
Miami
Seventy Three Corp.
Miami
2,990
IBRO/IOA
Smurfit Latin America
353
IBRO/IOA
Miami
Sony Broadcast Export Co.
203
lOB
Miami
Southeastern Paper Products
543
IBRO/IOA
Miami
Southern Atlantic Trading Co.
156
IBRO/IOA
Miami
Southwire Co.
578
lOB
Miami
S.K.F. Latintrade Inc.
111
IBRO/IOA
Miami
Tekni Communications
130
lOB
Miami
Tractor America Inc.
161
IBRD/IOA
Miami
Unilever Export B. V.
156
IBRO/IDA
Miami
Universal Trading & Engineering Corp.
8,000
lOB
Miami
Universal Trading & Engineering Corp.
2,513
IBRD/IOA
Miami
Universal Trading & Engineering Corp.
697
lOB
Miami
Universal Trading & Engineering Corp.
638
IDB
Miami
Universal Trading & Engineering Corp.
512
lOB
Miami
Universal Trading & Engineering Corp.
391
lOB
Miami
Universal Trading & Engineering Corp.
369
lOB
Miami
Universal Trading & Engineering Corp.
257
lOB
59
FLORIDA
AMOUNT ($'000) BANK
CITY
COMPANY
Miami
Universal Trading & Engineering Corp.
238
IBRD/IDA
Miami
Universal Trading & Engineering Corp.
172
IDB
Miami
Universal Trading & Engineering Corp.
159
IBRD/IDA
Miami
Universal Trading & Engineering Corp.
155
IDB
Miami
Universal Trading & Engineering Corp.
122
IDB
Miami
Universal Trading & Engineering Corp.
119
IDB
Miami
Universal Trading & Engineering Corp.
115
IDB
Miami
Universal Trading & Engineering Corp.
107
IBRD/IDA
Miami
Universal Trading & Engineering Corp.
81
IDB
Miami
Universal Trading & Engineering Corp.
28
IDB
Miami
Westham Trade Corp.
201
IBRD/IDA
Miami
World Business Holding Corp.
109
IBRD/IDA
Miami
Yamaha Music Latin America
136
IBRD/IDA
Miami Beach
Int'l Marine Fishery
Miami Beach
9
lie
Technical Resources Int'l
35
IDB
Miami Beach
Technical Resources Int'l
23
IBRD/IDA
Miami Lakes
Honeywell Inc.
2,679
IBRD/IDA
Miami Lakes
Honeywell Inc.
395
IBRD/IDA
Miramar
Macorix Trading Co.
Orlando
Chemical Taylor
112
IBRD/IDA
Orlando
Singer
225
IBRD/IDA
Palm Bay
Atmospheric Research Inc.
647
IDB
13
60
IDB
FLORIDA
CITY
COMPANY
Pombano Beach
Global Market Services
Riverview
Cargill Fertilizer
6,365
ADB
Riverview
Cargill Fertilizer
5,928
ADB
San Remo
Garcia Colinas Trading
St. Petersburg
Geonex InCl Inc.
3,345
IBRD/IDA
St. Petersburg
Geonex InCl Inc.
2,014
IBRD/IDA
St. Petersburg
Geonex Int'l Inc.
1,199
ADB
Sunrise
Racal Datacom
Tallahassee
Florida State University
1,832
IBRD/IDA
Tallahassee
Florida State University
868
IBRD/IDA
Tampa
Aqua Systems InCl Inc.
751
IDB
Tampa
Brown & Williams
125
IBRD/IDA
Tampa
BWIP Pump InCl Inc.
Tampa
Dow Chemical Int'l Inc.
Tampa
Greeley & Hansen
Tampa
Grinnell Co.
Tampa
Hazen & Sawyer
Tampa
Navistar Co.
Tampa
U.S. Chemical Resources Inc.
15,105
IBRD/IDA
Tampa
U.S. Chemical Resources Inc.
4,433
IBRD/IDA
Tampa
U.S. Chemical Resources Inc.
1,688
IBRD/IDA
Unspecified
Air Shields Vickers Medical
1,057
IBRD/IDA
AMOUNT ($'000) BANK
351
35
22
53
721
61
IBRD/IDA
IDB
IDB
IDB
IBRD/IDA
2,072
IDB
64
IDB
2,072
IDB
627
IDB
FLORIDA
AMOUNT ($'000) BANK
CITY
COMPANY
Unspecified
A.H. Nance
34
IBRD/IDA
Unspecified
Bioserv Inc.
122
IBRD/IDA
Unspecified
Dantzler Lumber & Export
170
IBRD/IDA
Unspecified
Earth Satellite
59
IBRD/IDA
Unspecified
Excelsior Trading Co.
175
IBRD/IDA
Unspecified
Gulf Supply Exports Inc.
225
IBRD/IDA
Unspecified
H. Snyder
30
IBRD/IDA
Unspecified
Inter-American Transport Co.
264
IBRD/IDA
Unspecified
J. Warren
7
IBRD/IDA
Unspecified
Latin Import & Export Inc.
1,242
IBRD/IDA
Unspecified
Louis Austin
122
IBRD/IDA
Unspecified
L.S. Group Corp.
112
IBRD/IDA
Unspecified
Maya Enterprises Inc.
198
IBRD/IDA
Unspecified
Medrep - Biomed Ltd
276
IBRD/IDA
Unspecified
Neal & Massey
121
IBRD/IDA
Unspecified
Rossi Int'l
211
IBRD/IDA
Unspecified
Sargent Int'I - Ford
1,400
IBRD/IDA
Unspecified
Technical Int'l Corp.
613
IBRD/IDA
Unspecified
Thomas G. Steigerwald
16
IBRD/IDA
Unspecified
Undetermined
17,040
IBRD/IDA
Winter Park
C.E.S.
19
229,406
State Total
62
lOB
GEORGIA
CITY
COMPANY
AMOUNT ($'000) BANK
Alpharetta
Siemens Energy & Automation Inc.
2,652
IBRD/IDA
Alpharetta
Siemens Energy & Automation Inc.
63
IBRD/IDA
Alpharetta
Siemens Energy & Automation Inc.
43
IDB
Alpharetta
Siemens Energy & Automation Inc.
7
ADB
Atlanta
A.T. Kearney Inc.
Atlanta
Bristol Laboratories Int'l S.A.
Atlanta
595
IDB
1,017
IBRD/IDA
Bristol Myers Squibb Co.
189
IBRD/IDA
Atlanta
Buffalo Color Corp.
396
IBRD/IDA
Atlanta
Carter Center at Emory University
Atlanta
Coats & Clark Inc.
Atlanta
Coca Cola Corp.
52,800
EBRD
Atlanta
Coca Cola Corp.
2,900
EBRD
Atlanta
Coca Cola Corp.
108
IBRD/IDA
Atlanta
Coca Cola Trading
783
IBRD/IDA
Atlanta
Ebbarc Int'l
Atlanta
Gate City Oil Equipment Co.
111
IBRD/IDA
Atlanta
Harris Corp.
143
IBRD/IDA
Atlanta
Langdale Int'l Trading Corp.
4,322
IBRD/IDA
Atlanta
Langdale Int'l Trading Corp.
1,157
IBRD/IDA
Atlanta
Langdale Int'l Trading Corp.
1,087
IBRD/IDA
Atlanta
Langdale Int'l Trading Corp.
762
IBRD/IDA
Atlanta
Langdale Int'l Trading Corp.
144
IBRD/IDA
90
164
6
63
IDB
IBRD/IDA
IIC
GEORGIA
AMOUNT ($'000)
CITY
COMPANY
Atlanta
Monsanto Co.
Atlanta
Monsanto Int'l Sales Co.
Atlanta
National Pump Co.
Atlanta
On Line Financial Communications Systems
Atlanta
BANK
268
IBRD/IDA
1,749
IBRD/IDA
13
IIC
125
IBRD/IDA
Reliance Communications Technology
2,970
IBRD/IDA
Atlanta
Southern Electric Int'l Inc.
2,190
IBRD/IDA
Atlanta
Southern Electric Int'I Inc.
1,783
IBRD/IDA
Atlanta
Southern Electric InCI Inc.
219
IBRD/IDA
Atlanta
Southern Electric Int'l Inc.
145
IBRD/IDA
Atlanta
Walton-Stout Inc.
115
IBRD/IDA
Atlanta
Wilson Tire & Supply Co.
125
IBRD/IDA
Baldwin
Southern Seed Co.
291
IBRD/IDA
Carrolton
Southwire Co.
1,487
IBRD/IDA
College Park
Utility Supply & Equipment Corp.
248
IBRD/IDA
Columbia
Lummus Industries Inc.
1,386
IBRD/IDA
Columbia
Lummus Industries Inc.
608
IBRD/IDA
Columbus
Lummus Industries Inc.
2,121
IBRD/IDA
Gainesville
Cantrell Machines
Garland
Merla
Newnam
Johnson Yokogawa Corp.
1,928
IIC
Newnam
Johnson Yokogawa Corp.
30
IIC
Norcross
Micromeritics Instrument
65
IDB
21
155
64
IIC
IBRD/IDA
GEORGIA
CITY
COMPANY
Norcross
Mita Copystar America Inc.
14
Norcross
Schlumberger Industries Inc.
8,673
IBRD/IDA
Norcross
Schlumberger Industries Inc.
1,398
ADB
Norcross
Schlumberger Industries Inc.
698
lOB
Norcross
Schlumberger Industries Inc.
358
lOB
Norcross
Schlumberger Industries Inc.
253
IBRD/IDA
Norcross
Schlumberger Industries Inc.
213
IBRD/IDA
Norcross
Schlumberger Industries Inc.
190
IBRD/IDA
Norcross
Scientific Atlanta Inc.
2,100
Norcross
Scientific Atlanta Inc.
101
Norcross
Sony Recording Medical
Savannah
Carver Inc.
Savannah
Ml Overseas
110
IBRD/IDA
Savannah
New Sulzer Diesel
422
lOB
South Carrolton
West Georgia Farm Power
113
IBRD/IDA
Stone Mountain
Ashford Int'l Inc.
961
IBRD/IDA
Stone Mountain
Ashford Int'l Inc.
740
IBRD/IDA
Stone Mountain
Ashford Int'l Inc.
572
IBRD/IDA
Unspecified
James G. Else
155
IBRD/IDA
Unspecified
Phillips Lighting Co.
284
IBRD/IDA
Unspecified
Undetermined
1,394
IBRD/IDA
Warner Robins
Tom G. Beckman
AMOUNT ($'000) BANK
4
1,396
3
65
lOB
EBRD
IBRD/IDA
lOB
ADB
lOB
GEORGIA
CITY
COMPANY
West Point
West Point Foundry & Machine Co.
AMOUNT ($'000) BANK
State Total
230
107,963
66
IBRD/IDA
HAWAII
CITY
COMPANY
Honolulu
East-West Center
Honolulu
Edward Scura & Associates
Honolulu
Jane Kinoshita
112
ADF
Honolulu
Nature Conservancy
576
ADB
Honolulu
Undetermined
441
ADB
Honolulu
Upham Int'l
886
IBRD/IDA
Honolulu
Upham Int'l
469
IBRD/IDA
Honolulu
Upham Int'l
378
IBRD/IDA
Honolulu
Upham Int'l
315
IBRD/IDA
Honolulu
Upham Int'l
162
IBRD/IDA
Honolulu
Upham Int'l
162
IBRD/IDA
Unspecified
Micro Age Computer
Unspecified
Undetermined
AMOUNT ($'000)
499
8
11
102
4,121
State Total
67
BANK
ADB
IIC
ADF
IBRD/IDA
IDAHO
CITY
COMPANY
Boise
Aresco Inc.
300
IBRD/IDA
Boise
Morrison-Knudsen Engineering Corp.
400
IBRD/IDA
Moscow
University of Idaho
18
ADF
Unspecified
Undetermined
25
IBRD/IDA
AMOUNT ($'000) BANK
State Total
743
68
ILLINOIS
AMOUNT ($'000)
CITY
COMPANY
Bannockburn
C.W. Costello & Assoc.
Beloit
Litton Industrial Automation
253
IBRD/IDA
Blue Island
G & W Electric Co. Ltd
219
IBRD/IDA
Broadview
Navistar Int'l Transportation Corp.
409
IBRD/IDA
Broadview
Navistar Int'l Transportation Corp.
1,186
IBRD/IDA
Broadview
Navistar Int'! Transportation Corp.
994
IDB
Broadview
Navistar Int'l Transportation Corp.
1,225
IDB
Broadview
Navistar Int'l Transportation Corp.
494
ADF
Broadview
Navistar Int'l Transportation Corp.
374
IDB
Broadview
Navistar Int'l Transportation Corp.
240
IDB
Chicago
Abbot Lab Int'l Co.
324
IBRD/IDA
Chicago
Abbot Lab. Diag. Division
160
IDB
Chicago
ABC Rail Corp.
Chicago
Ameritech
Chicago
Amoco Chemicals Co.
1,243
IBRD/IDA
Chicago
Andrew Corp.
4,000
EBRD
Chicago
Arthur Anderson & Co.
1,292
IBRD/IDA
Chicago
Arthur Anderson & Co.
500
IBRD/IDA
Chicago
A.T. Kearney Inc.
352
IBRD/IDA
Chicago
C & F Electric Co.
1,373
IBRD/IDA
Chicago
Chicago Citrus Int'l Inc.
16
IBRD/IDA
Chicago
Continental Grain Co.
15
8,252
60,000
3,794
69
BANK
EBRD
IBRD/IDA
EBRD
AFDB
ILLINOIS
AMOUNT ($ '000) BANK
CITY
COMPANY
Chicago
Cooper Industries
260
IBRD/IDA
Chicago
Energy Services Group
114
IBRDIIDA
Chicago
General Motors Corp.
3,593
IBRDIIDA
Chicago
General Motors Corp.
2,302
IBRD/IDA
Chicago
General Motors Corp.
1,978
IBRD/IDA
Chicago
Golub & Co.
9,000
EBRD
Chicago
Hansen-Holm-Alanso Co. - Coopers Lybrand
1,050
IDB
Chicago
Harza Engineering Co.
4,249
IBRD/IDA
Chicago
Harza Engineering Co.
960
IBRD/IDA
Chicago
Harza Engineering Co.
778
IDB
Chicago
Harza Engineering Co.
747
IBRD/IDA
Chicago
Harza Engineering Co.
602
IBRD/IDA
Chicago
Harza Engineering Co.
422
IDB
Chicago
Harza Engineering Co.
220
IBRD/IDA
Chicago
Harza Engineering Co.
130
IBRD/IDA
Chicago
Heller Int'l Group
600
IFC
Chicago
Hyatt Int'l
Chicago
lIT Research Institute
Chicago
Institute of Gas Technology
Chicago
John Deere & Co.
Chicago
Chicago
19,460
EBRD
1,160
IBRD/IDA
925
IBRD/IDA
1,350
IBRD/IDA
KPMG Peat Marwick
301
IBRD/IDA
Midwest Electric Co.
n
70
IDB
ILLINOIS
CITY
COMPANY
Chicago
Millennium Computing Group
Chicago
AMOUNT ($'000)
BANK
40
EBRD
Motorola Int'l Development Corp.
17,000
MIGA
Chicago
Phosphate Chemical Export Assoc.
20,821
ADB
Chicago
Phosphate Chemical Export Assoc.
1,209
IBRD/IDA
Chicago
Phosphate Chemical Export Assoc.
192
IBRD/IDA
Chicago
Power Parts
728
IBRD/IDA
Chicago
Precision Scientific Inc.
50
lOB
Chicago
Precision Scientific Inc.
6
lOB
Chicago
Rhone-Poulenc Film Co.
128
IBRD/IDA
Chicago
Sargent & Lundy
521
IBRD/IDA
Chicago
Schwinn Bicycle Co.
954
IFC
Chicago
Shorebank Corp.
914
EBRD
Chicago
Shorebank Corp.
621
EBRD
Chicago
Signal Int'l Inc.
711
IBRD/IDA
Chicago
Signal Int'l Inc.
111
IBRD/IDA
Chicago
South Shore Bank of Chicago
17
EBRD
Chicago
S&C Electric Company
29
lOB
Chicago
TDK Corp. of America
357
IBRD/IDA
Danville
Hyster Co.
2,063
IBRD/IDA
Danville
Hyster Co.
59
Decatur
Archer Daniels Midland Co.
3,585
Decatur
Archer Daniels Midland Co.
884
71
lOB
AFDB
IBRD/IDA
ILLINOIS
AMOUNT ($'000) BANK
CITY
COMPANY
Decatur
lIinova Generating Co.
Decatur
Mueller Co.
83
IDB
Decatur
Mueller Co.
75
ADF
Deerfield
Baxter Int'l Inc.
3,000
EBRD
Deerfield
United Conveyor Corp.
3,642
IBRD/IDA
Deerfield
United Conveyor Corp.
1,081
IBRD/IDA
Des Plaines
VOP Inter Americana Inc.
1,502
IBRD/IDA
Des Plaines
VOP Inter Americana Inc.
420
IBRD/IDA
Des Plaines
VOP Inter Americana Inc.
285
IBRD/IDA
Des Plaines
VOP Inter Americana Inc.
148
IBRD/IDA
Detroit
Rockwell Graphics Inc.
323
IBRD/IDA
Downers Grove
Engineering Equipment Co.
1,155
IBRD/IDA
Downers Grove
Engineering Equipment Co.
283
IBRD/IDA
Downers Grove
Engineering Equipment Co.
53
IBRD/IDA
Franklin Park
Castle Group
Glencoe
Global Finance Corp.
Glencoe
Global Finance Corp.
Godfrey
Owens Illinois Inc.
1,724
IBRD/IDA
Godfrey
Owens Illinois Inc.
1,450
IBRD/IDA
Hazelcrest
MI-Jack Products
3,036
IBRD/IDA
Hazelcrest
MI-Jack Products
1,658
IBRD/IDA
Hazelcrest
MI-Jack Products
1,220
IBRD/IDA
14,000
MIG A
18,806
IFC
22
IIC
IIC
72
ILLINOIS
CITY
COMPANY
Highland Park
Fusion Enterprises
Lake Bluff
Soiltest Inc.
Long Grove
AMOUNT ($'000) BANK
4,000
EBRD
45
lOB
Kemper Corp.
2,391
IFC
Long Grove
Kemper Corp.
159
IFC
Melrose Park
Lab Line Inst. Int'l Corp.
35
lOB
Milwaukee
Anchor Hocking Packaging Co.
52
IIC
Moline
John Deere Intercontinental Ltd
2,407
IBRD/IDA
Moline
John Deere Intercontinental Ltd
1,045
IBRD/IDA
Moline
John Deere Intercontinental Ltd
908
IBRD/IDA
Moline
John Deere Intercontinental Ltd
441
IBRD/IDA
Niles
Cole-Parmer Int'l
Olenview
Zenith Electronics Corp.
142
IBRD/IDA
Oregon
E.D. Etnyre & Co.
289
IBRD/IDA
Orlando Park
Andrew Corp.
4,000
Peoria
Caterpillar Inc.
11,368
IBRD/IDA
Peoria
Caterpillar Inc.
8,452
IBRD/IDA
Peoria
Caterpillar Inc.
3,649
IBRD/IDA
Peoria
Caterpillar Inc.
1,550
IBRD/IDA
Peoria
Caterpillar Inc.
104
Peoria
Caterpillar Inc.
71
Peoria
Dresser Marketing Division
Peoria
Komatsu Dresser Co.
26
73
lOB
EBRD
AFDB
lOB
345
IBRD/IDA
1,563
IBRD/IDA
ILLINOIS
AMOUNT ($'000) BANK
CITY
COMPANY
Peoria
Komatsu Dresser Co. - Haulpak Division
54
AFDB
Rock Island
Serbus Footwear Company
21
IDB
Rosemont
Phosphate Chemical Export Assoc.
Schaumburg
Motorola Inc.
Skokie
U.S. Robotics
Streator
Peabody Myers
Taylorville
GE Mor Inc.
Unspecified
5,256
995
ADF
IBRD/IDA
IDB
1,139
IDB
191
IBRD/IDA
Alfred J. Hendron, Jr.
30
IBRD/IDA
Unspecified
Alfred 1. Hendron, Jr.
26
IBRD/IDA
Unspecified
American Int'l Radio
1,227
IBRD/IDA
Unspecified
Electro Motive Division
5,422
IBRD/IDA
Unspecified
Epstein Engineering Export Ltd
2,220
IBRD/IDA
Unspecified
Epstein Engineering Export Ltd
1,295
IBRD/IDA
Unspecified
Harris Corp.
53
IBRD/IDA
Unspecified
Robert A. Lyon
147
IBRD/IDA
Unspecified
Undetermined
15,631
IBRD/IDA
Unspecified
Undetermined
14,165
ADB
Unspecified
Velsicol Chemical
Waukegan
United Conveyor Corp.
West Lafayette
Bernard Engel
Woodstock
Automatic Liquid Packaging Inc.
127
IBRD/IDA
3,230
IBRD/IDA
25
State Total
274
336,526
74
IDB
IBRD/IDA
INDIANA
CITY
COMPANY
Bloomington
ABB Power T&O Inc.
Bloomington
Indiana University
Columbus
Cummins Engine Co.
617
IBRO/IOA
Columbus
Cummins Engine Co.
28
IBRD/IDA
Evansville
Robur Corp.
130
ADB
Hammond
Specialty Steel Products Inc.
125
IBRD/IDA
Indianapolis
Angus Electronics
Indianapolis
Eli Lilly Interamerica Inc.
340
IBRD/IOA
Indianapolis
P. S. Int'l Ltd
171
IBRD/IOA
Indianapolis
Wood Mizer Products Inc.
Jeffersonville
Amatrol Inc.
Lafayette
Landis & Gyr
Milford
Chore-Time - Brock Int'l
Neurg
Aluminum Co. of America
133
IBRD/IOA
Unspecified
U nd etermined
849
IBRD/IOA
AMOUNT ($'000)
116
lOB
68
AOB
25
40
632
75
lOB
lOB
IBRD/IOA
2,130
lOB
89
IDB
5,493
State Total
BANK
IOWA
CITY
COMPANY
Cedar Rapids
Undetermined
Cedar Rapids
Universal Engineering Corp.
116
IBRD/IDA
Des Moines
Little Giant Crane & Shovel
1,334
IBRD/IDA
Johnson
Pioneer Bred Int'l
185
IBRD/IDA
Johnson
Pioneer Bred Int'l
158
IBRD/IDA
Muscatine
Stanley Consultants Inc.
277
AFDB
Unspecified
Iowa Mold Tooling
Unspecified
Undetermined
AMOUNT ($'000) BANK
11,204
2,766
221
State Total
16,261
76
ADB
lOB
IBRD/IDA
KANSAS
CITY
COMPANY
EI Dorado
Cardwell Int'l Ltd
3,249
IBRD/IDA
EI Dorado
Cardwell Int'l Ltd
984
IBRD/IDA
EI Dorado
Cardwell Int'l Ltd
357
IBRD/IDA
EI Dorado
Cardwell Int'l Ltd
220
IBRD/IDA
Kansas City
Darlett and Co.
4,166
IBRD/IDA
Kansas City
Global Graphics Inc.
113
IBRD/IDA
Kansas City
Marba Enterprises Inc.
121
IBRD/IDA
Lenexa
PPG Industries Inc.
Manhattan
Kansas State University
179
IBRD/IDA
Manhattan
Kansas State University
73
IBRD/IDA
Neodesha
M.E. Co.
1,173
IBRD/IDA
Overland Park
Pritchard
624
IBRD/IDA
Overland Park
Pritchard
111
IBRD/IDA
Shawnee
Express Scale Parts Inc.
241
IBRD/IDA
Unspecified
Undetermined
24
IBRD/IDA
Westwood
Sprint - Salomon Brothers
Wichita
Thermadyne Industries
AMOUNT ($'000) BANK
69
25,000
IFC
85
IDB
36,789
State Total
77
IDB
KENTUCKY
AMOUNT ($'QOO)
BANK
CITY
COMPANY
Lexington
Clark Material Handling
96
IBRD/IDA
Lexington
Clark Material Handling
89
AFDB
Louisville
Cissell
Louisville
General Electric Co.
Louisville
Undetermined
24
ADB
Louisville
Utility Metals
110
IDB
Louisville
Utility Metals
227
IDB
Unspecified
Undetermined
610
IBRD/IDA
7
354
1,517
State Total
78
lOB
IBRD/IDA
LOUISIANA
CITY
AMOUNT ($'000)
COMPANY
BANK
LOUISIANA
Alexandria
Dis-Tran Products Inc.
Atlanta
Int'l Paper Co.
Baton Rouge
17
IDB
1,045
IBRD/IDA
Ethyl Corp.
628
IBRD/IDA
Baton Rouge
F.C. Schaffer Associates Inc.
374
AFDB
Baton Rouge
F.C. Schaffer Associates Inc.
148
IBRD/IDA
Baton Rouge
Technology Training Inc.
Drestrehan
Bunge Corp.
Kenner
Pellerin Milnor Co.
169
IDB
Lafayette
Completion Accessories Inc.
148
IBRD/IDA
Lake Charles
Eastlake Oils Inc.
144
IDB
Lake Charles
Impeinsa
547
IBRD/IDA
New Orleans
Dole Fresh Fruit Co.
178
IBRD/IDA
New Orleans
D.L. Harrison
New Orleans
McDermott
78,728
IBRD/IDA
Pauline
Multifoods
1,845
IBRD/IDA
Thibodaux
Cameco Industries Inc.
2,255
IBRD/IDA
Thibodaux
Cameco Industries Inc.
1,950
IBRD/IDA
Thibodaux
Cameco Industries Inc.
779
IBRD/IDA
Thibodaux
Cameco Industries Inc.
553
AFDB
Thibodaux
Cameco Industries Inc.
324
IBRD/IDA
Thibodaux
Cameco Industries Inc.
156
IBRD/IDA
67
2,273
9,383
79
AFDB
IBRD/IDA
IDB
LOUISIANA
CITY
COMPANY
Thibodaux
Quality Industries Inc.
Unspecified
Mohamed Ben Senia
Unspecified
Undetermined
AMOUNT ($'000) BANK
State Total
206
IBRD/IDA
4
IBRD/IDA
781
IBRD/IDA
102,702
80
MARYLAND
CITY
COMPANY
Accident
Phenix
Annapolis
Wartsila Diesel Development Corp.
27,000
MIG A
Annapolis
Wartsila Diesel Development Corp.
14,192
IFC
Annapolis
Wartsila Diesel Development Corp.
2,000
Baltimore
AJ. Sachett & Sons
Baltimore
Cathol ic Relief Services
20
IDB
Baltimore
Johns Hopkins University
25
IBRD/IDA
Baltimore
Katalystics Inc.
139
IBRD/IDA
Baltimore
OMG Book Source Co.
136
IBRD/IDA
Baltimore
OMG Book Source Co.
21
IBRD/IDA
Baltimore
Paul Marsh
187
IBRD/IDA
Baltimore
Science Instruments Co.
592
IBRD/IDA
Baltimore
Science Instruments Co.
230
IBRD/IDA
Baltimore
STY Lyon Associates Inc.
10,188
IBRD/IDA
Baltimore
STY Lyon Associates Inc.
5,290
IBRD/IDA
Baltimore
STY Lyon Assoc. Inc.
1,563
IBRD/IDA
Baltimore
Vesuvius Corp. S. A.
210
IBRD/IDA
Baltimore
W.R. Grace & Co.
505
IBRD/IDA
Baltimore
W.R. Grace & Co.
6
Bethesda
Booz, Allen & Hamilton Inc.
Bethesda
Carol Lewis
49
IDB
Bethesda
Construction Administration Services
12
lOB
AMOUNT ($'000) BANK
23
345
81
696
IDB
MIGA
IBRD/IDA
ADF
EBRD
MARYLAND
AMOUNT ($'000)
BANK
CITY
COMPANY
Bethesda
Development Alternatives Inc.
1,703
IBRD/IDA
Bethesda
Development Alternatives Inc.
1,584
IBRD/IDA
Bethesda
Development Alternatives Inc.
246
IBRD/IDA
Bethesda
Development Alternatives Inc.
197
IDB
Bethesda
Development Alternatives Inc.
180
ADB
Bethesda
Development Alternatives Inc.
161
IBRD/IDA
Bethesda
Development Alternatives Inc.
60
IDB
Bethesda
Development Alternatives Inc.
39
IDB
Bethesda
Development Alternatives Inc.
30
IDB
Bethesda
Development Alternatives Inc.
25
IDB
Bethesda
Development Alternatives Inc.
19
IDB
Bethesda
Development Alternatives Inc.
8
IDB
Bethesda
Esquel Group Foundation
15
IDB
Bethesda
Marriott Int'l Inc.
Bethesda
University Research Corp.
202
IBRD/IDA
Bethesda
University Research Corp.
135
IBRD/IDA
Bethesda
University Research Corp.
25
IDB
Buckeystown
Roy Jorgensen Associates Inc.
599
IDB
Columbia
Institute for Resource Development
916
IBRD/IDA
Columbia
Institute for Resource Development
112
IBRD/IDA
Derwood
Latinvironment
Gaithersburg
De Leuw Cather Int'l
4,300
34
1,665
82
MIGA
IDB
IBRD/IDA
MARYLAND
CITY
COMPANY
Gaithersburg
De Leuw Cather Int'l
1,582
IBRD/IDA
Gaithersburg
De Leuw Cather Int'l
666
IBRD/IDA
Gaithersburg
Roy Jorgensen Associates Inc.
1,584
IBRD/IDA
Gaithersburg
Roy Jorgensen Associates Inc.
67
IBRD/IDA
Gulfport
Dole Fresh Fruit Co.
379
IBRD/IDA
Jefferson
Int'l Project Services Inc.
6
lOB
Jefferson
Int'l Project Services Inc.
6
lOB
Newburg
Stimson Eveleth
Rockville
Engineering, Management & Economics
164
lOB
Rockville
Engineering, Management & Economics
8
lOB
Rockville
Pulse Electronics Inc.
Rockville
AMOUNT ($'000)
12
BANK
EBRD
556
IBRD/IDA
Sheladia Associates Inc.
1,787
IBRD/IDA
Rockville
Sheladia Associates Inc.
224
IBRD/IDA
Rockville
Sheladia Associates Inc.
207
IBRDIIDA
Rockville
Sheladia Associates Inc.
35
IBRD/IDA
Rockville
Sheladia Associates Inc.
Rockville
TAMS - Sheladia - Davies Associates
720
IBRD/IDA
Silver Spring
Alternative Energy Development Inc.
170
IDB
Silver Spring
Alternative Energy Development Inc.
16
lOB
Silver Spring
Comsis Corp.
271
IBRD/IDA
Silver Spring
Comsis Corp.
199
IBRD/IDA
Silver Spring
Comsis Corp.
157
IBRD/IDA
1 IDB
83
MARYLAND
AMOUNT ($'000)
CITY
COMPANY
Silver Spring
Cooperative Housing Foundation
Silver Spring
BANK
88
IBRD/IDA
Fred Pshyk
160
IBRD/IDA
Silver Spring
NIR System
60
IDB
Unspecified
Douglas L. Adkins
18
IBRD/IDA
Unspecified
Intrade Intercontinental Inc.
385
IBRD/IDA
Unspecified
Intrade Intercontinental Inc.
128
IBRD/IDA
Unspecified
Intrade Intercontinental Inc.
106
IBRD/IDA
Unspecified
John Mobarak
10
IBRD/IDA
Unspecified
Melville S. Brown
84
IBRD/IDA
Unspecified
Moffatt - Inecon
69
IBRD/IDA
Unspecified
Rayco
60
IBRD/IDA
Unspecified
Undetermined
2,118
IBRD/IDA
Unspecified
William Brooner
58
IBRD/IDA
87,845
State Total
84
MASSACHUSETIS
CITY
COMPANY
Andover
Modicon Inc.
104
IBRD/IDA
Bedford
Baird Corp.
192
IBRD/IDA
Bedford
Baird Corp.
124
ADB
Boston
Advent Int'l Corp.
17,500
EBRD
Boston
Advent Int'l Corp.
10,000
IFC
Boston
Advent Int'l Corp.
10,000
IFC
Boston
Advent Int'l Corp.
2,500
Boston
AEMC Instruments
Boston
AGFA Compo Division
Boston
Boston Safe Deposit & Trust Co.
Boston
Boston University
229
IBRD/IDA
Boston
Boston University
192
IBRD/IDA
Boston
Boston University
103
IBRD/IDA
Boston
Camp Dresser & McKee Inc.
469
IBRD/IDA
Boston
Camp Dresser & McKee Inc.
58
IBRD/IDA
Boston
Center for Int'l Health
Boston
Charles River Associates Inc.
30
IDB
Boston
Charles River Associates Inc.
30
IDB
Boston
Clafin Capital Management
Boston
First Boston - Merrill Lynch
133
IBRD/IDA
Boston
General Electric Co.
160
IBRD/IDA
Boston
Int'l Forest Prod. Corp.
907
IBRD/IDA
AMOUNT ($'000)
17
1,107
10,000
165
3,500
85
BANK
EBRD
IDB
IBRD/IDA
IFC
AFDB
EBRD
MASSACHUSETTS
AMOUNT ($'Qoo)
BANK
CITY
COMPANY
Boston
John Snow Inc.
212
IDB
Boston
Management Science for Health
148
IBRD/IDA
Boston
Management Science for Health
70
Boston
Northeastern University
560
IBRD/IDA
Boston
Northeastern University
335
IBRD/IDA
Boston
Pioneer Group
7,500
EBRD
Boston
Scudder Latin American Trust
6,000
MIG A
Boston
Seymour Paper
Boston
Stone & Webster Eng. Ltd
999
IBRD/IDA
Boston
Stone & Webster Eng. Ltd
624
IBRD/IDA
Boston
Stone & Webster Eng. Ltd
165
IBRD/IDA
Boston
Stone & Webster Eng. Ltd
155
IBRD/IDA
Boston
Tellus Institute for Res. & Env. Strategies
Boston
Wang Laboratories Inc.
Boston
White Eagle Industries - Schooner Capital Corp.
Boston
World Education Inc.
Braintree
Fisher-Pierce
108
IDB
Braintree
Fisher-Pierce
59
IDB
Cambridge
ABT Associates Inc.
100
IBRD/IDA
Cambridge
ABT Associates Inc.
30
IBRD/IDA
Cambridge
ABT Associates Inc.
30
IDB
Cambridge
ABT Associates Inc.
20
IDB
8
28
275
29,700
1,480
86
IDB
IDB
IDB
IBRD/IDA
EBRD
ADB
MASSACHUSETTS
CITY
COMPANY
Cambridge
Arthur D. Little Int'I
4,908
IBRD/IDA
Cambridge
Arthur D. Little Int'l
1,574
IBRD/IDA
Cambridge
Arthur D. Little Int'I
1,448
IBRD/IDA
Cambridge
Arthur D. Little Int'l
1,225
IBRD/IDA
Cambridge
Arthur D. Little Int'I
759
IBRD/IDA
Cambridge
Arthur D. Little Int'I
557
IBRD/IDA
Cambridge
Arthur D. Little Int'!
178
IBRD/IDA
Cambridge
Bio-Rad - Digilab Division
243
IBRD/IDA
Cambridge
Camp Dresser & McKee Inc.
3,853
IBRD/IDA
Cambridge
Camp Dresser & McKee Inc.
121
IBRD/IDA
Cambridge
De Lucia Assoc. Inc.
443
IBRD/IDA
Cambridge
De Lucia Assoc. Inc.
230
IBRD/IDA
Cambridge
De Lucia Assoc. Inc.
134
IBRD/IDA
Cambridge
De Lucia Assoc. Inc.
35
IBRD/IDA
Cambridge
E.L.I. Inc.
57
AFDB
Cambridge
Harvard Institute for Int'I Development
2,477
IBRD/IDA
Cambridge
Harvard Institute for Int'I Development
1,979
IBRD/IDA
Cambridge
Harvard Institute for Int'I Development
283
AFDB
Cambridge
Harvard Institute for Int'l Development
257
IBRDIIDA
Cambridge
Harvard Institute for Int'l Development
100
lOB
Cambridge
Harvard Institute for Int'I Development
50
EBRD
Cambridge
Harvard Institute for Int'l Development
49
IBRD/IDA
AMOUNT ($'000) BANK
87
MASSACHUSE'ITS
AMOUNT ($'000)
BANK
CITY
COMPANY
Cambridge
Harvard Law School
Cambridge
Harvard School of Public Health
1,200
IDB
Cambridge
Harvard School of Public Health
100
IDB
Cambridge
Harvard University
1,133
IBRD/IDA
Cambridge
Harvard University
468
IBRD/IDA
Cambridge
Harvard University
432
IBRD/IDA
Cambridge
Harvard University
353
IBRD/IDA
Cambridge
Idikon Co.
133
IBRD/IDA
Cambridge
InCI Technical Action
50
IDB
Cambridge
Int'l Technical Action
16
IDB
Cambridge
Int'l Technical Action
15
IDB
Cambridge
Int'l Technical Action
15
IDB
Cambridge
Michel Resnick
1
IDB
Danvers
GTE Products Corp.
Danvers
Senechal, Jorgenson, Hale & Co.
36
EBRD
East Longmeadow
Hampton Engineering
71
IDB
Foxboro
Foxboro Co.
444
IBRD/IDA
Franklin
Thermo Jarrell Ash
135
EBRD
Lexington
Mercer Management Consulting Inc.
138
IBRD/IDA
Lexington
Mercer Management Consulting Inc.
3
EBRD
Lexington
Sherbrooke Associates
102
EBRD
Mansfield
Motorola Information Systems Group
248
IBRD/IDA
232
105
88
IBRD/IDA
IBRD/IDA
MASSACHUSETTS
CITY
COMPANY
Maynard
Digital Equipment Corp.
273
Maynard
Digital Equipment Corp.
3
Milton
Bankers Collaborative
355
IDB
Milton
Bankers Collaborative
7
IDB
Needham Heights
IEC Int'l Equipment
46
IDB
Needham Heights
IEC Int'l Equipment
7
IDB
Newton
Education Development Center
1,106
IBRD/IDA
Newton
Education Development Center
910
IBRD/IDA
Newton
Education Development Center
285
IBRD/IDA
Newton
Education Development Center
164
IBRD/IDA
Northboro
Digital Equipment Corp.
2,081
IBRD/IDA
Northboro
Digital Equipment Corp.
714
IBRD/IDA
Northboro
Digital Equipment Corp.
431
IBRD/IDA
Northboro
Digital Equipment Corp.
431
IBRD/IDA
Norwell
Mentor Corp.
Peabody
Boaleeco
148
IBRD/IDA
Peabody
Boaleeco
104
IBRD/IDA
Peabody
Jeol USA Inc.
321
IBRD/IDA
Peabody
Jeol USA Inc.
157
IBRD/IDA
Randolph
Codman & Shurtleff Inc.
263
IDB
Tewksbury
Wang Laboratories Inc.
159
IDB
Unspecified
Badger Engineering Inc.
606
IBRD/IDA
AMOUNT ($'000) BANK
15
89
IDB
IBRD/IDA
IDB
MASSACHUSETTS
CITY
COMPANY
Unspecified
Blue Nile Associates
Unspecified
AMOUNT ($'000)
BANK
16
IBRD/IDA
Bruker Instruments
343
IBRD/IDA
Unspecified
Cincinnati Milacron Marketing Co.
505
ADB
Unspecified
Finnegan Materials
212
IBRD/IDA
Unspecified
Sheila M. Stanton
22
IBRD/IDA
Unspecified
Undetermined
5,027
IBRD/IDA
Unspecified
Undetermined
681
Waltham
Electronic Data Systems Corp.
Waltham
GTE Spacenet Int'l Corp.
Waltham
Simat, Helliesen & Eichner
33
EBRD
West Dennis
Susan Greeley
11
EBRD
Westboro
Data General Corp.
171
IBRD/IDA
Weymouth
Fisher-Pierce
164
lOB
16
141
148,444
State Total
90
ADB
EBRD
IBRD/IDA
MICHIGAN
CITY
COMPANY
Baraga
Pettibone Michigan Corp.
Battle Creek
Clark Equipment Co.
Detroit
DIFCO Laboratories Inc.
Detroit
Ford Motor Co.
Detroit
General Motors Corp.
77,880
Detroit
General Motors Corp.
1,244
IBRD/IDA
Detroit
General Motors Corp.
822
IBRD/IDA
Detroit
General Motors Corp.
56
IBRD/IDA
Detroit
General Motors Overseas Corp.
571
IBRD/IDA
Detroit
General Motors Overseas Corp.
231
IBRD/IDA
Detroit
General Motors Overseas Corp.
138
IDB
Detroit
Siemens
Detroit
Unisys Corp.
36
IDB
Detroit
Unisys Corp.
6
IDB
Detroit
Unisys Int'I Trading
154
IBRD/IDA
Detroit
Wright Austin Company
109
ADB
Kalamazoo
Upjohn Worldwide
125
IBRD/IDA
Livonia
E&C Associates
8
Ludington
Pandrol Jackson
4,789
IBRD/IDA
Manchester
Johnson Controls Inc.
398
IBRD/IDA
Plymouth
Rickert Precision Inds Inc.
794
ADB
Plymouth
Rickert Precision Inds Inc.
206
ADB
AMOUNT ($'000)
84
IBRD/IDA
195
IBRD/IDA
10
6,194
1,298
91
BANK
IDB
IBRD/IDA
EBRD
IBRD/IDA
IIC
MICHIGAN
CITY
COMPANY
Rochester Hills
Virtual Technology Inc.
Saginaw
Saginaw Division Inc.
382
IBRD/IDA
Southfield
Dailey R. E. & Co.
153
IBRD/IDA
Southfield
DSA of America Inc.
1,941
IBRD/IDA
Tecumseh
Tecumseh Product Co.
196
IBRD/IDA
Unspecified
L. Agan
33
IBRD/IDA
Unspecified
Undetermined
2,982
IBRD/IDA
Unspecified
Undetermined
52
Whitebear
Schwing America Inc.
AMOUNT ($'000)
33
191
State Total
101,311
92
BANK
lOB
ADB
IBRD/IDA
MINNESOTA
CITY
COMPANY
Bloomington
Control Data China Inc.
733
IBRD/IDA
Bloomington
Control Data China Inc.
314
IBRD/IDA
Eagan
Check Technology Corp.
91
IBRD/IDA
Eden Prairie
MTS Systems Corp.
553
IBRD/IDA
Minneapolis
Cargill Inc.
9,997
IBRD/IDA
Minneapolis
Cargill Inc.
467
AFDB
Minneapolis
Carter Day Int'l
175
IDB
Minneapolis
Control Data Corp.
10,739
IBRD/IDA
Minneapolis
Control Data Corp.
412
IBRD/IDA
Minneapolis
Detector Electronic Corp.
89
IBRD/IDA
Minneapolis
Elke Corp.
81
IBRD/IDA
Minneapolis
Geoffrey Ferster
24
ADB
Minneapolis
Honeywell Inc.
Minneapolis
Minnesota Valley Engineering
231
Minneapolis
Minnesota Valley Engineering
76
Minneapolis
MTS Systems Corp.
1,257
IBRD/IDA
Minneapolis
MTS Systems Corp.
726
IBRD/IDA
Minneapolis
MTS Systems Corp.
384
IBRD/IDA
Minneapolis
National Computer Systems
208
IBRD/IDA
Minneapolis
Siemans - Empros Systems Int'l
3,732
IDB
Minneapolis
Siemans - Empros Systems Int'l
1,420
IBRD/IDA
Minneapolis
Siemans - Empros Systems Int'l
863
IBRD/IDA
AMOUNT ($'000) BANK
1,000
93
MIGA
IBRD/IDA
ADB
MINNESOTA
AMOUNT ($'000) BANK
CITY
COMPANY
Minneapolis
Siemans - Empros Systems Int'l
249
Mound
Allan West Consulting Services
10
St. Paul
Fairmont Railway Motors Inc.
4,810
IBRD/IDA
St. Paul
Harvest States Coop.
2,308
IBRD/IDA
St. Paul
Minnesota Mining & Manufacturing Corp.
1,058
IBRD/IDA
St. Paul
Minnesota Mining & Manufacturing Corp.
27
IDB
St. Paul
Minnesota Mining & Manufacturing Corp.
3
IDB
Unspecified
General Signal Corp.
Unspecified
IBRD/IDA
IIC
193
IBRD/IDA
Undetermined
5,706
IBRD/IDA
Unspecified
Undetermined
2,797
ADB
Woodbury
IBM Corp.
150
50,883
State Total
94
IBRD/IDA
MISSISSIPPI
AMOUNT ($'000) BANK
CITY
COMPANY
Laurel
Howard Industries Inc.
Unspecified
Bill Gregg
7
IBRD/IDA
Unspecified
Charles L. Sciple
4
IBRD/IDA
Unspecified
Tri-State Pole & Piling Inc.
1,216
IBRD/IDA
Unspecified
Tri-State Pole & Piling Inc.
745
IBRD/IDA
Unspecified
Tri-State Pole & Piling Inc.
68
IBRD/IDA
Unspecified
Tri-State Pole & Piling Inc.
11
IBRD/IDA
Unspecified
Undetermined
79
IBRD/IDA
3,540
5,670
State Total
95
IDB
MISSOURI
AMOUNT ($'000) BANK
CITY
COMPANY
Bowling Green
Cecil C. Daffron & Associates Inc.
Centralia
369
IBRD/IDA
AB Chance Co.
5,475
IBRD/IDA
Centralia
AB Chance Co.
2,634
ADB
Centralia
AB Chance Co.
490
IDB
Centralia
AB Chance Co.
391
IDB
Centralia
AB Chance Co.
356
ADB
Centralia
AB Chance Co.
171
IDB
Centralia
AB Chance Co.
35
IDB
Centralia
White - Safeguard America Inc.
42
IDB
Kansas City
Black & Veatch InCI Co.
9,894
IBRD/IDA
Kansas City
Black & Veatch Int'l Co.
9,077
IBRD/IDA
Kansas City
Black & Veatch Int'l Co.
3,666
IBRD/IDA
Kansas City
Black & Veatch Int'l Co.
2,413
IBRD/IDA
Kansas City
Black & Veatch InCI Co.
1,500
IBRD/IDA
Kansas City
Black & Veatch InCI Co.
1,075
AFDB
Kansas City
Black & Veatch Int'l Co.
470
IBRD/IDA
Kansas City
Farmland Industries Inc.
7,903
IBRD/IDA
Kansas City
Labconco Co.
Mexico
A.P. Green Industries
Springfield
Int'l Division Inc.
St. Louis
China Capital Development Corp.
540
MIG A
St. Louis
Cooper Bussman
182
IDB
43
96
IDB
621
IBRD/IDA
3,593
IBRD/IDA
MISSOURI
AMOUNT ($'000)
CITY
COMPANY
St. Louis
Diversified Metals Corp.
175
IBRD/IDA
St. Louis
Fulton Iron Works Co.
142
IBRD/IDA
St. Louis
General Motors Corp.
52
St. Louis
Monsanto Co.
1,103
IBRD/IDA
St. Louis
Monsanto InCI Sales Co.
7,728
IBRD/IDA
St. Louis
Monsanto InCI Sales Co.
132
IBRD/IDA
St. Louis
Power Line Hardware
166
IDB
St. Louis
Sigma Chemical Co.
341
IBRD/IDA
St. Louis
Sigma Chemical Co.
26
St. Louis
Sigma Chemical Co.
8
AFDB
St. Louis
Sunnen Products Co.
2,700
MIGA
St. Louis
Washington University in St. Louis
13
AFDB
Unspecified
Undetermined
Washington
Pauvels Transformers
720
IDB
Washington
Undetermined
660
ADB
3,181
68,087
State Total
97
BANK
IDB
IDB
IBRD/IDA
NEBRASKA
CITY
COMPANY
Lincoln
Mid-America Int'l Agricultural Consortium
Omaha
AMOUNT (S'OOO) BANK
676
IBRD/IDA
AGP Grain Cooperative
4,953
IBRD/IDA
Omaha
AGP Grain Cooperative
2,321
IBRD/IDA
Omaha
AGP Grain Cooperative
2,312
IBRD/IDA
Unspecified
Undetermined
521
IBRD/IDA
Valley
Valmont Industries Inc.
3,685
IBRD/IDA
Waverly
National Crane
172
State Total
14,640
98
lOB
NEVADA
CITY
COMPANY
Reno
Globe Turbo Charger
Unspecified
Hunt Spiller
AMOUNT ($'000)
9
IBRD/IDA
238
IBRD/IDA
247
State Total
99
BANK
NEW HAMPSHIRE
AMOUNT ($'000)
BANK
CITY
COMPANY
Dover
Harris Graphics Corp.
302
IBRD/IDA
Dublin
Sally Warren
131
EBRD
Manchester
Burndy Corp Int'l Trade Group
Unspecified
Hyundai-Smith Norrington
Unspecified
Undetermined
State Total
42
679
IBRD/IDA
2,522
IBRD/IDA
3,676
100
ADB
NEW JERSEY
CITY
COMPANY
Basking Ridge
AT&T Int'l Inc.
Bayonne
Indusco Ltd
Berkeley Heights
AT&T InCI Inc.
3,059
ADB
Berkeley Heights
AT&T InCI Inc.
1,080
lOB
Berkeley Heights
Mita Copystar America Inc.
182
IBRD/IDA
Bloomfield
ABB Lummus Crest Inc.
260
IBRD/IDA
Bridgewater
Baker & Taylor
355
IBRD/IDA
Chatham
Interconsult
Cherry Hill
General Electric InCI Service Co.
835
IBRD/IDA
Cherry Hill
General Electric Int'l Service Co.
521
IBRD/IDA
Cherry Hill
Serco Education Ltd
1,939
IBRD/IDA
Cherry Hill
Serco Education Ltd
1,702
IBRD/IDA
Cherry Hill
Serco Education Ltd
906
IBRD/IDA
Cherry Hill
Serco Education Ltd
906
IBRD/IDA
Cherry Hill
Serco Education Ltd
346
IBRD/IDA
Cherry Hill
Siemens Corp.
713
IBRD/IDA
Clifton
Roche
147
IBRD/IDA
Clinton
Foster Wheeler Energy Corp.
845
lOB
Clinton
Foster Wheeler Energy Corp.
375
lOB
East Hanover
Royal Lubricants Co.
172
IBRD/IDA
East Orange
Louis Berger Int'I Inc.
10,411
IBRD/IDA
East Orange
Louis Berger Int'l Inc.
6,928
IBRD/IDA
AMOUNT ($'000)
1,360
IFC
417
lOB
57
101
BANK
EBRD
NEW JERSEY
AMOUNT
($'000>
BANK
CITY
COMPANY
East Orange
Louis Berger InC) Inc.
5,601
IBRD/IDA
East Orange
Louis Berger InC) Inc.
5,016
AFDB
East Orange
Louis Berger InC) Inc.
4,835
IBRDIIDA
East Orange
Louis Berger InC) Inc.
3,176
IBRD/IDA
East Orange
Louis Berger InC) Inc.
2,952
IBRD/IDA
East Orange
Louis Berger InC) Inc.
1,926
IBRD/IDA
East Orange
Louis Berger InC) Inc.
1,811
IBRD/IDA
East Orange
Louis Berger Int') Inc.
1,499
IBRD/IDA
East Orange
Louis Berger InC) Inc.
1,494
IBRD/IDA
East Orange
Louis Berger Int') Inc.
1,209
ADB
East Orange
Louis Berger Int'l Inc.
1,099
IBRD/IDA
East Orange
Louis Berger Int'l Inc.
940
IBRD/IDA
East Orange
Louis Berger InC) Inc.
721
IBRD/IDA
East Orange
Louis Berger InC) Inc.
703
IBRD/IDA
East Orange
Louis Berger Int') Inc.
563
ADB
East Orange
Louis Berger InC) Inc.
541
ADB
East Orange
Louis Berger InC) Inc.
484
IBRD/IDA
East Orange
Louis Berger InC) Inc.
448
IBRD/IDA
East Orange
Louis Berger Int') Inc.
284
IBRD/IDA
East Orange
Louis Berger InC) Inc.
280
IBRD/IDA
East Orange
Louis Berger InC) Inc.
160
ADB
East Orange
Louis Berger InC) Inc.
150
IDB
102
NEW JERSEY
CITY
COMPANY
East Orange
Louis Berger Int'l Inc.
68
IBRD/IDA
East Orange
Louis Berger Int'l Inc.
61
IBRD/IDA
East Orange
Louis Berger Int'l Inc.
East Rutherford
Dealers Audio-Visual
Elmwood
Tricon Associates
Englewood Cliffs
Cl inton Bogert Associates
Englewood Cliffs
Irridelco Int'l
504
IBRD/IDA
Englewood Cliffs
Summit Engineering & Research Corp.
259
AFDB
Farmingdale
Lab-Volt Systems
647
IBRD/IDA
Farmingdale
Lab-Volt Systems
380
IBRD/IDA
Farmingdale
Lab-Volt Systems
237
IBRD/IDA
Florham Park
Esso Eastern Products & Trading
4,942
IBRD/IDA
Florham Park
Ohaus Corp.
81
Florham Park
Ohaus Corp.
3
Fort Lee
Machinpex America Inc.
Hackensack
Vitusa Corp.
262
IBRD/IDA
Hazlet
Int'l Flavors
479
IBRD/IDA
Hightstown
PA Consulting Group Inc.
247
IBRD/IDA
Iselin
Alliance Grain Inc.
1,178
IBRD/IDA
Iselin
Engelhood Corp.
356
IBRD/IDA
Livingston
Foster Wheeler Energy Corp.
15,384
IBRD/IDA
Livingston
Foster Wheeler Energy Corp.
534
IBRD/IDA
AMOUNT ($'000>
BANK
IBRD/IDA
65
132
2,500
52
103
IDB
IBRD/IDA
IDB
ADF
IDB
ADB
NEW JERSEY
AMOUNT ($'000) BANK
CITY
COMPANY
Livingston
Foster Wheeler Energy Corp.
198
IBRD/IDA
Montvale
Datascope Corp.
194
IDB
Moorestown
Telesciences Inc.
1,901
IFC
Morris City
Continental Distrib. Inc.
67
IDB
Morristown
Ardy Trading Co.
379
ADB
Morristown
Ardy Trading Co.
56
ADB
Morristown
Ardy Trading Co.
44
ADB
Morristown
Ardy Trading Co.
2
ADB
Morristown
Fisher Scientific
175
IBRDIIDA
Newark
Ameritrade Int'l Inc.
103
ADB
Newark
Ameritrade Int'I Inc.
74
ADB
Newark
Brown Swiss Corp.
962
IBRD/IDA
Newark
Gantrade Corp.
153
IBRD/IDA
Newark
Inductotherm
232
IBRD/IDA
Newark
Merck Sharp & Dohme Int'I
207
IBRD/IDA
Newark
National Economic Research Assoc.
682
IBRD/IDA
Newark
National Economic Research Assoc.
290
IBRD/IDA
Newark
Quad System Corp.
699
IBRD/IDA
Old Bridge
Wotek Corp.
911
IBRD/IDA
Oradell
Burns & Roe Co.
419
ADB
Oradell
Burns & Roe Co.
95
ADB
Oradell
K. K. Int'I Inc.
402
104
IBRD/IDA
NEW JERSEY
AMOUNT ($'000)
CITY
COMPANY
Orange
Hockman Lewis Ltd
119
'BRD/IDA
Paramus
Posshel Inc.
343
IBRD/IDA
Piscataway
Helm New York Chemical Corp.
136
IBRD/IDA
Piscataway
Ingersoll Rand Int'I Sales Inc.
2,004
Piscataway
Ingersoll Rand Int'I Sales Inc.
284
IBRD/IDA
Piscataway
Ingersoll Rand Int'l Sales Inc.
181
IBRD/IDA'
Pisea
Ingersoll Rand Int'I Sales Inc.
174
AFDB
Plainfield
VWR Scientific Corp.
55
Plainfield
VWR Scientific Corp.
6
ADF
Plainfield
Winston Riley III
6
IDB
Princeton
Coda & Partners
389
AFDB
Princeton
EG&G Applied Research
307
IBRD/IDA
Princeton
Hewitt Ass0ciates
518
ADB
Princeton
Stanford Research Int'l - Peter Davis
Princeton
Techne Inc.
Ridgefield Park
Auto-Graphica Export Corp.
Ridgewood
Dun & Bradstreet Corp.
Rutherford
National Audio Visual Supply
366
IBRD/IDA
Saddle Brook
Espic
106
IBRD/IDA
Sommerville
Ethicon Inc.
454
IBRD/IDA
Springfield
Fischer Scientific
13
IDB
Springfield
Fisher Scientific
81
IDB
40
3
181
3,000
105
BANK
ADB
IDB
EBRD
IDB
IBRD/IDA
EBRD
NEW JERSEY
AMOUNT ($'000)
BANK
CITY
COMPANY
Springfield
Fisher Scientific
55
IDB
Springfield
Fisher Scientific
30
IDB
Trenton
Geometric Machine & Design
Trenton
Imo Industries Inc.
Union
Electrocatalytic Inc.
166
IBRD/IDA
Union
Senior Boiler Tube Co.
248
IDB
Unspecified
Craden
Unspecified
Lexington Switch & Controls
Unspecified
Nubenco
Unspecified
824
2,397
IBRD/IDA
ADB
3
IBRD/IDA
117
IBRD/IDA
74
IBRD/IDA
Undetermined
22,653
IBRD/IDA
Unspecified
Undetermined
170
ADB
Vineland
Vineland Laboratories
15
ADF
Vorhees
Alliance Grain Inc.
1,178
Washington
Ingersoll Rand Co.
36
Wayne
American Cyanamid Co.
859
IBRD/IDA
Wayne
American Cyanamid Co.
219
IBRD/IDA
Wayne
American Cyanamid Co.
123
IBRD/IDA
Weehawken
Bittern Int'l
Whitehouse Station
Merck & Sharp Co.
106
IDB
58
AFDB
122
AFDB
144,138
State Total
IBRD/IDA
NEW MEXICO
CITY
COMPANY
Unspecified
Erik D. Schwoebel
AMOUNT ($'000) BANK
40
107
TBRD/IDA
NEW YORK
AMOUNT ($'000)
BANK
CITY
COMPANY
Albany
Simmons Machine Tools Corp.
4,509
IBRD/IDA
Albany
Simmons Machine Tools Corp.
1,202
IBRD/IDA
Albany
Simmons Machine Tools Corp.
1,101
IBRD/IDA
Albany
Simmons Machine Tools Corp.
659
IBRD/IDA
Albany
Simmons Machine Tools Corp.
601
IBRD/IDA
Angola
TXRX System
Arcade
K.N. Aronson Inc.
Ardsley
Ciba-Geigy Export Sales Corp.
Ballstone
Turbine Supplies
Binghamton
Institute for Development Anthropology
Brownsville
D.T.S. Inc.
Buffalo
Corning Inc.
Cambridge
Thinking Machines Corp.
Corning
3
lOB
38
lOB
316
IBRD/IDA
2,579
lOB
30
lOB
128
4
IBRD/IDA
lOB
1,125
IBRD/IDA
Corning Inc.
360
IBRD/IDA
Corning
Corning Inc.
308
IBRD/IDA
Cutchogue
Aiello Enterprises Ltd
149
EBRD
Dansville
Foster Wheeler Energy Corp.
Elmira
Garlock Inc.
243
lOB
Elmsford
EDT Technology Corp.
213
IBRD/IDA
Genova
Anwar A. Khan
Hauppage
Satellite Transmission Systems Inc.
3,981
EBRD
Hauppage
Satellite Transmission Systems Inc.
3,800
EBRD
35,040
13
108
IBRD/IDA
lOB
NEW YORK
CITY
COMPANY
Hauppage
Satellite Transmission Systems Inc.
Hudson Falls
General Electric Co.
Ithaca
AMOUNT ($'000)
BANK
1,264
IBRD/IDA
11,553
IBRD/IDA
Cornell University
386
IBRD/IDA
Ithaca
Cornell University
201
IBRD/IDA
Lancaster
Ecology & Environment Inc.
725
IBRD/IDA
Lancaster
Ecology & Environment Inc.
401
IBRD/IDA
Lancaster
Ecology & Environment Inc.
100
IBRD/IDA
Le Roy
Lapp Insulator Co.
1,530
IBRD/IDA
Le Roy
Lapp Insulator Co.
716
IDB
Le Roy
Lapp Insulator Co.
545
ADB
Le Roy
Lapp Insulator Co.
230
IBRD/IDA
Long Island
Mollendo Equipment Co.
241
IDB
Long Island
Mollendo Equipment Co.
48
IDB
Massena
Greyline Instruments
272
IDB
Melville
ABB Power Automation Inc.
1,536
IBRD/IDA
Melville
ABB Power Automation Inc.
1,047
IBRD/IDA
Melville
ABB Power Automation Inc.
382
IBRD/IDA
Merrick
Fluid Data Inc.
1,620
IBRD/IDA
Merrick
Fluid Data Inc.
231
IBRD/IDA
Morristown
Allied Signal Inc.
3,748
IBRD/IDA
New Rochelle
Techcast Industries Inc.
121
IBRD/IDA
New York City
Abal InCI Ltd
2,611
IBRD/IDA
109
NEW YORK
AMOUNT ($'000) BANK
CITY
COMPANY
New York City
Abal Int'l Ltd
New York City
Accutrol Inc.
New York City
Alan L. Grant Rubber Div.
New York City
Alliance Capital Management Corp.
15,100
EBRD
New York City
Alliance Capital Management Corp.
15,000
EBRD
New York City
American Natural Soda Ash
115
IBRD/IDA
New York City
American Petrochemical
254
IBRD/IDA
New York City
Ansul Fire Int'l
217
IBRD/IDA
New York City
Arco Chemical Co.
135
IBRD/IDA
New York City
Banco Do Brasil
225
IBRD/IDA
New York City
Bankers Trust
20,000
New York City
Bankers Trust
253
IBRD/IDA
New York City
Bastignoles
1,814
IBRD/IDA
New York City
Bool, Allen & Hamilton Inc.
523
IDB
New York City
Bool, Allen & Hamilton Inc.
222
IBRD/IDA
New York City
Bool, Allen & Hamilton Inc.
213
IBRD/IDA
New York City
Bool, Allen & Hamilton Int'! Inc.
1,246
IBRD/IDA
New York City
Bool, Allen & Hamilton Int'l Inc.
1,105
IBRD/IDA
New York City
Bool, Allen & Hamilton Int'I Inc.
349
IBRD/IDA
New York City
Brookhaven Instruments Co.
New York City
Bunge Corp.
New York City
Caltex Overseas Ltd
1,301
75
6,992
75
110
IBRD/IDA
ADB
IBRD/IDA
EBRD
IDB
255
IBRD/IDA
5,223
IBRD/IDA
NEW YORK
CITY
COMPANY
New York City
Care Int'l
New York City
Center for InCl Health & Cooperation
244
AFDB
New York City
Central European Development Corp.
11,000
EBRD
New York City
Central European Development Corp.
8,000
EBRD
New York City
Cessna Aircraft Co.
New York City
Chase Manhattan Bank
New York City
Chern Systems Inc.
245
IBRD/IDA
New York City
Cheminter Delaware Inc.
104
IBRD/IDA
New York City
Chentex Int'l Inc.
New York City
China Trade Ind. Services
New York City
Citibank, N.A.
41,400
MIG A
New York City
Citibank, N.A.
20,000
EBRD
New York City
Citibank, N.A.
7,400
MIGA
New York City
Citibank, N.A.
2,300
MIGA
New York City
Coinsa S. A.
New York City
Colombia School of Int'I & Public Affairs
New York City
Combustion Engineering Inc.
2,887
IBRD/IDA
New York City
Cqmbustion Engineering Inc.
507
IBRD/IDA
New York City
COMSERTEC
28
IBRD/IDA
New York City
Continental Enterprises Ltd
3,793
MIG A
New York City
Continental Enterprises Ltd
765
MIGA
New York City
Continental Grain Co.
AMOUNT ($'000) BANK
37
300
20,000
20
215
139
8
4,627
111
IDB
IBRD/IDA
IFC
EBRD
IBRD/IDA
IBRD/IDA
AFDB
IBRD/IDA
NEW YORK
CITY
COMPANY
New York City
Continental Grain Co.
New York City
Conti-Quincy Export Co.
New York City
AMOUNT ($'000) BANK
347
IBRD/IDA
1,221
IBRD/IDA
Coopers & Lybrand
658
IBRD/IDA
New York City
Coopers & Lybrand
181
IBRD/IDA
New York City
Coopers & Lybrand
115
IIC
New York City
Czech American Enterprise Fund
New York City
C. Czarnikow Inc.
New York City
C. Itoh & Co.
1,692
IBRD/IDA
New York City
C. Itoh & Co.
166
IBRD/IDA
New York City
Dalton & Cooper & Gates Corp.
774
IBRD/IDA
New York City
Data General Corp.
930
IBRD/IDA
New York City
Data General Corp.
172
IBRD/IDA
New York City
Dekalb Genetics
851
IBRD/IDA
New York City
Deloitte Touche & Co.
1,890
IBRD/IDA
New York City
Deloitte Touche & Co.
304
IBRD/IDA
New York City
Diamond Fertilizer & Chemical
102
IBRD/IDA
New York City
Door Oliver Inc.
368
IBRD/IDA
New York City
DJ. Giancola Exports Inc.
105
IDB
New York City
EBASCO Overseas Corp.
582
IBRD/IDA
New York City
EBASCO Overseas Corp.
439
IBRD/IDA
New York City
EBASCO Overseas Corp.
227
IBRD/IDA
New York City
EBASCO Overseas Corp.
67
IBRD/IDA
7,400
129
112
EBRD
IDB
NEW YORK
CITY
COMPANY
New York City
Echelon Int'l Inc.
New York City
AMOUNT ($'000)
BANK
115
IBRD/IDA
Elof Hanson Pulp Inc.
7,094
IBRD/IDA
New York City
Elof Hanson Pulp Inc.
504
IBRD/IDA
New York City
Enimont America Inc.
822
IBRD/IDA
New York City
Ernst & Young Int'l
500
IDB
New York City
Ernst & Young Int'l
179
IDB
New York City
Ernst & Young Int'I
28
IDB
New York City
Ferrex Int'I Inc.
28
ADB
New York City
Ferruzzi Trading
New York City
4,785
IBRD/IDA
Fiber Industries
576
IBRD/IDA
New York City
First Boston Corp.
131
IBRD/IDA
New York City
Frederic R. Harris Inc.
706
IDB
New York City
Frederic R. Harris Inc.
375
IDB
New York City
Frederic R. Harris Inc.
275
IDB
New York City
Frederic R. Harris Inc.
100
IDB
New York City
General Electric Co.
11,351
New York City
General Electric Co.
5,449
New York City
General Motors Corp.
New York City
General Radio Co.
New York City
Gentrade Corp.
New York City
New York City
255
39
IBRD/IDA
IDB
IBRD/IDA
IDB
2,356
IBRD/IDA
George McFadden & Brothers Inc.
186
IBRD/IDA
Han-Padron Assoc.
255
IBRD/IDA
113
NEW YORK
AMOUNT ($'000) BANK
CITY
COMPANY
New York City
Hewlett Packard Co.
176
IBRD/IDA
New York City
Hewlett Packard Co.
141
IBRD/IDA
New York City
Hillandale Sales Corp.
800
IBRD/IDA
New York City
Hoechst Celanese Corp.
299
IBRD/IDA
New York City
Hugo Neu & Sons
4,086
ADB
New York City
Hugo Neu & Sons
3,287
IBRD/IDA
New York City
H.J. Baker & Bros. Inc.
7,256
IBRD/IDA
New York City
IBM World Trade Corp.
204
IDB
New York City
ICI America
556
IBRD/IDA
New York City
Ingersoll Rand Co.
978
IBRD/IDA
New York City
Ingersoll Rand Co.
108
IBRD/IDA
New York City
Institute of In1'l Education
126
IBRD/IDA
New York City
Institute of Public Administration
2,816
IBRD/IDA
New York City
Institute of Public Administration
846
IBRD/IDA
New York City
Inter Quise - Inter-Continental
128
IBRD/IDA
New York City
Inter-Continental Inc.
115
ADB
New York City
In1'l Business & Technology Consultants Inc.
132
IBRD/IDA
New York City
Int'l Commodities Export Corp.
3,766
IBRD/IDA
New York City
In1'l Grain Trade Inc.
251
IBRD/IDA
New York City
Int'I Securities Clearing
New York City
Int'l Swap Dealers Association
New York City
James Capel Inc.
29
114
EBRD
40,000
IFC
3,995
IFC
NEW YORK
CITY
COMPANY
New York City
Jeanne Schoenberger
New York City
J.P. Morgan Capital Corp.
New York City
Kraftcorp
New York City
Leborg
New York City
AMOUNT ($'000)
15
45,000
BANK
EBRD
IFC
571
IBRD/IDA
3,135
IBRD/IDA
Liberty Machinery
609
IBRD/IDA
New York City
Louis Berger Int'l Inc.
615
ADB
New York City
Louis Berger Int'I Inc.
367
ADB
New York City
Lubrizol Corp.
New York City
1,172
IBRD/IDA
Lummus-Techint Inc.
163
IBRD/IDA
New York City
Massive Int'I Inc.
213
IBRD/IDA
New York City
McKinsey & Co.
866
IBRD/IDA
New York City
McKinsey & Co.
98
IBRD/IDA
New York City
Mercer Management Consulting Inc.
New York City
213
EBRD
Michael Turek
8
EBRD
New York City
Michael Turek
1 EBRD
New York City
Miles Metal Co.
902
IBRD/IDA
New York City
Mitsubishi Int'l Corp.
504
IBRD/IDA
New York City
Mitsui & Co.
4,876
ADB
New York City
Mitsui & Co.
4,300
ADB
New York City
Mobil Oil Co. Int'l
4,951
IBRD/IDA
New York City
Montgomery Marshall & Co.
149
IBRDIIDA
New York City
Network Dynamics Associates
61
115
EBRD
NEW YORK
AMOUNT ($'000) BANK
CITY
COMPANY
New York City
Network Dynamics Associates
New York City
New World Research Corp.
1,427
IBRD/IDA
New York City
New World Research Corp.
48
IBRD/IDA
New York City
New World Research Corp.
12
IDB
New York City
New York Life
10,186
IFC
New York City
Newco AG
265
IBRD/IDA
New York City
Ogilvy & Mather
188
IBRD/IDA
New York City
Omega InCI Inc.
197
IBRD/IDA
New York City
Paine Webber Inc.
New York City
Papex Exporters
972
IBRD/IDA
New York City
Parsons Brinckerhoff Int'l Inc.
636
IBRD/IDA
New York City
Pasternak, Baum Int'l Inc.
2,493
IBRD/IDA
New York City
Polish American Enterprise Fund
50,000
EBRD
New York City
Polish American Enterprise Fund
2,200
EBRD
New York City
Population Council
New York City
Power Technologies Inc.
New York City
Price Waterhouse Int'I
2,961
IBRD/IDA
New York City
Price Waterhouse lnt'l
1,205
IBRD/IDA
New York City
Price Waterhouse lnt'l
457
IBRD/IDA
New York City
Pride Int'I
365
IBRD/IDA
New York City
Quali Mix lnt'l Co., Ltd
400
IBRD/IDA
New York City
Quali Mix Int'I Co., Ltd
179
IBRD/IDA
48
25
116
EBRD
EBRD
696
ADB
72
ADF
NEW YORK
CITY
COMPANY
New York City
Redcom Laboratories Inc.
New York City
Rockefeller & Co.
25,000
IFC
New York City
Rockefeller & Co.
2,810
IFC
New York City
Satellite Transmission Systems Inc.
3,138
IBRD/IDA
New York City
Satellite Transmission Systems Inc.
399
IBRD/IDA
New York City
Shea & Gould
New York City
Sino-American Corp.
8,345
IBRD/IDA
New York City
Sino-American Corp.
441
IBRD/IDA
New York City
Socimer Int'! Inc.
New York City
Sogerm Corp.
New York City
Sonal Enterprises
24
ADB
New York City
Sonic Environment Systems
14
AFDB
New York City
Soros Associates
425
IBRD/IDA
New York City
Soros Associates
101
IBRD/IDA
New York City
Soros Associates
100
IBRD/IDA
New York City
Steinman, Boynton, Gronquist, & Birdsall
4,122
IBRD/IDA
New York City
Steinman, Boynton, Gronquist, & Birdsall
1,500
lOB
New York City
Steinman, Boynton, Gronquist, & Birdsall
1,500
lOB
New York City
Steinman, Boynton, Gronquist, & Birdsall
532
IBRD/IDA
New York City
Steinman, Boynton, Gronquist, & Birdsall
250
IBRD/IDA
New York City
Steinman, Boynton, Gronquist, & Birdsall
189
IBRD/IDA
New York City
Stemcor USA Inc.
402
lOB
AMOUNT ($'000) BANK
101
40
11
122
117
ADF
EBRD
IIC
IBRD/IDA
NEW YORK
AMOUNT ($'000) BANK
CITY
COMPANY
New York City
Stone & Webster Management Consult.
858
IBRDIIDA
New York City
Stone & Webster Management Consult.
761
IBRD/IDA
New York City
Stone & Webster Overseas
88
IBRDIIDA
New York City
Sumitomo Corp. of America
9,549
IBRDIIDA
New York City
Sumitomo Corp. of America
7,796
IBRD/IDA
New York City
Sumitomo Corp. of America
2,100
IBRD/IDA
New York City
TAMS Consultants Inc.
2,845
IBRD/IDA
New York City
TAMS Consultants Inc.
2,455
AFDB
New York City
TAMS Consultants Inc.
800
IBRD/IDA
New York City
TAMS Consultants Inc.
724
IBRD/IDA
New York City
TAMS Consultants Inc.
455
IBRD/IDA
New York City
TAMS Consultants Inc.
162
IBRD/IDA
New York City
TAMS Consultants Inc.
102
IBRD/IDA
New York City
Tata - Honeywell
417
IBRD/IDA
New York City
Tata - Unisys Ltd
281
IBRD/IDA
New York City
Techint Inc.
869
IBRD/IDA
New York City
Techint Inc.
820
IBRD/IDA
New York City
Teledyne Gurley
232
IBRD/IDA
New York City
Transamonnia
2,274
IBRD/IDA
New York City
Transamonnia
1,966
ADB
New York City
Transamonnia
1,419
IBRD/IDA
New York City
Tugman-Nash Inc.
204
IBRD/IDA
118
NEW YORK
CITY
COMPANY
New York City
Union Bank of Switzerland
5,700
MIGA
New York City
Union Carbide Corp.
1,345
IBRD/IDA
New York City
Vermeck Southeast Sales
585
IBRD/IDA
New York City
Virna Trading Co.
168
IBRD/IDA
New York City
Westinghouse
515
IBRD/IDA
New York City
Whitehall Boyle Int'l
134
IBRD/IDA
New York City
William J. Chechter Corp.
132
IBRD/IDA
New York City
World Fibre Prod.
846
IBRD/IDA
Oyster Bay
Sealift Bulkers Inc.
765
IBRD/IDA
Plattsburgh
McConnell Manufacturing
Poestenkill
Duffers Scientific Corp. Inc.
Purchase
Int'l Paper Co.
52,800
EBRD
Purchase
Int'l Paper Co.
52,750
EBRD
Purchase
Int'l Paper Co.
34,000
EBRD
Purchase
InCI Paper Co.
24,000
IFC
Rochester
Eastman Kodak Co.
1,888
Rochester
Eastman Kodak Co.
2
Rochester
Gleason Works
989
IBRD/IDA
Rochester
Gleason Works
849
ADB
Rochester
Rochester Instrument Systems
812
lOB
Rochester
Rochester Instrument Systems
129
lOB
Rye
IBM World Trade Corp.
AMOUNT ($'000) BANK
41
402
2,361
119
lOB
IBRD/IDA
IBRD/IDA
lOB
IBRD/IDA
NEW YORK
CITY
COMPANY
Scarsdale
Delrohm Int'l Ltd
Scarsdale
Unit House Machinery Co.
Schenectady
AMOUNT ($'000) BANK
1,012
IBRD/IDA
681
IBRD/IDA
General Electric Co.
13,934
IBRD/IDA
Schenectady
General Electric Co.
4,749
IBRD/IDA
Schenectady
General Electric Co.
510
IBRD/IDA
Schenectady
Power Technologies Inc.
117
IBRD/IDA
Schenectady
Power Technologies Inc.
12
Seneca Falls
Goulds Pumps Inc.
2,378
Seneca Falls
Goulds Pumps Inc.
640
IBRD/IDA
Seneca Falls
Goulds Pumps Inc.
109
IBRD/IDA
Seneca Falls
Hazta Industrial Corp.
1,274
IBRD/IDA
Seneca Falls
Hazta Industrial Corp.
160
IBRD/IDA
Stony Brook
Dynamic Control Systems
154
lOB
Syracuse
Carrier Int'l Corp.
208
IBRD/IDA
Syracuse
Crouse Hinds
29
IBRD/IDA
Syracuse
De Giancola Exports
105
IBRD/IDA
Syracuse
Energy Investors Fund
Syracuse
Hydra-Co. Enterprises Inc.
Syracuse
Int'l Energy Partners
Syracuse
Rockfort Power Associates
Syracuse
Rotork Controls Inc.
133
Syracuse
USEC-Precursor Inc.
1,300
120
lOB
ADB
8,100
MIGA
25,500
MIG A
2,600
MIGA
12,500
MIGA
IBRD/IDA
MIGA
NEW YORK
CITY
COMPANY
Tarrytown
IBM World Trade Corp.
Tonawanda
American Allsafe Co.
11
IDB
Troy
Ross Valve Mfg. Co.
153
IDB
Unspecified
Atlantic Kraft Corp.
305
IBRD/IDA
Unspecified
Baker & Taylor
283
IBRD/IDA
Unspecified
Bamberger Polymers Int'l
136
IBRD/IDA
Unspecified
Bruce F. Henderson
295
IBRD/IDA
Unspecified
Casystems Int'l Inc.
160
IBRD/IDA
Unspecified
Charles DeSallien
25
IBRD/IDA
Unspecified
Charles H. Sells Inc.
275
IBRD/IDA
Unspecified
Claire Wilbur
14
IBRD/IDA
Unspecified
Clarendon Ltd
6,932
IBRD/IDA
Unspecified
C. Warren Goelz
13
IBRD/IDA
Unspecified
Edospina
172
IBRD/IDA
Unspecified
Elsinco
107
IBRD/IDA
Unspecified
Globus Mercantile Co.
184
IBRD/IDA
Unspecified
Heinzel Import Export Inc.
1,257
IBRD/IDA
Unspecified
Honeywell Inc.
24
IBRD/IDA
Unspecified
James W. Guthrie
14
IBRD/IDA
Unspecified
Jigjid Unenbat
15
IBRD/IDA
Unspecified
John R. Chirichiello
109
IBRD/IDA
Unspecified
J. Aron & Co.
23,265
IBRD/IDA
AMOUNT ($'000) BANK
26,348
121
IJRD/IDA
NEW YORK
CITY
COMPANY
Unspecified
J. Aron & Co.
Unspecified
Landmark Graphics Corp.
Unspecified
AMOUNT ($'000) BANK
4,659
IBRD/IDA
303
IBRD/IDA
Management Sciences for Health
49
IBRD/IDA
Unspecified
Michael Anderson
75
IBRD/IDA
Unspecified
Petrochem Dev. Co.
230
IBRD/IDA
Unspecified
Philip Morris Inc.
1,763
IBRD/IDA
Unspecified
Philipp Brothers
634
IBRD/IDA
Unspecified
Prolab Sales Inc.
1,176
IBRD/IDA
Unspecified
Quantum Precision Inc.
569
IBRD/IDA
Unspecified
Robert Pleasant
89
IBRD/IDA
Unspecified
Schenck Pegasus Corp.
981
IBRD/IDA
Unspecified
Schnell Enterprises
103
IBRD/IDA
Unspecified
Scientific Design Co.
406
IBRD/IDA
Unspecified
Scientific Design Co.
203
IBRD/IDA
Unspecified
Technoserve
50
IBRD/IDA
Unspecified
Textronix Inc.
60
IBRD/IDA
Unspecified
Tradeway Int'l Corp.
2,315
IBRD/IDA
Unspecified
Tradeway InCl Corp.
465
IBRD/IDA
Unspecified
Undetermined
59,519
IBRD/IDA
Unspecified
Undetermined
3,147
Unspecified
Vanderburgh & Co.
Unspecified
Wabashy Electrical Products
122
ADB
189
IBRD/IDA
33
IBRD/IDA
NEW YORK
AMOUNT ($'000) BANK
CITY
COMPANY
Utica
Laser Precision Corp.
55
.\DB
Wappingers Falls
Decision Technologies
69
IBRD/IDA
Warwick
BIF
1,500
IDB
WellesviIle
ABB Air Preheater Inc.
2,185
IBRD/IDA
WellesviIle
ABB Air Preheater Inc.
673
IBRD/IDA
WellesviIle
Air Preheater Co.
109
IDB
Westchester
Armstrong Engineering Assoc.
White Plains
IBM Inc.
132
IDB
White Plains
King America Corp.
336
ADB
White Plains
King America Corp.
290
ADB
White Plains
King America Corp.
172
ADB
White Plains
King America Corp.
156
ADB
White Plains
King Ameri.::a Corp.
69
ADB
White Plains
King America Corp.
16
ADB
White Plains
King America Corp.
12
ADB
1,103
1,037,519
State Total
123
IBRD/IDA
NORTH CAROLINA
AMOUNT ($'000)
BANK
CITY
COMPANY
Aberdeen
Carolina Galvanizing Corp.
Arden
Normac
Cary
LeRoy Coggins
Chapel Hill
University of North Carolina
Charlotte
Coltex Export Corp.
160
IBRD/IDA
Charlotte
Dole Fresh Fruit Co.
658
IBRD/IDA
Charlotte
Henry Vogt Machine Co.
106
IBRD/IDA
Charlotte
Process Systems Inc.
267
IBRD/IDA
Charlotte
Process Systems Inc.
18
Charlotte
Styrotech Corp.
140
IBRD/IDA
Davidson
Ingersoll Rand Co.
308
lOB
Gastonia
Lithium Corp. of America
577
IBRD/IDA
Greensboro
Gilbarco Inc.
401
IBRD/IDA
Hickory
General Electric Co.
Mocksville
27
436
lOB
IBRD/IDA
7
lOB
27
ADB
lOB
3,787
lOB
Ingersoll Rand Co.
29
lOB
New Bern
Johnson Machine Co.
31
lOB
Pinetops
ABB Power T&0 Co.
81
lOB
Raleigh
Celanese Fibers Co.
217
IBRD/IDA
Raleigh
Meridith Jones Inc.
405
IBRD/IDA
Unspecified
John S. Adkin
41
IBRD/IDA
Unspecified
Mackay Communication USA
25
IBRD/IDA
Unspecified
Research Triangle Institute
283
IBRD/IDA
124
NORTH CAROLINA
CITY
COMPANY
Unspecified
Robert Hornaday
Unspecified
Undetermined
AMOUNT ($'000) BANK
9
IBRD/IDA
2,689
IBRD/IDA
10,729
State Total
125
OHIO
AMOUNT ($'000) BANK
CITY
COMPANY
Akron
Akron Standard
Akron
Firestone Tire & Rubber
Akron
General Tire Int'l Co.
257
IBRD/IDA
Akron
Uniroyal Goodrich Tire Co.
209
IBRD/IDA
Amherst
Nordson Corp.
497
IBRD/IDA
Amherst
Nordson Corp.
277
IBRD/IDA
Bowling Green
Clarke Industries Inc.
83
IDB
Brewster
Wheeling & Lake Erie Railway
10
EBRD
Canton
Timken Co.
Carey
Porcelain Products Co.
Cincinnati
Cincinnati Milacron Co.
Cincinnati
184
51
292
25
IBRD/IDA
IDB
IBRD/IDA
IDB
1,356
IBRD/IDA
Cogifer Inc.
417
IBRD/IDA
Cincinnati
Cogifer Inc.
204
IBRD/IDA
Cincinnati
Didier Taylor Refractories Co.
555
IBRD/IDA
Cincinnati
Quantum Chemicals Corp.
473
IBRD/IDA
Cincinnati
Proctor & Gamble
Cleveland
Alcan Ingot
112
IBRD/IDA
Cleveland
Brodhead Garrett
507
IBRD/IDA
Cleveland
C.A. Litzler Co.
306
IBRD/IDA
Cleveland
DA Industries Sales Inc.
119
IBRD/IDA
Cleveland
Day-Glo Color Corp.
323
IBRD/IDA
Cleveland
Eveready Battery Co.
878
IBRD/IDA
17,000
126
EBRD
OHIO
CITY
COMPANY
Cleveland
Goodyear InCI
318
IBRD/IDA
Cleveland
Goodyear Tire and Rubber Co.
479
IBRD/IDA
Cleveland
Ohio Crankshaft Co.
237
IBRD/IDA
Cleveland
Plidco Int'l
479
ADB
Cleveland
Plidco InCI
106
IBRD/IDA
Cleveland
Rosemount Inc.
Cleveland
Union Carbide Corp.
104
IBRD/IDA
Cleveland
White-Westinghouse Int'l Co.
116
AFDB
Columbus
Arthur Anderson & Co.
148
IBRD/IDA
Columbus
Eldred Int'l Export Corp.
275
IBRD/IDA
Columbus
Jemtec
Columbus
Libbey Owens - Lord Export Co.
113
IBRD/IDA
Chicago
Midwest Universities Consortium
11,284
IBRD/IDA
Columbus
Midwest Universities Consortium
6,783
IBRD/IOA
Columbus
Midwest Universities Consortium
6,000
ADF
Columbus
Midwest Universities Consortium
6,000
ADF
Chicago
Midwest Universities Consortium
3,343
IBRD/IDA
Columbus
Midwest Universities Consortium
1,272
IBRD/IDA
Columbus
Midwest Universities Consortium
866
IBRD/IDA
Columbus
Midwest Universities Consortium
500
ADF
Columbus
Midwest Universities Consortium
459
IBRD/IDA
Columbus
Midwest Universities Consortium
124
AFDB
AMOUNT ($'000) BANK
16
IDB
1 IDB
127
OHIO
AMOUNT ($'000)
BANK
CITY
COMPANY
Columbus
Ohio State University
Columbus
OI-NEG TV Products Inc.
Coshocton
Ansell Edmont
Dayton
NCR Corp.
698
IBRD/IDA
Dayton
NCR Corp.
62
IBRD/IDA
Dayton
NCR Corp.
50
IBRD/IDA
Dayton
Ohio Electronic Engravers Inc.
469
IBRD/IDA
Dayton
Process Automation Business Inc.
1,046
IBRD/IDA
Dayton
Woolpert Consultants
Fostoria
Atlas Crankshaft Corp.
Galion
Abillama Group
Hudson
Terex Corp.
Lancaster
Diamond Power
Lima
Sreco Flexible Int'l
2,874
IBRD/IDA
Lima
Sreco Flexible Int'l
1,867
IBRD/IDA
Lima
Sreco Flexible Int'l
1,077
IBRD/IDA
Lorain
Lorain Products
702
IBRD/IDA
Mansfield
Barnes Pumps Inc.
41
lOB
Mansfield
Garrett Brodhead
34
IBRD/IDA
Mansfield
Shafer Valve Co. Int'l
194
IBRD/IDA
Marietta
Forma Scientific Inc.
68
lOB
Marietta
Forma Scientific Inc.
37
lOB
395
IBRD/IDA
1,417
IBRD/IDA
lOB
15
117
IBRD/IDA
3,962
IBRD/IDA
249
IBRD/IDA
49
128
lOB
lOB
OHIO
CITY
COMPANY
Mayfield Village
Preformed Line Products Co.
Mentor
Caterpillar Industries Inc.
Mount Vernon
AMOUNT ($'000) BANK
347
IBRD/IDA
1,650
IBRD/IDA
Cooper Energy Services
639
IBRD/IDA
Mount Vernon
Energy Services Group
129
IBRD/IDA
Painesville
Fermenta Plant Protection
118
IBRD/IDA
Perrysburg
Glasstech Inc.
4,021
IBRD/IDA
Perrysburg
Glasstech Inc.
359
IBRD/IDA
Piqua
French Oil Mill Machinery Co.
1,786
IBRD/IDA
Piqua
French Oil Mill Machinery Co.
328
IBRD/IDA
Reynoldsburg
George W. Byrd
Sidney
COP Int'l Inc.
494
IBRD/IDA
Sidney
Leroi - Dresser
145
IDB
Sidney
Leroi - Dresser
134
IDB
Sidney
Leroi - Dresser
46
IDB
Solon
Crawford Fitting Co.
15
IDB
Springfield
Cooper Industries
Springfield
Dresser Industries Inc.
Toledo
MIS Owens
Toledo
4
EBRD
2,946
IBRD/IDA
237
IBRD/IDA
2,007
ADB
Owens-Illinois
43,100
EBRD
Toledo
Owens-Illinois
43,100
EBRD
Troy
Hobart Int'l
Unspecified
Bird Machine Co.
33
1,920
129
IDB
IBRD/IDA
OHIO
CITY
COMPANY
Unspecified
Castlat Ltd
617
IBRD/IDA
Unspecified
Dyna Systems Inc.
288
IBRD/IDA
Unspecified
John H. Haberkern
77
IBRD/IDA
Unspecified
Reliance Electric Co.
127
IBRD/IDA
Unspecified
Steelastic Co.
1,011
AFDB
Unspecified
Undetermined
9,251
IBRD/IDA
Unspecified
Undetermined
1,103
ADB
Wadsworth
Ohio Brass Co.
2,069
IDB
Wadsworth
Ohio Brass Co.
122
IDB
Westerville
Hydro Group - Ranney Division
186
IBRD/IDA
Wickcliffe
Bailey Controls
1,583
IBRD/IDA
Wickcliffe
Bailey Controls
343
IBRD/IDA
Wickcliffe
Lubrizol Corp.
372
IBRD/IDA
Wickcliffe
Bailey Controls
7,219
IBRD/IDA
Willoughby
Cortest Inc.
AMOUNT ($'000)
326
State Total
206,834
130
BANK
ADB
OKLAHOMA
AMOUNT ($'000)
CITY
COMPANY
Broken Arrow
Dresser Rand Sales Co.
1,362
IDB
Duncan
Halliburton Co.
2,027
IDB
Duncan
Halliburton Co.
1,956
IDB
Duncan
Halliburton Co.
1,013
IDB
Duncan
Halliburton Co.
36
IBRD/IDA
Duncan
Halliburton Environment Corp.
752
IBRD/IDA
Ochelata
Geomicrobial Technologies
140
IDB
Oklahoma City
Int'l Environmental
223
AFDB
Oklahoma City
K.F. Industries Inc.
2
Tulsa
Parker Drilling
4,209
Tulsa
Sabre Int'I Inc.
262
ADB
Tulsa
Sabre Int'l Inc.
10
ADB
Tulsa
Sabre Int'l Inc.
8
ADB
Unspecified
Bethlehem Pipe
143
IBRD/IDA
Unspecified
Undetermined
3,043
IBRD/IDA
15,186
State Total
131
BANK
ADB
IBRD/IDA
OREGON
AMOUNT ($'000) BANK
CITY
COMPANY
Beaverton
Tektronix Inc.
131
Beaverton
Textronix Inc.
43
Beaverton
Undetermined
429
AOB
Eugene
China Technical Management Services
679
AOB
Hammond
Fishery Management Services
II
IIC
Medford
Oregon Woodchuck Inc.
19
lOB
Portland
CH2M Hill InCI Corp.
Portland
Oregon Software
8
lOB
Portland
Pacific Energy Associates
8
lOB
Portland
Sulzer Bingham
560
IBRO/IOA
Portland
Wagner Mining Equipment Co.
378
IBRO/IOA
Unspecified
Undetermined
985
IBRO/IOA
Unspecified
William K. Wood
32
IBRD/IOA
112
State Total
3,395
132
AOB
IBRO/IOA
IBRO/IOA
PENNSYLV ANIA
CITY
COMPANY
Allentown
Mack Trucks Inc.
7,231
IBRD/IDA
Allentown
Mack Trucks Inc.
796
IBRD/IDA
Allentown
Mack Trucks Inc.
191
IDB
Allentown
Mack Trucks Inc.
182
IBRD/IDA
Ardmore
Elliot Davis
Bala Cynwyd
Purolite Group
Bethlehem
Bethlehem Steel Exp. Corp.
1,019
IBRD/IDA
Bethlehem
Fuller Int'l Inc.
7,491
IBRD/IDA
Bethlehem
Fuller Int'l Inc.
6,391
IBRD/IDA
Bethlehem
Fuller Int'l Inc.
3,801
IBRD/IDA
Blairsville
Baleo Inc.
Blue Bell
AMOUNT ($'000) BANK
26
19,500
IDB
EBRD
810
IDB
ABB Power T&D Co.
1,442
IDB
Blue Bell
ABB Power T&D Co.
382
IBRD/IDA
Blue Bell
Biddle Instruments
642
IDB
Chalfont
Ford Motor Co.
32
IDB
Concordville
Firemetal Products Co.
2
IDB
Coraopolis
Cooper Power Systems Inc.
1,906
IDB
Devon
Omara Inc.
Dubois
Equimeter Inc.
1,570
Dubois
Equimeter Inc.
372
IBRD/IDA
Dubois
Equimeter Inc.
215
ADB
Dubois
Equimeter Inc.
167
ADB
137
133
IBRD/IDA
ADB
PENNSYLV ANIA
AMOUNT ($'000)
BANK
CITY
COMPANY
Dubois
Equimeter Inc.
Erie
General Electric Co.
11,341
IBRD/IDA
Erie
General Electric Co.
2,006
IBRD/IDA
Erie
General Electric Co.
707
IBRD/IDA
Erie
General Electric Co.
683
IBRD/IDA
Erie
General Electric Co.
210
IBRDIIDA
Erie
General Electric Co.
120
IBRD/IDA
Erie
General Electric Co.
94
IBRD/IDA
Erie
General Electric Co.
4
IBRD/IDA
Erie
Knox-Western
347
IBRD/IDA
Fort Washington
Pilling
Greenville
R.D. Werner Co.
Harrisburg
Leeds & Northrup
1,078
IBRD/IDA
Harrisburg
Leeds & Northrup
896
IBRD/IDA
Hatboro
Air Shields Vickers
238
lOB
Hatboro
Air Shields Vickers
20
IDB
Horsham
American Meter Co.
167
ADB
Lockhaven
General Aviation Technical Services
Monroeville
Pennsylvania State University
Monroeville
Thermal Transfer Corp.
391
AFDB
Nazareth
Idea Inc.
112
IBRD/IDA
New Holland
Ford New Holland Inc.
254
IBRD/IDA
153
134
ADB
59
lOB
167
ADB
2,439
32
IIC
lOB
PENNSYLV ANIA
CITY
COMPANY
New Holland
Ford New Holland Inc.
Palmyra
Philadelphia Mixers
Philadelphia
AMOUNT ($'000) BANK
24
IDB
1,053
IBRD/IDA
American Meter Co.
289
IBRD/IDA
Philadelphia
Arco Chemical Co.
126
IBRD/IDA
Philadelphia
Bell Atlantic
Philadelphia
Boekel Industries Inc.
Philadelphia
Ford Motor Co.
1,817
IBRD/IDA
Philadelphia
Ford Motor Co.
1,748
IBRD/IDA
Philadelphia
Ford Motor Co.
1,500
IBRD/IDA
Philadelphia
Ford Motor Co.
326
IBRD/IDA
Philadelphia
Ford Motor Co. - Marine
307
IBRD/IDA
Philadelphia
IBM World Trade Corp.
245
IBRD/IDA
Philadelphia
Int'I Raw Material
171
IBRD/IDA
Philadelphia
John J. Terry
25
EBRD
Philadelphia
Kuljian Corp.
92
AFDB
Philadelphia
Mack Trucks Inc.
Philadelphia
MS Corp. Op.
Philadelphia
NAO Inc.
Philadelphia
2,000
2
EBRD
IDB
1,195
IBRD/IDA
231
IBRD/IDA
56
IBRD/IDA
Paper Corp.
159
IBRD/IDA
Philadelphia
Paul Rizzo Associates
405
IBRD/IDA
Philadelphia
Philips Components
158
IBRD/IDA
Philadelphia
Philips Lighting
109
IBRD/IDA
135
PENNSYLVANIA
AMOUNT ($'000)
BANK
CITY
COMPANY
Philadelphia
Pryor, McClendon, Counts & Co.
5,000
IFC
Philadelphia
Pryor, McClendon, Counts & Co.
545
IFC
Philadelphia
Silberline Mfg. Co.
Philadelphia
Univ. of Pennsylvania - Wharton School
Pittsburgh
ABB Power T&D Co.
3,904
Pittsburgh
ABB Power T&D Co.
390
IBRD/IDA
Pittsburgh
ABB Power T&D Co.
87
IBRD/IDA
Pittsburgh
ABB Power T&D Co.
53
lOB
Pittsburgh
AEG Westinghouse
2,124
IBRD/IDA
Pittsburgh
AEG Westinghouse
571
IBRD/IDA
Pittsburgh
AEG Westinghouse
296
IBRD/IDA
Pittsburgh
Allied Capital Corp.
4,000
IFC
Pittsburgh
Cooper Power Systems Inc.
6,590
IBRD/IDA
Pittsburgh
Cooper Power Systems Inc.
1,533
IBRD/IDA
Pittsburgh
Cooper Power Systems Inc.
1,254
ADB
Pittsburgh
Cooper Power Systems Inc.
868
IBRD/IDA
Pittsburgh
Cooper Power Systems Inc.
257
IBRD/IDA
Pittsburgh
Cooper Power Systems Inc.
64
IBRD/IDA
Pittsburgh
Cooper Power Systems Inc.
6
IBRD/IDA
Pittsburgh
ICF Kaiser Engineers Inc.
139
ADB
Pittsburgh
Int'l Water Corp.
133
IBRD/IDA
Pittsburgh
John T. Boyd Co.
579
IBRD/IDA
1,041
136
200
IBRD/IDA
EBRD
lOB
PENNSYLV ANI A
CITY
COMPANY
Pittsburgh
John T. Boyd Co.
114
YBRD/IDA
Pittsburgh
John T. Boyd Co.
8
IBRD/IDA
Pittsburgh
Koppers Co.
2,650
IBRD/IDA
Pittsburgh
Koppers Co.
224
IBRD/IDA
Pittsburgh
McGraw Edison
161
IBRD/IDA
Pittsburgh
McGraw Edison
28
Pittsburgh
Pinter Co.
Pittsburgh
AMOUNT ($'000)
BANK
IDB
433
IBRD/IDA
PPG Industries Inc.
4,862
IBRD/IDA
Pittsburgh
Union Switch & Signals
1,531
IBRD/IDA
Pittsburgh
University of Pittsburgh
15
Pittsburgh
Videcon Int'I
174
IBRD/IDA
Pittsburgh
Westinghouse
488
IBRD/IDA
Pittsburgh
Westinghou~e
Products Int'I Inc.
1,764
AFDB
Pittsburgh
Westinghouse Products Int'l Inc.
1,529
IBRD/IDA
Pittsburgh
Wheelabrator Air Pollution Control
5,320
IBRD/IDA
Pittsburgh
Wheelabrator Air Pollution Control
348
IBRD/IDA
Pittsburgh
White Westinghouse Int'l
585
IBRD/IDA
Pottstown
Neapco Inc.
128
IBRD/IDA
Reading
Gilbert Commonwealth Int'I
7,401
IBRD/IDA
Reading
Gilbert Commonwealth Int'I
1,592
IBRD/IDA
Reading
Gilbert Commonwealth Int'l
276
IBRD/IDA
Reading
Mercator Corp.
135
IBRD/IDA
137
AFDB
PENNSYL VANIA
AMOUNT ($'000> BANK
CITY
COMPANY
Reading
Mercator Corp.
131
IBRD/IDA
Richboro
G. Kolesar & Associates
100
lOB
Richboro
G. Kolesar & Associates
100
lOB
Scranton
Acker Drill Co.
500
IBRD/IDA
Sewickley
Vanness Co.
400
lOB
Sewickley
Vanness Co.
200
lOB
Sewickley
Vanness Co.
200
lOB
Sewickley
Vanness Co.
189
IBRD/IDA
Shady Grove
Grove North America
584
lOB
Stroudsburg
General Electric Co.
1,000
IBRD/IDA
Stroudsburg
General Electric Co.
462
IBRD/IDA
Stroudsburg
General Electric Co.
210
IBRD/IDA
Stroudsburg
General Electric Co.
120
IBRD/IDA
Tobyhanna
Weroshen Int'l
26
lOB
Unspecified
Britton Harris
22
IBRD/IDA
Unspecified
Gannett Fleming
191
IBRD/IDA
Unspecified
Gannett Fleming
162
IBRD/IDA
Unspecified
Gannett Fleming
976
IBRD/IDA
Unspecified
General Refractories Co.
272
IBRD/IDA
Unspecified
Undetermined
7,200
IBRD/IDA
Unspecitied
Undetermined
488
Valley Forge
Compton & Associates Inc.
9
138
ADB
IIC
PENNSYLV ANI A
CITY
COMPANY
Waukesha
Svedala Industries
Waynesboro
AMOUNT ($'000) BANK
223
!SRD/IDA
Litton Industrial Automation System
2,616
IBRD/IDA
Waynesboro
Litton Industrial Automation System
959
IBRD/IDA
Willow Grove
Tinius Inc.
Wilmerding
Westinghouse - Airbrake Division
York
94
IDB
224
IBRD/IDA
Mineral Processing Systems Inc.
4,374
IBRD/IDA
York
Mineral Processing Systems Inc.
538
IBRD/IDA
York
Svedala Industries
5,167
IBRD/IDA
York
Svedala Industries
675
IBRD/IDA
175,673
State Total
139
PUERTO RICO
AMOUNT ($'000) BANK
CITY
COMPANY
Carolina
Bioanalytical Instruments
66
lOB
Hato Rey
ABB Power T &0 Co.
84
lOB
Isabela
ABB Kent Meters Inc.
2,473
lOB
Rio Pedras
Caribe General Electric Co.
86
lOB
San Juan
ABB Power T&D Co.
61
lOB
San Juan
Caribe General Electric Co.
196
lOB
San Juan
Caribe General Electric Products Inc.
1,416
lOB
San Juan
Clapp & Mayne Inc.
642
lOB
San Juan
Clapp & Mayne Inc.
456
lOB
San Juan
Clapp & Mayne Inc.
186
lOB
San Juan
Motorambar
198
lOB
Unspecified
Prosecar Co. Ltd
159
IBRD/IDA
Unspecified
Undetermined
356
IBRD/IDA
6,379
State Total
140
RHODE ISLAND
CITY
COMPANY
Cranston
Muller Co.
Narragansett
University of Rhode Island - Coast Research Ctr.
Newport
EPLAB
Unspecified
Undetermined
West Kingston
Smart Inc.
AMOUNT ($'000) BANK
384
lOB
25
lOB
9
lOB
4,134
12
State Total
4,564
141
IBRO/IOA
lOB
SOUTH CAROLINA
AMOUNT ($'000) BANK
CITY
COMPANY
Columbia
Research Planning Inc.
85
IDB
Columbia
Research Planning Inc.
85
IDB
Columbia
Wilbur Smith Associates
2,308
IBRD/IDA
Columbia
Wilbur Smith Associates
1,602
IBRD/IDA
Columbia
Wilbur Smith Associates
1,196
ADB
Columbia
Wilbur Smith Associates
1,157
IBRD/IDA
Columbia
Wilbur Smith Associates
1,007
IBRD/IDA
Columbia
Wilbur Smith Associates
916
IBRD/IDA
Columbia
Wilbur Smith Associates
721
IBRD/IDA
Columbia
Wilbur Smith Associates
698
ADB
Columbia
Wilbur Smith Associates
698
ADB
Columbia
Wilbur Smith Associates
591
ADB
Columbia
Wilbur Smith Associates
263
IBRD/IDA
Columbia
Wilbur Smith Associates
196
IBRD/IDA
Florence
L-Tec Welding & Cutting Systems
536
IBRD/IDA
Fort Lawn
Morrison Textile Machinery Co.
2,356
IBRD/IDA
Fort Lawn
Morrison Textile Machinery Co.
58
IBRD/IDA
Gilbert
Avtec Inc.
188
IBRD/IDA
Greenville
Michelin Tire Corp.
Mount Holly
J. W. Aluminum
527
IBRD/IDA
Unspecified
Intrade Intercontinental Inc.
160
IBRD/IDA
Unspecified
Undetermined
1,712
IBRD/IDA
38
142
IDB
SOVTH CAROLINA
CITY
COMPANY
West Columbia
Tamper Corp.
AMOUNT ($'000) BANK
1,636
18,734
State Total
143
IBRD/IDA
TENNESSEE
AMOUNT ($'000) BANK
CITY
COMPANY
Memphis
All American Cotton Co.
1,821
IBRD/IDA
Memphis
All American Cotton Co.
159
IBRD/IDA
Memphis
Allenberg Cotton Co.
532
IBRD/IDA
Memphis
Arcadian Corp.
33,724
MIGA
Memphis
Arcadian Corp.
12,127
MIG A
Memphis
Arcadian Corp.
2,074
MIGA
Memphis
Arcadian Corp.
2,074
MIGA
Memphis
Dunavant Enterprises
Memphis
Eastman Chemical Int'l Co.
Memphis
800
IBRD/IDA
8,554
IBRD/IDA
George McFadden & Brothers Inc.
155
IBRD/IDA
Memphis
Hohenberg Brothers Co.
414
IBRD/IDA
Memphis
Hohenberg Brothers Co.
404
IBRD/IDA
Memphis
Int'l Paper Co.
277
IBRD/IDA
Memphis
Proctor & Gamble
256
IBRD/IDA
Rogersville
TRW Steering
568
IBRD/IDA
Unspecified
C.S. Services Ltd
~05
IBRD/IDA
Unspecified
Undetermined
724
IBRD/IDA
State Total
65,068
144
TEXAS
CITY
COMPANY
Austin
Austin Computer System
Austin
AMOUNT ($'000> BANK
4
IDB
Dell Corp.
42
IDB
Austin
Houston Instruments
14
IDB
Austin
Millennium Computing Group
31
EBRD
Austin
Radian Corp.
Beaumont
225
IBRD/IDA
IRI Int'l Corp.
2,493
IBRD/IDA
Beaumont
IRI Int'l Corp.
7
IBRD/IDA
Brookshire
Johnston Pump Co.
624
IBRD/IDA
Brookshire
Johnston Pump Co.
471
IBRD/IDA
Brownsville
Texas & Frontier Machinery
4,180
IBRD/IDA
Carrollton
Core Labs
238
IBRD/IDA
College Station
G. Truman Fincher
Conroe
Murex Biological Inc.
Conroe
Cliff Mock Co.
Dallas
Commercial Metals Co.
709
IBRD/IDA
Dallas
Core Labs
996
IBRD/IDA
Dallas
Core Labs
729
IBRD/IDA
Dallas
Core Labs
334
IBRD/IDA
Dallas
Dresser Industries Inc.
263
IBRD/IDA
Dallas
Dresser Industries Inc.
168
ADB
Dallas
Dual Marine Co.
Dallas
Ensco Tool & Supply Co.
145
9
IDB
12
IDB
9
ADB
4,426
IBRD/IDA
386
IBRD/IDA
TEXAS
AMOUNT ($'OOO)
BANK
CITY
COMPANY
Dallas
Gaffney, Cline & Associates
716
IBRD/IDA
Dallas
Geological Supply Co.
153
IBRD/IDA
Dallas
Graham Magnetics Inc.
220
IBRD/IDA
Dallas
Lennox Industries Inc.
40
Dallas
Messina Co.
512
IBRD/IDA
Dallas
Messina Co.
252
IBRD/IDA
Dallas
M. W. Kellogg Co.
446
IBRD/IDA
Dallas
Occidental Chemical Corp.
1,955
IBRD/IDA
Dallas
Otis Engineering
899
IBRD/IDA
Dallas
Republic Supply Co.
3,973
IBRD/IDA
Dallas
Smith Int'l Inc.
1,410
IBRD/IDA
Dallas
Smith Int'I Inc.
114
IBRD/IDA
Dallas
Varel Manufacturing Co.
908
IBRD/IDA
Dallas
Wallace O'Connor
3,674
IBRD/IDA
Dallas
Wallace O'Connor
6,369
IBRD/IDA
Dallas
Wallace O'Connor
6,202
IBRD/IDA
EI Paso
Export Sleyzan
299
IBRD/IDA
EI Paso
Potrans Consultants
17
Fort Worth
Gearhart Industries
263
IBRD/IDA
Fort Worth
Halliburton Logging Services
9,077
IBRD/IDA
Fort Worth
Halliburton Logging Services
8,271
IBRD/IDA
Fort Worth
Halliburton Logging Services
72
146
IDB
IIC
ADB
TEXAS
CITY
COMPANY
Fort Worth
Hydra Rig Inc.
7,000
EBRD
Fort Worth
Hydra Rig Inc.
2,677
IBRD/IDA
Fort Worth
Hydra Rig Inc.
1,093
IBRD/IDA
Fort Worth
Hydra Rig Inc.
549
ADB
Fort Worth
Owen Oil Tools Inc.
117
ADB
Fort Worth
Owen Oil Tools Inc.
34
ADB
Freeport
Brazos Pipe & Steel Fabricator
555
IBRD/IDA
Houston
AC Compressor Corp.
326
IBRD/IDA
Houston
ACM Export Corp.
Houston
Agrtol Chemical Products
259
IBRD/IDA
Houston
Agrtol Chemical Products
140
IBRD/IDA
Houston
American Agents Inc.
972
lOB
Houston
American Energy Services
43
ADB
Houston
American Gulf Co.
47
lOB
Houston
American Gulf Co.
4
lOB
Houston
Atlas Industrial Supply Inc.
1,213
IBRD/IDA
Houston
Baker Oil Tools
2,536
IBRD/IDA
Houston
Baker Oil Tools
314
IBRD/IDA
Houston
Baker Oil Tools
116
ADB
Houston
Baker Oil Tools
108
IBRD/IDA
Houston
Baker Oil Tools
58
Houston
Bardid DriIling Fluids
AMOUNT ($'000)
76
187
147
BANK
lOB
ADB
IBRD/IDA
TEXAS
AMOUNT ($'000) BANK
CITY
COMPANY
Houston
Big Three Int'! - Bowen Division
Houston
1,163
IBRD/IDA
Bonner & Moore Assoc. Inc.
243
IBRD/IDA
Houston
Boyce Engineering InC!
172
IBRD/IDA
Houston
BWIP Pump InC! Inc.
1,666
IBRD/IDA
Houston
BWIP Pump InC! Inc.
233
IBRD/IDA
Houston
Cameron Iron Works Inc.
2,487
IBRD/IDA
Houston
Carrier Interamericas
233
IBRD/IDA
Houston
Cherco Compressors Inc.
714
IBRD/IDA
Houston
Chibb Nationa!
155
IBRD/IDA
Houston
Combustion Engineering Inc.
6,320
IBRD/IDA
Houston
Compac Computer Corp.
387
IBRD/IDA
Houston
Conoco Inc.
90,000
Houston
Conoco Inc.
1,070
IBRD/IDA
Houston
Continent Emsco
1,279
IBRD/IDA
Houston
Continental Laboratories
279
IDB
Houston
Copper & Brass Int'!
159
IBRD/IDA
Houston
Core Labs
937
IBRD/IDA
Houston
Core Labs
294
IBRD/IDA
Houston
Curtin Matheson
65
IDB
Houston
Danie! Industries Inc.
41
ADB
Houston
Davis Lynch Inc.
3
ADB
Houston
DI Int'! Inc.
6,089
148
EBRD
IDB
TEXAS
CITY
COMPANY
Houston
Digicon Geophysical Corp.
Houston
Dole Fresh Fruit Co.
449
IBRD/IDA
Houston
Dow Chemical InCI Inc.
255
IBRD/IDA
Houston
Dowelanco
440
IBRD/IDA
Houston
Dresser Industries Inc.
370
ADB
Houston
Dresser Rand Sales Co.
Houston
AMOUNT ($'000)
7,546
BANK
lOB
4,046
IBRD/IDA
Eastman Christensen
178
IBRD/IDA
Houston
Elliott Co.
103
IBRD/IDA
Houston
Emba Corp.
170
IBRD/IDA
Houston
ENRON
Houston
Ensco Tool & Supply Co.
Houston
9,650
EBRD
140
IBRD/IDA
Essex Enterprises Inc.
1,101
IBRD/IDA
Houston
Exxon Chemical Trading Inc.
6,047
IBRD/IDA
Houston
Exxon Co. USA Corp.
104
IBRD/IDA
Houston
Fish Int'l Engineers
269
IBRD/IDA
Houston
Fish InCI Engineers
117
IBRD/IDA
Houston
Fisher Industries
490
IBRD/IDA
Houston
Foster Valve Corp.
Houston
Foxboro Co.
Houston
Gaffney, Cline & Associates
Houston
General Affiliates Corp.
Houston
General Electric Co.
1,823
149
lOB
224
IBRD/IDA
83
IBRD/IDA
3,579
IBRD/IDA
311
IBRD/IDA
TEXAS
CITY
COMPANY
Houston
Griffin In!'l Corp.
Houston
AMOUNT ($'000) BANK
509
IBRD/IDA
Grum Inc. Chemicals
4,826
IBRDIIDA
Houston
Gulf Pacific Rice Co.
528
IBRD/IDA
Houston
Gundle Lining Systems Inc.
311
IIC
Houston
Halliburton Co.
5,549
IBRD/IDA
Houston
Halliburton Co.
242
IBRD/IDA
Houston
Halliburton Logging Services
2,161
IBRD/IDA
Houston
Harrisburg Inc.
Houston
Hatch & Kirk Inc.
131
IDB
Houston
HCI Chemicals Overseas
249
IBRD/IDA
Houston
Hilmar Zeissig
18
IDB
Houston
Hilmar Zeissig
13
IDB
Houston
Honeywell Inc.
163
IBRD/IDA
Houston
Hughes Tool Ltd
597
IBRD/IDA
Houston
ICI Americas
187
IBRD/IDA
Houston
Imo Deleval Inc.
201
IBRD/IDA
Houston
Interkiln Corp. of America
Houston
IRI Int'l Corp.
16,854
IBRD/IDA
Houston
IRI Int'l Corp.
1,090
IBRD/IDA
Houston
IRI In!'l Corp.
1,002
IBRD/IDA
Houston
IRI InCI Corp.
33
ADB
Houston
IRI InCI Corp.
5
ADB
7
2,663
150
ADB
AFDB
TEXAS
CITY
COMPANY
Houston
James B. Smith
Houston
Kanematsu U.S.A. Inc.
1,304
IBRD/IDA
Houston
Kanematsu U.S.A. Inc.
1,260
IBRD/IDA
Houston
Kellogg Overseas Corp.
44,164
IBRD/IDA
Houston
Kellogg Overseas Corp.
17,347
IBRD/IDA
Houston
Kellogg Overseas Corp.
1,765
IBRD/IDA
Houston
Kellogg Overseas Corp.
1,033
IBRD/IDA
Houston
Lawrence Export Service
248
IBRD/IDA
Houston
Lithcon Petroleum USA Inc.
2,117
IBRD/IDA
Houston
Mark Products
730
IBRD/IDA
Houston
Masoneilan Dresser
326
IBRD/IDA
Houston
McKenzie Equipment Co.
375
IBRD/IDA
Houston
Metrix Instrument Co.
203
IBRD/IDA
Houston
Minnesota Valley Engineering
496
IBRD/IDA
Houston
Mitsui Plastics Inc.
280
IBRD/IDA
Houston
Mitsui & Co.
7,786
IBRD/IDA
Houston
Murata Business Systems
138
IBRD/IDA
Houston
M. W. Kellogg Co.
2,230
IBRD/IDA
Houston
Nabors Industries Inc.
14,560
lOB
Houston
Nabors Industries Inc.
479
lOB
Houston
Nabors Industries Inc.
60
lOB
Houston
Nabors Industries Inc.
45
lOB
AMOUNT ($'000) BANK
219
151
ADB
TEXAS
AMOUNT ($'000)
BANK
CITY
COMPANY
Houston
National Oilwell
2,209
IBRD/IDA
Houston
National Oil well
1,117
IBRD/IDA
Houston
National Oil well
524
IBRD/IDA
Houston
National Strand Products
1,941
IBRD/IDA
Houston
National Strand Products
1,852
IBRD/IDA
Houston
N.L. Shaffer Industries Inc.
3,067
IBRD/IDA
Houston
Oil & Gas Specialist
105
ADB
Houston
Oil world Supply Co.
498
IBRD/IDA
Houston
Omsco Industries
1,088
IBRD/IDA
Houston
Pecten Chemicals Inc.
1,229
IBRD/IDA
Houston
Pecten Chemicals Inc.
349
IBRD/IDA
Houston
Perm argo Int'l Corp.
12,208
IBRD/IDA
Houston
Perm argo Int'l Corp.
195
IBRD/IDA
Houston
Perry Equipment Corp.
353
IBRD/IDA
Houston
Perry Equipment Corp.
206
IBRD/IDA
Houston
Reed Tool Co.
124
ADB
Houston
Regal Int'l Inc.
209
IBRD/IDA
Houston
Ross Hill Controls Corp.
717
IBRD/IDA
Houston
Rowan Inc.
2,704
IBRD/IDA
Houston
Ryder Scott Co.
Houston
Saavco Int'l
211
IBRD/IDA
Houston
Shafer Valve Co.
239
IBRD/IDA
9
152
EBRD
TEXAS
CITY
COMPANY
Houston
Shafer Valve Co.
Houston
Shell Oil Co.
Houston
Smith Int'l Inc.
155
ADB
Houston
Smith Tool Co.
129
IBRD/IDA
Houston
Soconordorf
Houston
Sonat Offshore Drilling Inc.
Houston
AMOUNT ($'000) BANK
83
TBRD/IDA
2,300
IBRD/IDA
1,152
ADB
23,004
IBRD/IDA
Special Industries Inc.
5,839
IBRD/IDA
Houston
Special Industries Inc.
3,600
EBRD
Houston
Special Industries Inc.
528
IBRD/IDA
Houston
Stewart Stevenson Service
1,327
IBRD/IDA
Houston
Stewart Stevenson Service
1,125
IBRD/IDA
Houston
Tamsa Inc.
164
IBRD/IDA
Houston
Tapco Int'I
206
IBRD/IDA
Houston
Tapco Int'l
132
IBRD/IDA
Houston
Tapco Int'l
15
IBRD/IDA
Houston
Techmation Inc.
1,526
IBRD/IDA
Houston
Techmation Inc.
150
IBRD/IDA
Houston
Technology Export Co.
447
IBRD/IDA
Houston
Tomen America Inc.
1,415
IBRD/IDA
Houston
Transmarketing
7,500
IBRD/IDA
Houston
Tubacero S. A.
841
IBRD/IDA
Houston
Union Carbide Chemical & Plastic
175
IBRD/IDA
153
TEXAS
AMOUNT ($'000) BANK
CITY
COMPANY
Houston
Union Carbide Interamerica
Houston
University of Houston
Houston
Valmet Automation
Houston
Vertek Industrial Supply
Houston
Vinmar Inc.
5,952
IBRD/IDA
Houston
Vinson Supply Co.
1,196
IBRD/IDA
Houston
Vista Chemical Co.
205
IBRD/IDA
Houston
Walter Matter, S. A.
1,447
IBRD/IDA
Houston
Walworth Co.
359
IBRD/IDA
Houston
Wargo
167
IBRD/IDA
Houston
Western Atlas
1,359
IBRD/IDA
Houston
Western Co. of North America
3,171
IBRD/IDA
Houston
Western Geophysical Co.
316
IBRD/IDA
Houston
Westinghouse Electric Co.
714
IBRD/IDA
Houston
Woolley Tool & Mfg. Inc.
179
IBRD/IDA
Irving
Greiner Inc.
Kingwood
Barbara Evans
Laredo
Photonic Inc.
405
IBRD/IDA
Laredo
Ramsco
502
lOB
Le Marque
Tri-Sen Systems
695
lOB
Lockney
Tye Co.
104
lOB
Longview
Marathon Le Tourneau Co.
2,775
182
EBRD
2,383
lOB
802
lOB
5,926
8
2,080
154
IBRD/IDA
lOB
EBRD
AFDB
TEXAS
CITY
COMPANY
Lubbock
Plains Cotton Coop. Assoc.
Lubbock
Texas Cotton Trading Co.
Mansfield
Try-Flow Systems
Mineral Wells
AMOUNT ($'000)
BANK
2,203
:BRO/IOA
122
IBRO/IOA
94
lOB
Perry Equipment Corp.
444
AOB
Mineral Wells
Perry Equipment Corp.
92
AOB
North Marble Hills
D.C. Oil Tools
Odessa
Claude Boyd
Oklahoma City
Swaco Geolograph Co.
518
IBRO/IOA
Richardson
Phillips Orisco Pipe
215
IBRO/IOA
Rosharon
Schlumberger
315
IBRO/IOA
Round Rock
Westinghouse Motor
291
lOB
San Antonio
Newell Enterprises
668
IBRO/IOA
South Lake
Memo Int'l Inc.
1,542
IBRO/IOA
Spring
Carbide Blast Joints
901
AOB
Sugarland
BGM Airborne Survey Inc.
623
IBRD/IOA
Sugarland
BGM Airborne Survey Inc.
267
IBRO/IOA
Sugarland
Bio-Rad
Sulphur Springs
Nordstrom Valves Inc.
832
IBRO/IOA
Sulphur Springs
Nordstrom Valves Inc.
183
AOB
Sulphur Springs
Nordstrom Valves Inc.
3
AOB
Temple
Artco-Bell Corp.
556
IBRO/IOA
Temple
Artco-Bell Corp.
197
IBRD/IDA
232
16
53
155
IBRO/IOA
lOB
lOB
TEXAS
AMOUNT ($'000) BANK
CITY
COMPANY
Temple
Vittetoe, Bishay & Assoc. Inc.
Tenneco
Packaging Corp. of America
The Woodlands
Hughes Christensen
491
IBRD/IDA
Unspecified
Avanti Consulting Inc.
755
IBRD/IDA
Unspecified
Baroid Sales Export Corp.
699
lOB
Unspecified
British American Scientific
323
IBRD/IDA
Unspecified
Brown Fintube Co.
30
IBRD/IDA
Unspecified
Elect Meca De Mexico
261
IBRD/IDA
Unspecified
Erisa Export Inc.
712
IBRD/IDA
Unspecified
First Gulf Int'l Inc.
189
IBRD/IDA
Unspecified
Greater Caribbean Energy & Environment
38
IBRD/IDA
Unspecified
Halliburton Co.
2,161
IBRD/IDA
Unspecified
Hitesi Products Inc.
9
IBRD/IDA
Unspecified
Lab-Volt Systems
129
IBRD/IDA
Unspecified
Lab-Volt Systems
85
IBRD/IDA
Unspecified
Landmark Graphics Corp.
3,045
IBRD/IDA
Unspecified
Landmark Graphics Corp.
3,045
IBRD/IDA
Unspecified
LTV
276
IBRD/IDA
Unspecified
Paragon Engineering Services Inc.
25,958
IBRD/IDA
Unspecified
Paragon Engineering Services Inc.
138
IBRD/IDA
Unspecified
Robert Boris Gaul
42
IBRD/IDA
Unspecified
Rodney Smith
98
IBRD/IDA
156
300
7,000
lOB
EBRD
TEXAS
CITY
COMPANY
Unspecified
Sargent Industries
142
IBRD/IDA
Unspecified
Stone & Webster Int'I
125
IBRD/IDA
Unspecified
Texas Energy
92
IBRDIIDA
Unspecified
Thomas D. Murray
1
IBRD/IDA
Unspecified
Trate Inc.
11
IBRD/IDA
Unspecified
Undetermined
Unspecified
Union Pump Co.
41
IBRD/IDA
Unspecified
University of Texas
17
ADF
Victoria
Elder Oil Tools
Victoria
AMOUNT ($'000) BANK
5,683
ADB
110
IBRD/IDA
Energy Industries
1,075
IBRD/IDA
Waco
Time Manufacturing Co.
4,587
IDB
Waco
Time Manufacturing Co.
2,683
IBRD/IDA
Woodland
Dow Geochemical Service Inc.
205
551,441
State Total
157
IDB
UTAH
AMOUNT ($'000) BANK
CITY
COMPANY
Provo
Brigham Young University
Salt Lake City
Christopher Shugart
Salt Lake City
Einco Process Equipment Co.
172
IBRD/IDA
Salt Lake City
Northwest Mine Services Inc.
384
IBRD/IDA
Salt Lake City
Northwest Mine Services Inc.
284
IBRD/IDA
Salt Lake City
Northwest Mine Services Inc.
13
IBRD/IDA
Salt Lake City
Robert & Schaefer Co.
148
EBRD
Unspecitied
Undetermined
505
IBRD/IDA
State Total
120
ADF
15
EBRD
1,641
158
VERMONT
CITY
COMPANY
Burlington
Associates in Rural Development Inc.
282
IBRDIIDA
Burlington
Associates in Rural Development Inc.
227
lOB
Burlington
Associates in Rural Development Inc.
100
IBRDIIDA
Burlington
Scott-European Corp.
866
IBRD/IDA
Burlington
Scott-European Corp.
361
IBRD/IDA
Unspecified
John Heermans
128
IBRD/IDA
Unspecified
John Heermans
107
IBRD/IDA
Unspecified
Undetermined
3
IBRD/IDA
AMOUNT (5'000) BANK
2,074
State Total
159
VIRGINIA
CITY
COMPANY
Alexandria
A.T. Kearney Inc.
Alexandria
AMOUNT ($'000) BANK
120
EBRD
Emily L. Walker
6
EBRD
Alexandria
Emily L. Walker
1
EBRD
Alexandria
Thunder & Associates Inc.
172
AFDB
Annandale
Clarence Zuvekas, Jr.
Arlington
Aries Group
770
ADB
Arlington
A.T.A. Associates Ltd
632
IBRD/IDA
Arlington
A.T.A. Associates Ltd
270
IBRD/IDA
Arlington
Business & Government Strategies Int'l
100
ADB
Arlington
Car ana Corp.
70
IDB
Arlington
Carana Corp.
60
IDB
Arlington
Carana Corp.
3
IDB
Arlington
Development Ideas Inc.
58
IDB
Arlington
Development Ideas Inc.
19
IDB
Arlington
Development Ideas Inc.
16
IDB
Arlington
Development Ideas Inc.
6
IDB
Arlington
First Washington Associates
26
EBRD
Arlington
First Washington Associates
12
IBRD/IDA
Arlington
ICI Corp.
98
IDB
Arlington
Industrial & Commerce Int'l
118
IDB
Arlington
Institutional Development Association
37
IDB
Arlington
Inter-American Management Consulting Group
113
IDB
2
160
IDB
VIRGINIA
CITY
COMPANY
Arlington
Inter-American Management Consulting Group
75
lOB
Arlington
Inter-American Management Consulting Group
9
lOB
Arlington
John Bursink
9
IBRD/IDA
Arlington
Jose Dominguez
49
lOB
Arlington
J .E. Austin Associates Inc.
31
lOB
Arlington
J .E. Austin Associates Inc.
30
lOB
Arlington
J .E. Austin Associates Inc.
27
lOB
Arlington
J .E. Austin Associates Inc.
11
lOB
Arlington
J .E. Austin Associates Inc.
11
lOB
Arlington
L.T. Associates Inc.
20
AFDB
Arlington
Magnox Inc.
226
IBRD/IDA
Arlington
Nathan Associates Inc.
121
IBRD/IDA
Arlington
Nathan Associates Inc.
73
lOB
Arlington
Nathan Associates Inc.
17
IBRD/IDA
Arlington
Nathan Associates Inc.
14
lOB
Arlington
Nature Conservancy
10
lOB
Arlington
Nature Conservancy
5
lOB
Arlington
Optima Technical Services
528
lOB
Arlington
Optima Technical Services
53
lOB
Arlington
Optima Technical Services
18
lOB
Arlington
Optima Technical Services
18
lOB
Arlington
Optima Technical Services
18
lOB
AMOUNT ($'000)
161
BANK
VIRGINIA
AMOUNT ($'000) BANK
CITY
COMPANY
Arlington
Optima Technical Services
18
IDB
Arlington
Optima Technical Services
10
IDB
Arlington
RCG Hagler Bailly Inc.
210
IDB
Arlington
RCG Hagler Bailly Inc.
125
IBRD/IDA
Arlington
RCG Hagler Bailly Inc.
62
Arlington
Services Group Inc.
150
IBRD/IDA
Arlington
Services Group Inc.
85
IBRD/IDA
Arlington
Services Group Inc.
47
IBRD/IDA
Arlington
Services Group Inc.
21
IDB
Arlington
Volunteers in Technical Assistance
856
IBRD/IDA
Arlington
Volunteers in Technical Assistance
606
IBRD/IDA
Arlington
Volunteers in Technical Assistance
339
IBRD/IDA
Arlington
Volunteers in Technical Assistance
272
IBRD/IDA
Arlington
Volunteers in Technical Assistance
116
IBRD/IDA
Ashburn
Int'l Business & Technical Cons. Inc.
562
IBRD/IDA
Ashburn
In1'l Business & Technical Cons. Inc.
490
IBRD/IDA
Burke
Charles Dollar
Christiansburg
Hubbell Inc.
844
IDB
Christiansburg
Hubbell-Lighting Division
913
IDB
Christiansburg
Hubbell-Lighting Division
749
IDB
Fairfax
Airways Engineering Associates
Fairfax
EEC Inc.
2
4,321
25
162
EBRD
EBRD
ADF
IDB
VIRGINIA
CITY
COMPANY
Fairfax
ICF Int'l
307
IBRD/IDA
Fairfax
ICF Int'l
211
IBRD/IDA
Falls Church
Transcomm Inc.
168
IBRD/IDA
Herndon
Post Buckley Int'l Inc.
Lynchburg
Alliance Industrial Corp.
146
IBRD/IDA
Lynchburg
Ericsson GE Mobile Comm.
222
IDB
McLean
Booz, Allen & Hamilton Inc.
369
IBRD/IDA
McLean
Booz, Allen & Hamilton Inc.
316
EBRD
McLean
Booz, Allen & Hamilton Inc.
167
IBRD/IDA
McLean
Institute for InCI Research
291
IBRD/IDA
McLean
Institute for Int'l Research
115
IBRD/IDA
McLean
Institute for Int'l Research
60
IBRD/IDA
McLean
Otto Raggambi
47
EBRD
McLean
Public Administration Services
349
IBRD/IDA
McLean
Public Administration Services
244
IBRD/IDA
McLean
Public Administration Services
147
IBRD/IDA
McLean
Public Administration Services
131
IBRD/IDA
McLean
Public Administration Services
93
AFDB
McLean
Public Administration Services
59
IBRD/IDA
McLean
Science Applications InCI
63
EBRD
McLean
Sparks Commodities Inc.
93
IDB
McLean
William Smith
17
EBRD
AMOUNT ($'000) BANK
2,041
163
AFDB
VIRGINIA
QIT
COMPANY
Norfolk
Chilean Nitrate Corp.
Norfolk
Peck Recycling Co.
Reston
AMOUNT ($ '000> BANK
181
IBRD/IDA
1,449
IBRD/IDA
Sprint Int'l Communication Corp.
12,971
IBRD/IDA
Reston
Sprint InCI Communication Corp.
4,392
IBRD/IDA
Reston
Sprint InCI Communication Corp.
1,049
IBRD/IDA
Reston
Sprint InCI Communication Corp.
656
IBRD/IDA
Reston
U.S. Department of the Interior
Richmond
Hunton & Williams
950
IBRD/IDA
Richmond
Universal Leaf Tobacco Co.
142
IBRD/IDA
Springfield
Ensco Inc.
3,140
IBRD/IDA
Springfield
Ensco Inc.
326
IBRD/IDA
Sterling
Sutron Corp.
82
IDB
Troy
Cable Form Inc.
16
IDB
Unspecified
Barltrop Associates
Unspecified
9
AFDB
7
IBRD/IDA
DBA Routenberg Associates
62
IBRD/IDA
Unspecified
Donna Edgerton
28
IBRD/IDA
Unspecified
IBS Management Trading Center
126
IBRD/IDA
Unspecified
Infilco Degremont Inc.
636
IBRD/IDA
Unspecified
Int'l Commerce & Comm. Inc.
150
IBRD/IDA
Unspecified
Joy E. Hecht
20
IBRD/IDA
Unspecified
Kwesi Mducm
131
IBRD/IDA
Unspecified
Onsi Savris & Co.
1,848
IBRD/IDA
164
VIRGINIA
CITY
COMPANY
Unspecified
Stanley C. Silverberg
Unspecified
Undetermined
Unspecified
AMOUNT ($'000)
BANK
47
IBRD/IDA
2,050
IBRD/IDA
United Suppliers Int'l
202
IBRD/IDA
Unspecified
United Suppliers Int'l
101
IBRD/IDA
Vienna
Bengtsson Int'l
10
IIC
Vienna
Bengtsson Int'l
10
IIC
Vienna
Dobbin Milus Int'l Inc.
Waynesboro
Genicom Corp.
135
IBRD/IDA
Winchester
VOO Yazaki Corp.
813
IBRD/IOA
1,195
53,495
State Total
165
ADB
WASHINGTON
CITY
COMPANY
Kirkland
Sierra Geophysics
Normandy Park
Charles Doan
Pullman
Carlos Esteban Suarez
Redmond
AMOUNT
($'QOO)
317
BANK
IBRDIIDA
38
lOB
4
IDB
R. Lynette & Associates
150
IDB
Redmond
R. Lynette & Associates
150
IDB
Redmond
R. Lynette & Associates
5
IDB
Seattle
Boeing Commercial Airline Co.
515
IBRD/IDA
Seattle
Ha.tch & Kirk Inc.
256
IDB
Seattle
Hatch & Kirk Inc.
256
ADB
Seattle
Hatch & Kirk Inc.
200
IDB
Seattle
Management Advisory Services Inc.
62
IDB
Seattle
Management Advisory Services Inc.
29
lOB
Seattle
Nature Conservancy
30
IDB
Unspecified
Scott & Scott Systems Inc.
Unspecified
Undetermined
Vancouver
Larcen Electric
201
IBRD/IDA
6,290
IBRD/IDA
1 IDB
State Total
8,504
166
WEST VIRGINIA
COMPANY
Fairmont
AMOUNT ($'000) BANK
Eimco Coal Machinery
3,513
167
IBRD/IDA
WISCONSIN
AMOUNT ($'000) BANK
CITY
COMPANY
Brookfield
Harnischfeger Corp.
Delavane
Perkins-Berkeley
120
IDB
Fontana
Educational Innovation Systems Inc.
325
IBRD/IDA
Fontana
Educational Innovation Systems Inc.
71
IBRD/IDA
Madison
Blau Supply Inc.
5,664
IBRD/IDA
Madison
Extrel FfMS Inc.
292
IBRD/IDA
Madison
K. Mark Lawrence
19
EBRD
Madison
Nicolet Instrument Corp.
80
IDB
Madison
Ormson Corp.
149
IBRD/IDA
Madison
Pangaea Partners Ltd
244
EBRD
Madison
Pangaea Partners Ltd
82
EBRD
Madison
Pangaea Partners Ltd
58
EBRD
Madison
University of Wisconsin
1,439
Madison
University of Wisconsin
65
Madison
World Council of Credit Unions Inc.
222
Madison
World Council of Credit Unions Inc.
51
IDB
Madison
World Council of Credit Unions Inc.
34
IDB
Madison
World Council of Credit Unions Inc.
34
IDB
Madison
World Council of Credit Unions Inc.
30
IDB
Mequon
McClean Int'l Marketing Inc.
4
IDB
Middleton
National Electrostatics Corp.
716
IBRD/IDA
Milwaukee
Aldrich Chemical Co.
441
IBRD/IDA
2,210
168
IBRD/IDA
IBRD/IDA
IDB
IBRD/IDA
WISCONSIN
CITY
COMPANY
Milwaukee
A.O. Smith Corp.
Milwaukee
Briggs & Stratton Corp.
Milwaukee
AMOUNT ($'000) BANK
24,000
:FC
144
IBRD/IDA
Bucyrus-Erie Co.
1,606
IBRD/IDA
Milwaukee
Bucyrus-Erie Co.
216
Milwaukee
Sta-rite
3,331
IBRD/IDA
Milwaukee
Sta-rite
257
IBRD/IDA
Milwaukee
University of Wisconsin
854
IBRD/IDA
Milwaukee
University of Wisconsin
545
IBRD/IDA
Milwaukee
University of Wisconsin
309
IBRD/IDA
New Berlin
Super Products Corp.
1,259
IBRD/IDA
Racine
1.1. Case Co.
3,119
IBRD/IDA
Racine
1.1. Case Co.
1,036
IBRD/IDA
Racine
1.1. Case Cu.
424
AFDB
Racine
1.1. Case Co.
246
ADF
Racine
1.1. Case Co.
182
IBRD/IDA
Racine
J.I. Case Co.
153
IDB
Sheboygan
Vollrath Company Inc.
2
IDB
Unspecified
Allen Bradley Co.
Unspecified
Boschetti - Marine Power Int'l
Unspecified
Gaky Engineering
Unspecified
I.M. Voith AG
Unspecified
Terra Institute
169
AFDB
134
IBRD/IDA
9
IBRD/IDA
150
IBRD/IDA
39,000
IBRD/IDA
165
IBRD/IDA
WISCONSIN
AMOUNT ($'000) BANK
CITY
COMPANY
Unspecified
Undetermined
1,125
IBRDIIDA
Walworth
Edusystems Inc.
2,866
IBRDIIDA
Walworth
Edusystems Inc.
2,221
IBRD/IDA
Walworth
Edusystems Inc.
1,076
IBRDIIDA
Walworth
Edusystems Inc.
733
IDB
Walworth
Edusystems Inc.
527
IBRD/IDA
Walworth
Edusystems Inc.
370
IDB
Walworth
Edusystems Inc.
370
IDB
Walworth
Edusystems Inc.
367
IBRD/IDA
Walworth
Edusystems Inc.
329
IBRD/IDA
Walworth
Edusystems Inc.
226
IDB
Walworth
Edusystems Inc.
162
IDB
Walworth
Edusystems Inc.
83
IDB
Walworth
Edusystems Inc.
29
IDB
Walworth
Edusystems Inc.
22
IDB
Waukesha
Dresser Industries Inc.
Waukesha
General Corp.
Wausau
Marathon Electric
537
State Total
76
IDB
244
IDB
100,854
170
IBRD/IDA
UNDETERMINED
CITY
COMPANY
AMOUNT ($'000) BANK
Unspecified
American Pulp
Unspecified
Biscayne Engineering Co.
993
lOB
Unspecified
Debevoise & Plimpton
175
lOB
Unspecified
Dore & Pitt
428
AFOB
Unspecified
Int'I Diesel Electric Inc.
76
AOB
70
1,742
State Total
171
.\FOB
PART III
INTERNATIONAL TRADE ADMINISTRATION
173
INTERNATIONAL TRADE ADMINISTRATION
The Department of Commerce's International Trade Administration (ITA) offers a wide range of
serv~ces and support t? V.S. business firms that operate or seek to operate internationally. These
services are made available through the International Trade Administration and other offices in the
Department of Commerce.
The ITA has domestic and foreign offices, staffed by commercial officers, country experts, and
industry experts. Country Desk Officers collect information on foreign country's regulations, tariffs,
business practices, economic and political developments, trade data, market size and growth, and keep
current on the market for V.S. goods and services in their respective countries. Industry specialists
work with manufacturing and service industry associations and firms to identify trade opportunities
and obstacles by product or service, industry sector, and market.
The International Trade Administration includes the V.S. Foreign & Commercial Service (US&FCS),
which has offices domestically and abroad. There are VS&FCS offices in 71 cities in the Vnited
States. Its foreign offices are located in V.S. embassies and consulates in 133 cities in 67 foreign
countries. There is a contact list for domestic and international Commercial Service offices in Part IV
of this report.
The VS&FCS directly assists firms interested in development banks through the Office of Multilateral
Development Banks Operations (MDBO). This office, established in 1993, is located at the main
Commerce Department building in Washington, D.C. It provides one-stop shopping services to V.S.
firms interested in doing business through the multilateral development banks.
The MDBO also directs the activities of the senior commercial officers who have been placed in the
V.S. Executive Directors Office at each of the development banks. These officers act as V.S.
business advocates within the development banks. The MDB Contact list in Part V of this report
includes the senior commercial officers.
The MDBO assists V.S. companies in obtaining contract opportunities available through projects
funded by the multilateral development banks. It disseminates advance information on projects being
developed by borrowing countries and the development banks. It provides information and assistance
in doing business with the private sector branches of the development banks, such as the International
Finance Corporation (IFC).
The MDBO works closely with a host of multiplier organizations--including state and local economic
development offices, world trade centers, chambers of commerce, and trade associations.
It collaborates with export promotion and financing agencies within the V.S. government. These
agencies include the Export-Import Bank, the Trade and Development Administration, the Overseas
Private Investment Corporation, the Agency for International Development, and the Small Business
Administration.
The V.S. and Foreign Commercial staff and members of the staff from the development banks also
participate each year in a large number of conferences and seminars that are held throughout the V.S.
and overseas. These conferences and seminars are designed to brief V.S. companies on the business
opportunities that are available to them through the development banks.
175
The MDBO maintains a Counseling Center to provide assistance in developing competitive strategies
for obtaining contracts, and acts as an advocate on behalf of U.S. firms. Since its inception, the
Center has provided counseling to around 60 businesses per week, many of them new to the
development bank market. Contact information is available in the appendix under the Office of
Multilateral Development Bank Operations.
The Center has a library of project documents available for the World Bank, Inter-American
Development Bank, European Bank for Reconstruction and Development, Asian Development Bank,
and the African Development Bank. In 1994, the Asian Development Bank established the
Counseling Center as a public depository library for its key documents.
The US&FCS also manages, in conjunction with the Small Business Administration and the ExportImport Bank of the United States, four regional Export Assistance Centers located in Baltimore,
Chicago, Miami, and Long Beach. These "One Stop" shops provide the combined export marketing
and trade finance assistance which small- and medium-sized companies need.
The Commerce Department plans to open 11 more regional Export Assistance Centers during 1995-in Boston, Cleveland, Denver, Seattle, St.Louis, New Orleans, Dallas, Philadelphia, New York,
Atlanta, and Detroit. Each center represents an interagency effort to combine the services of several
trade finance and export promotion agencies.
The Department of Commerce provides an important service to other U.S. government agencies and
the U.S. business community through its in-house electronic network. This network includes the
Economic Bulletin Board (EBB) and the National Trade Data Bank (NTDB). The Center's computer
terminals provide free public access to the EBB and the NTDB, which contains a vast array of
international trade and market information. Center staff counsel U.S. companies on how to access
and utilize development bank information on the EBB and through the Internet. The EBB is the
world's leading source of government sponsored trade and economic information. Begun in 1985, it
is the most used computer bulletin board of its kind. It provides up-to-the-minute coverage of trade
information, and is available 24 hours a day, 7 days a week.
Each month the Department of Commerce transfers selected information from its Economic Bulletin
Board into the National Trade Data Bank in CD ROM format. The NTDB combines trade
information from over 20 different federal agencies and is available at all district offices of the
Commerce Department, 1,000 Federal Depository libraries, the Office of Multilateral Development
Bank Operations. It is also available on a subscription basis. The NTDB contains monthly updates
of the operational summaries for each of the development banks, as well as over 18,000 embassy
reporting cables on significant sector and country economic trends. Additional information on
subscription costs and access can be obtained from the NTDB/EBB Help Line on 202-482-1986.
For more information on ITA, as well as other Federal and State export programs, you can call the
"One-Stop" Trade Information Center on 1-800-USA-TRADE. For questions on development banks,
you can contact the Office of Multilateral Development Banks listed in the Part V or contact the
Procurement Officer located in the U.S. Executive Directors' offices in each of the Banks.
176
PART IV
CONTACT LIST
U.S. AND FOREIGN COMMERCIAL SERVICE
177
u.s. DEPARTMENT OF COMMERCE
INTERNATIONAL TRADE ADMINISTRATION
U.S. AND FOREIGN COMMERCIAL SERVICE
DISTRICT OFFICE DIRECTORY
JANUARY 17, 1995
Lauri J. Fitz-Pegado
Assistant Secretary and Director General
U.S. and Foreign Commercial Service
HCHB 3802
14th & Constitution Avenue, N.W.
Washington, D.C. 20230
PHONE: (202) 482-5777,
FAX: (202) 482-5013
ARIZONA
PHOENIX - Frank Woods, Acting Director
Tower One, Suite 970,
2901 N. Central Avenue, ZIP: 85012,
PHONE: (602) 640-2513,
FAX: (602) 640-2518
ARKANSAS
LITILE ROCK - Lon J. Hardin, Director
TCBY Tower Building, Suite 700
425 West Capitol Avenue, ZIP: 72201
PHONE: (501) 324-5794, FAX: (501) 3247380
Robert S. LaRussa
Principal Deputy Assistant Secretary
U.S. and Foreign Commercial Service
HCHB 3810
14th & Constitution Avenue, N.W.
Washington, D.C. 20230
PHONE: (202) 482-0725,
FAX: (202) 482-5013
CALIFORNIA
LOS ANGELES - Steve Morrison, Director
11000 Wilshire Blvd., Room 9200,
ZIP: 90024
PHONE: (310) 235-7104, FAX: (310) 2357220
Daniel J. McLaughlin
Deputy Assistant Secretary, Domestic
Operations
U.S. and Foreign Commercial Sf-cvice
14th & Constitution Avenue, N.W.
Washington, D.C. 20230
PHONE: (202) 482-4767,
FAX: (202) 482-0687
(*) NEWPORT BEACH
3300 Irvine Avenue, Suite 305, ZIP: 92660
PHONE: (714) 660-1688,
FAX: (714) 660-8039
(**) LONG BEACH USEAC
- Joe Sachs, Director
US&FCS Manager - Maria Solomon
One World Trade Center, Ste. 1670, ZIP:
90831
PHONE: (310) 980-4551,
FAX: (310) 980-4561
ALABAMA
BIRMINGHAM - Patrick T. Wall, Director
Medical Forum Building, 7th Floor
950 22nd Street North, ZIP: 35203
PHONE: (205) 731-1331, FAX: (205) 7310076
ALASKA
ANCHORAGE - Charles Becker, Director
Suite 319, World Trade Center Alaska
4201 Tudor Centre Drive, ZIP: 99508
PHONE: (907) 271-6237,
FAX: (907) 271-6242
SAN DIEGO - Mary Delmege, Director
6363 Greenwich Drive, Suite 230, ZIP: 92122
PHONE: (619) 557-5395,
FAX: (619) 557-6176
179
SAN FRANCISCO
- James S. Kennedy, Act. Dir.
250 Montgomery St., 14th Floor, ZIP: 94104
PHONE: (415) 705-2300,
FAX: (415) 705-2297
(*) ORLANDO
Eola Park Centre, Suite 695
200 E. Robinson Street, ZIP: 32801
PHONE: (407) 648-6235,
FAX: (407) 648-6756
(*) SANTA CLARA
(*) TALLAHASSEE
5201 Great American Pkwy., #456, ZIP:
95054
PHONE: (408) 970-4610,
FAX: (408) 970-4618
107 West Gaines Street, Room 366G,
ZIP: 32399
PHONE: (904) 488-6469,
FAX: (904) 487-1407
COLORADO
DENVER - Neil Hesse, Director
1625 Broadway, Suite 680, ZIP: 80202
PHONE: (303) 844-6622,
FAX: (303) 844-5651
GEORGIA
ATLANTA - George T. Norton, Jr., Director
Plaza Square North, Suite 310
4360 Chamblee Dunwoody Road, ZIP: 30341
PHONE: (404) 452-9101, FAX: (404) 4529105
CONNECTICUT
HARTFORD - Carl Jacobsen, Director
Room 61OB, 450 Main Street, ZIP: 06103
PHONE: (203) 240-3530,
FAX: (203) 240-3473
SAVANNAH - Barbara Prieto, Director
120 Barnard Street, Room A-107, ZIP: 31401
PHONE: (912) 652-4204, FAX: (912) 6524241
DELAWARE
Served by the Philadelphia District Office
HAWAll
HONOLULU - George B. Dolan, Director
P.O. Box 50026
300 Ala Moana Blvd., Room 4106, ZIP:
96850
PHONE: (808) 541-1782, FAX: (808) 5413435
DISTRIcr OF COLUMBIA
Served by the Baltimore USEAC
FLORIDA
(**) MIAMI USEAC - Peter B. Alois,
Director
P.O. Box 590570, ZIP: 33159
5600 Northwest 36th St., Ste. 617,
ZIP: 33166
PHONE: (305) 526-7425,
FAX: (305) 526-7434
IDAHO
(*) BOISE - Portland District Office
700 West State Street, 2nd Floor, ZIP: 83720
PHONE: (208) 334-3857, FAX: (208) 3342783
(*) CLEARWATER
128 North Osceola Avenue, ZIP: 34615
PHONE: (813) 461-0011,
FAX: (813) 449-2889
180
ILLINOIS
(**) CHICAGO USEAC - Brad Dunderman,
Director
Stanley Bokota, US&FCS Director
Xerox Center
55 West Monroe Street, Suite 2440,
ZIP: 60603
PHONE: (312) 353-8040,
FAX: (312) 353-8098
KENTUCKY
LOUISVILLE - John Autin, Director
601 W. Broadway, Room 636B , ZIP: 40202
PHONE: (502) 582-5066,
FAX: (502) 582-6573
LOUISIANA
NEW ORLEANS - Paul L. Guidry, Director
Hale Boggs Federal Building
501 Magazine Street, Room 1043, ZIP: 70130
PHONE: (504) 589-6546,
FAX: (504) 589-2337
(*) WHEATON
clo Illinois Institute of Technology
201 East Loop Road, ZIP: 60187
PHONE: (312) 353-4332, FAX: (312) 3534336
MAINE
(*) AUGUSTA - Boston District Office
40 Western Ave. Ste 506A. ZIP: 04333
PHONE: (207) 622-8249,
FAX: (207) 626-9156
(*) ROCKFORD
P.O. Box 1747
515 North Court Street, ZIP: 61110
PHONE: (815) 987-8123, FAX: (815) 9878122
MARYLAND
(**) BALTIMORE USEAC - Roger Fortner,
Director
World Trade Center, Suite 2432
401 East Pratt Street, ZIP: 21202
PHONE: (410) 962-4539
FAX: (410) 962-4529
INDIANA
INDIANAPOLIS - Andrew Thress, Director
Pen wood One, Suite 106
11405 N. Pennsylvania Street
Carmel, IN. 46032
PHONE: (317) 582-2300,
FAX: (317) 582-2301
MASSACHUSETTS
BOSTON - Frank J. 0' Connor, Director
164 Northern Avenue
World Trade Center, Suite 307, ZIP: 02210
PHONE: (617) 424-5990,
FAX: (617) 424-5992
IOWA
DES MOINES - Randall J. LaBounty,
Director
Room 817, Federal Building
210 Walnut Street, ZIP: 50309
PHONE: (515) 284-4222,
FAX: (515) 284-4021
MICHIGAN
DETROIT - Dean Peterson, Director
1140 McNamara Building
477 Michigan Avenue, ZIP: 48226
PHONE: (313) 226-3650,
FAX: (313) 226-3657
KANSAS
(*) WICHITA - Kansas City District Office
151 N. Volutsia, ZIP: 67214
PHONE: (316) 269-6160,
FAX: (316) 683-7326
(*) GRAND RAPIDS
300 Monroe N.W., Room 409, ZIP: 49503
PHONE: (616) 456-2411,
FAX: (616) 456-2695
181
NEW.lERSEY
TRENTON - Rod Stuart, Director
3131 Princeton Pike, Bldg. #6,
Suite 100, ZIP: 08648
PHONE: (609) 989-2100, FAX: (609) 9892395
MINNESOTA
MINNEAPOLIS - Ronald E. Kramer, Director
108 Federal Building
110 South 4th Street, ZIP: 55401
PHONE: (612) 348-1638,
FAX: (612) 348-1650
NEW MEXICO
(*) SANTA FE - Denver District Office
c/o New Mexico Dept. of Economic
Development
1100 St. Francis Drive, ZIP: 87503
PHONE: (505) 827-0350,
FAX: (505) 827-0263
MISSISSIPPI
JACKSON - Mark E. Spinney, Director
201 W. Capitol Street, Suite 310, ZIP: 39201
PHONE: (601) 965-4388,
FAX: (601) 965-5386
MISSOURI
ST. LOUIS - Sandra Gerley, Director
8182 Maryland Avenue, Suite 303,
ZIP: 63105
PHONE: (314) 425-3302,
FAX: (314) 425-3381
NEW YORK
BUFF ALO - George Buchanan, Director
1304 Federal Building
111 West Huron Street, ZIP: 14202
PHONE: (716) 846-4191,
FAX: (716) 846-5290
KANSAS CITY - Rick Villalobos, Director
601 East 12th Street, Room 635, ZIP: 64106
PHONE: (816) 426-3141,
FAX: (816) 426-3140
(*) ROCHESTER
111 East Avenue, Suite 220, ZIP: 14604
PHONE: (716) 263-6480,
FAX: (716) 325-6505
MONTANA
Served by the Boise Branch Office
NEW YORK - Joel W. Barkan, Director
26 Federal Plaza, Room 3718, ZIP: 10278
PHONE: (212) 264-0634,
FAX: (212) 264-1356
NEBRASKA
(*) OMAHA - Des Moines District Office
11135 "0" Street, ZIP: 68137
PHONE: (402) 221-3664,
FAX: (402) 221-3668
NORTH CAROLINA
GREENSBORO - Samuel P. Troy, Director
400 West Market Street, Suite 400,
ZIP: 27401
PHONE: (910) 333-5345,
FAX: (910) 333-5158
NEVADA
RENO - James K. Hellwig, Director
1755 East Plumb Lane, Room 152,
ZIP: 89502
PHONE: (702) 784-5203,
FAX: (702) 784-5343
NORTH DAKOTA
Served by the Minneapolis District Office
NEW HAMPSHIRE
(*) PORTSMOUTH - Boston District Office
601 Spaulding Turnpike, Suite 29, ZIP: 03801
PHONE: (603) 334-6074,
FAx: (603) 334-6110
182
OHIO
PUERTO RICO
SAN JUAN (Hato Rey)
- J. Enrique Vilella, Director
Room G-55, Federal Building
Chardon Avenue, ZIP: 00918
PHONE: (809) 766-5555,
FAX: (809) 766-5692
CINCINNATI - John M. McCaslin, Director
550 Main Street, Room 9504, ZIP: 45202
PHONE: (513) 684-2944,
FAX: (513) 684-3200
CLEVELAND - Toby T. Zettler, Director
Bank One Center
600 Superior Avenue, East, Ste 700,
ZIP: 44114
PHONE: (216) 522-4750,
FAX: (216) 522-2235
RHODE ISLAND
(*) PROVIDENCE - Hartford District Office
7 Jackson Walkway, ZIP: 02903
PHONE: (401) 528-5104,
FAX: (401) 528-5067
OKLAHOMA
OKLAHOMA CITY
- Ronald L. Wilson, Director
6601 Broadway Extension, Rm. 200,
ZIP: 73116
PHONE: (405) 231-5302,
FAX: (405) 231-4211
soum CAROUNA
COLUMBIA - Ann H. Watts, Director
Strom Thurmond Federal Bldg., Suite 172
1835 Assembly Street, ZIP: 29201
PHONE: (803) 765-5345,
FAX: (803) 253-3614
(*) TULSA
(*) CHARLESTON
440 South Houston Street, Rm 505,
ZIP: 74127
PHONE: (918) 581-7650,
FAX: (918) 581-2844
P.O. Box 975, ZIP: 29402
81 Mary Street, ZIP: 29403
PHONE: (803) 727-4051,
FAX: (803) 727-4052
OREGON
PORTLAND - Denny Barnes, Director
One World Trade Center, Suite 242
121 SW Salmon Street, ZIP: 97204
PHONE: (503) 326-3001, FAX: (503) 3266351
SOUTH DAKOTA
(*) SIOUX FALLS
- Des Moines District Office
200 N. Phillips Avenue, Commerce Center
Suite 302, ZIP: 57102
PHONE: (605) 330-4264,
FAX: (605) 330-4266
PENNSYLVANIA
PHILADELPHIA - Robert E. Kistler, Director
660 American Avenue, Suite 201
King of Prussia, PA ZIP: 19406
PHONE: (610) 962-4980,
FAX: (610) 962-4989
TENNESSEE
NASHVILLE - Jim Charlet, Director
Parkway Towers, Suite 114
404 James Robertson Parkway, ZIP: 37219
PHONE: (615) 736-5161,
FAX: (615) 736-2454
PITTSBURGH - John A. McCartney, Director
2002 Federal Building
1000 Liberty Avenue, ZIP: 15222
PHONE: (412) 644-2850,
FAX: (412) 644-4875
(*) MEMPHIS
22 North Front Street, Suite 200, ZIP: 38103
PHONE: (901) 544-4137,
FAX: (90l) 575-3510
183
301 East Church Avenue, ZIP: 37915
PHONE: (615) 545-4637,
FAX: (615) 523-2071
WASHINGTON
SEATILE - Lisa Kjaer-Schade, Director
3131 Elliott Avenue, Suite 290, ZIP: 98121
PHONE: (206) 553-5615,
FAX: (206) 553-7253
TEXAS
DALLAS - James D. Cook, Acting Director
P.O. Box 58130
2050 N. Stemmons Fwy., Suite 170,
ZIP: 75258
PHONE: (214) 767-0542,
FAX: (214) 767-8240
(*) TRI-CITIES
320 North Johnson Street, Suite 350
Kennewick, W A. 99336
PHONE: (509) 735-2751,
FAX: (509)783-9385
(*) KNOXVILLE
(*) AUSTIN
P.O. Box 12728
410 E. 5th Street, Suite 414-A, ZIP: 78711
PHONE: (512) 482-5939,
FAX: (512) 482-5940
WEST VIRGINIA
CHARLESTON
- W. Davis Coale, Jr., Director
405 Capitol Street, Suite 807, ZIP: 25301
PHONE: (304) 347-5123,
FAX: (304) 347-5408
HOUSTON - James D. Cook, Director
#1 Allen Center, Suite 1160
500 Dallas, ZIP: 77002
PHONE: (713) 229-2578,
FAX: (713) 229-2203
WISCONSIN
MILWAUKEE - Paul D. Churchill, Director
517 E. Wisconsin Avenue, Room 596,
ZIP: 53202 PHONE: (414) 297-3473,
FAX: (414) 297-3470
UTAH
SALT LAKE CITY
- Stephen P. Smoot, Director
324 S. State Street, Suite 105, ZIP: 84111
PHONE: (801) 524-5116,
FAX: (801) 524-5886
WYOMING
Served by the Denver District Office
VERMONT
(*) MONTPELIER
- James Cox - Branch Manager
109 State Street, 4th Floor, ZIP: 05609
PHONE: (802) 828-4508,
FAX: (802) 828-3258
VIRGINIA
RICHMOND
- Philip A. Ouzts, Director
700 Centre, 704 East Franklin Street,
Suite 550, ZIP: 23219
PHONE: (804) 771-2246,
FAX: (804) 771-2390
184
REGIONAL OFFICES:
(***) REGION I, PHILADELPHIA
Paul Walters, Regional Director
660 American Avenue, Suite 202
King of Prussia, PA. 19406
PHONE: (610) 962-4990,
FAX: (610) 962-1326
(***) REGION II, ATLANTA
LoRee Silloway, Regional Director
Plaza Square North, Suite 405
4360 Chamblee Dunwoody Road, 30341
PHONE: (404) 455-7860,
FAX: (404) 455-7865
(***) REGION III, CINCINNATI
Gordon Thomas, Regional Director
9504 Federal Building
550 Main Street, ZIP: 45202
PHONE: (513) 684-2947,
FAX: (513) 684-3200
(***) REGION IV, ST. LOUIS
Donald R. Loso, Regional Director
8182 Maryland Avenue, Suite 305,
ZIP: 63105
PHONE: (314) 425-3300,
FAX: (314) 425-3375
(***) REGION V, SAN FRANCISCO
Michael Liikala, Regional Director
250 Montgomery St., 14th Floor, ZIP: 94104
PHONE: (415) 705-2310,
FAX: (415) 705-2299
(+) - DENOTES TRADE SPECIALIST AT A BRANCH OFFICE
(++) - DENOTES A U.S. EXPORT ASSISTANCE CENTER
(+++) - OFFICE WITH MANAGERIAL AND ADMINISTRATIVE OVERSIGHT
RESPONSIBILITIES (OFFERS NO DIRECT BUSINESS COUNSELING)
185
U.S. AND FOREIGN COMMERCIAL SERVICE-OVERSEAS POSTS
ALGERIA
Algllrl
American Embassy
SCO (Vacant)
u.s. Dept of State (Algiers)
Washington, DC 20521·6030
Tel: 011·213·2·60·39·73
Fax: 011·213·2·69·18·63
ARGENTINA
BUI.OI Alrll
American Embassy
SCO Art Alexander
APO AA 34034
Tel: 011·54·1·772·1041
Fax: 011·54·1·777·0673
Tel: 011·32·2·513·9114
Fax: 011·32·2·513·1228
BRAZIL
MOltreal
Sao'l,lo
American Consulate General
FCSO Richard Ades
APO AA 34030
Tel: 011·55·11·853·2011
Fax: 011·55·11·853·2744
American Consulate General
FCSO Andrew Tangalos
P.O. Box 847
Champlain, NY 12919·0847
Tel: 1·514·398·0673
Fax: 1·514·398-0711
Bilim
Toro.to
American Consular Agency
FCSN Raymundo Teixeira
APO AA 34030
Tel: 011·55·91·223·0800
Fax: 011·55·91·223·0413
American Consulate General
FCSO Dan Wilson
P.O. Box 135
Lewiston, NY 14092
Tel: 1·416·595·5413
Fax: 1·416·595·5419
AUSTRALIA
Bllo Horlzontl
SydnlY
American Consulate General
SCO John W Bligh
APO AP 96554
Tel: 011·61·2·221·0574
Fax: 011·61·2·221·0573
American Consular Agency
FCSN
Jose Mauricio de Vasconcelos
APO AA 34030
Tel: 011·55·31·335·3250
Fax: 011·55·31 ·335·3054
Brls.lnl
Brullli
American Consulate
FCSN (Vacant)
APO AP 96553
Tel: 011·61·7·831·3330
Fax: 011·61·7·832·6247
American Embassy
SCO Larry Farris
APO AA 34030
Tel: 011·55·61·225·3981
Fax: 011·55·61·225·9136
Mllbournl
Rio 01 Jlnllro
American Consulate General
FCSO Ken Norton
APO AP 96551
Tel: 011·61·3·526·5900
Fax: 011·61·3·510·4660
Ogdensburg, NY 13669·0430
Tel: 1·902·429·2482
Fax: 1·902·423·6861
VlncoUVlr
American Consulate General
FCSO Jere Dabbs
P.O. Box 5002
Point Roberts, WA 98281·5002
Tel: 1·604·685·3382
Fax: 1·604·687·6095
CHILE
Sllnlgo
American Embassy
SCO Carlos Poza
APO AA 34033
Tel: 011·56·2-671·0133
Fax: 011 ·56·2·697 ·2051
American Consulate General
FCSO Dar Pribyl
APO AA 34030
Tel: 011·55·21·292·7117
Fax: 0; 1·55·21·240·9738
CHINA
BIIIII,
American Embassy
SCO Steve Herdry
FPO AP 96521
Tel: 011·86·1·532·3831
Fax: 011·86·1·532·3297
Plrtb
American Consulate General
FCSN Marion S. Shingler
U.S. Dept of State
Washington, DC 20521·4160
Tel: 011·61·9·231·9410
Fax: 011·61·9·231·9444
AUSTRIA
Vllnnl
American Embassy
SCO Stephen Kamin
U.S. Dept of State
Washington, DC 20521·9900
Tel: 011·43·1·31·339
Fax: 011·43·1·310·6917
BULGARIA
So'il
American Embassy
SCO Patrick Hughes
APO AE 09213·5740
Tel: 011·359·2·65·9464
Fax: 011 ·359·2·80·38·50
a'I'gzbol
American Consulate General
FCSO Robert Strotman
Box 100 FPO AP 96521
96655-0002
Tel: 011·86·20·666·338
Fax: 011·86·20·666·640
CANADA
OttlWI
American Embassy
SCO Richard Lenahan (Acting)
P.O. Box 5000
Ogdensburg, NY 13669
Tel: 1·613·238·5335
Fax: 1·613·233·8511
S~II'~II
American Consulate General
FCSO David Murphy
Box 200, FPO AP 96521
Tel: 011·86·21-433·1681
Fax: 011·86·21·433·1576
BELGIUM
Cllglry
American Embassy
SCO Jerry Mitchell
APO AE 09724
Tel: 011·32·2·513·3830
Fax: 011·32·2·512·6653
American Consulate General
FCS
P.O. Box 5000
Ogdensburg, NY 13669-0430
Tel: 1·403·265·2116
Fax: ~ ·403·264·4743
American Consulate General
FCSO
Box 45, FPO AP 96521·0002
Tel: 011·86·24·282·0057
Fax: 011·86-24·282·0074
BrUllll1
HIII'II
COLOMBIA
American Consulate General
FCSN Richard VInSon
P,O. Box 5000
'1.111
American Embassy
Brlllill
US Mission to the EC
SCO Steve Arlinghans
APO AE 09724
S~."I'
seQ catherine· Houghton
186
APO AA 34038
Tel: 011·57·1·232·6550
Fax: 011·57·1·285·7945
COSTA RICA
Sa. JOSI
American Embassy
SCO Maria Galindo
APO AA 34020
Tel: 011-506·20·3939
Fax: 011·506·31·4783
COTE D'IVOIRE
A.I~lln
American Embassy
SCO Aikki Brajevich
U.S. Dept of State (Abidjan)
Washington, DC 20521·2010
Tel: 011·225·21·46· 16
Fax: 011·225·22·24·37
CROATIA
Zlgrl.
American Consulate General
FCSN Damjam Bencic
APO AE 09213·5080
Tel: 011·38·5·41·444·800
Fax: 011·38-5·41·453·126
CZECH REPUBLIC
Pngul
American Embassy
SCO Dan Harris
APO AA 09213·5630
Tel: 011·42·2·421·9844
Fax: 011·42·2·421·9965
DENMARK
Copl,blgO'
American Embassy
SCO Richard Benson
APO AE 09176
Tel: 011·45·31-42·31·44
Fax: 011·45·31·42·0'1·75
DOMINICAN REPUBLIC
SlltO 00.11,0
American Embassy
SCO Robert Bucalo
APO AA 34010·0008
Tel: 1·809-541-2171
. Fax: 1-809-688·4838
ECUADOR
O,lto
American Embassy
SCO Ralph Griffin
APO AA 34039
Tel: 011·593-2-561·404
Fax: 011·593·2·504·550
a..,..,11
American Consulate General
FCSN Hector Raul Gomez
APO AA 34039
Tel: 011-593-4-323-570
Fax: 011-593-4-324-558
U.S. AND FOREIGN COMMERCIAL SERVICE-OVERSEAS POSTS
EGYPT
Cllra
American Embassy
SCQ Laron Jensen
Box 11, FPQ AE 09839
Tel: 011·20·2·357·2340
Fax: 011·20·2·355·8368
Alulldrll
U.S. Commercial Qffice
FCSN Hanna Abdelnour
FPQ AE 09839-4904
Tel: 011-20-3-482-5607
Fax: 011·20·3·482·9904
FINLAND
HIlslnkl
American Embassy
SCQ Maria Andrews
APQ AE 09723
Tel: 011-358-0-171-821
Fax: 011-358·0·635·332
Tel: 011·33·88·35·31·04
Fax: 011·33-88·24·06·95
SCQ Brian Brisson
APQ AA 34024
Tel: 011·502·2·34·84·79
Fax: 011·502·2·317·373
GERMANY
BOln
American Embassy
SCQ Roberl Kahn
Box 370, APQ AE 09080
Tel: 011·49·228·339·2895
Fax: 011·49-228·334·649
HONDURAS
T'luelgllpl
American Embassy
SCQ Mike McGee (Acling)
APQ AA 34022
Tel: 011·504·36·9320
Fax: 011-504·38·2888
B.rlln
U,S Embassy Qffice
FCSQ James Joy
APQ AE 09742
Tel: 011·49·30·238·5174
Fax: 011·49-30·238·6290
HONG KONG
Ho., KOII
American Consulate General
SCQ David Katz
Box 30, FPQ AP 96522
Tel: 011-852-2521·1467
Fax: 011·852·2845·980
DUlueldorf
U.S. Commercial Qffice
FCSN Lee Boam
Box 370, AE 09080
Tel: 011-49·211·431·744
Fax: 011·49-211·431·431
HUNGARY
INDONESIA
Jlkull
American Embassy
SCQ Mike Hand
APQ AP 96520
Tel: 011·62·21·360-360
Fax 011·62·21·385·1632
Mldln
American Consulale
FCSN Zulhava Luthli
APQ AP 96520
Tel: 011·62·61-322·200
Fax: 011-62-61·574·492
8mbl,1
American Consulate
FCSN Midji Kwee
APQ AP 96520
Tel: 011-62·31·582·287
Fax: 011·62·31·574·492
IRAO
Bllbdl~
FRANCE
Fnnklurl
BudepIII
Puis
American Consulate General
FCSQ Donald Businger
APQ AE 09213
Tel: 011·49·69-7535-2453
Fax: 011·49·69·748·204
American Embassy
SCQ John Fogarasi
APQ AE 09213·5270
Tel: 011-36-1-122-8600
Fax: 011·36·1·142·2529
American Embassy
SCQ (Vacant)
U.S. Depl. 01 State (Baghdad)
Washington, DC 20521·6060
Tel: 011·964-1-719-6138
Fax: 011·964·1·718·9297
INDIA
IRELAND
American Embassy
SCQ Peter Frederick
APQ AE 09777
Tel: 011·33·1·4296-1202
Fax: 011·33·1·4266-4827
Puis
US Mission to the QECD
SCQ Robyn Layton
APO AE 09777
Tel: 011-33-1-4524·7437
Fax 011-33·1·4524-7410
Hlmbur.
Amercian Consulate General
FCSQ Hans Amrheim
U.S. Depl. of State
Washington, DC 20521·5180
Tel: 011-49·40·4117-1304
Fax: 011·49·40·433·004
Bardelux
Leipzig
American Consulate General
FCSN Henri Katzaros
APO AE 09777
Tel: 011-33·56-52-65·95
Fax 011·33·56·51·60·42
FCSO B. Lehne
APO AE 09235·5100
Tel 011-49-341-213-8440
Fax: 011-49·341-213·8441
L,on
American Consulate General
FCSQ Edward Ruse
APQ AE 09108
Tel 011·49·89·288·8748
Fax: 011-49-89-285-261
American Consulate General
FCSN Alain Beullard
APQ AE 09777
Tel 011-33·78·24·68-49
Fax: 011-33-78-41-71-81
MnsllIIl
American Consulate General
FCSN Igor Lepine
APQ AE 09777
Tel: 011·33·91-54·92·00
Fax: 011-33-91-550-947
Nle.
U,S. CommerCial Qfflce
FCSN Reine Joguet
APQ AE 09777
Tel 011·33-93·88-89·55
Fax 011-33-93·87·07-38
Strubour.
American Consulate General
FCSN Jacqueline Munzlinger
APQ AE 09777
NI.
DII~I
American Embassy
SCQ Jon Bensky
U.S. Depl. of State (New Delhi)
Washington, DC 20521·9000
Tel: 011·91·11·600·651
Fax: 011-91-11-687-2391
Blnlilorl
U,S, Commercial Office
FCSN Lenny Roberts
Tel: 011·91·80·558·1452
Fax: 011·91·80·558·3630
Munich
Bambi,
American Consulate General
FCSQ John Wood
U,S. Dept. of State (Bombay)
washington, DC 20521-6240
Tel: 011·91-22·363·3611
Fax: 011-91-22·262·3851
Siullgirt
Amencan Consulate General
FCSQ Camille Sailer
APQ AE 09154
Tel: 011·49·711·210·0831
Fax: 011·49·711-236·4350
Cllculll
American Consulate General
FCSN (Vacant)
U,S. Dept. of State (Calcutta)
Washington, DC 20521·6250
Tel: 011-91·33·242·3611
Fax: 011·91·33·283·823
GREECE
Athlnl
American Embassy
SCQ John Priamou
APQ AE 09842
Tel: 011·30·1·729·4302
Fax: 011-30-1-721-8660
Mldraa
GUATEMALA
Gualemala
American Embassy
187
Dublin
American Embassy
SCQ Edward Cannon
U.S. Depl. of State (Dublin)
Washington, DC 20521·5290
Tel: 011·353·1·660·3208
Fax: 011-353-1-688·2840
ISRAEL
T.I Aviv
American Embassy
SCQ Barry Friedman
APQ AE 09830
Tel: 011-972-3-510-7212
Fax: 011·972·3-510·7215
ITALY
Rome
American Embassy
SCQ Keith Bovetti
APQ AE 09624
Tel: 011·39·6·4674·2202
Fax: 011·39·6·4674·2113
Flor.nce
American Consulate General
FCSN Alexander Gala
APQ AE 09624
Tel: 011·39·55·211·676
Fax: 011·39·55·283·780
GlnOI
American Consulate General
FCSQ Michael Keaveny
U.S. Dept. of State (Madras)
Washington, DC 20521·6260
Tel: 011·91·44·827·5947
American Consulate General
FCSN Erminia Lezzi
APQ AE 09624
Tel: 011·39·10·247·1412
r ~Y' n11-Q1-44-8:?'i-0:?4n
F~Y' 011·1Q·10·~4~-R77
U.S. AND FOREIGN COMMERCIAL SERVICE-OVERSEAS POSTS
1111.
American Consulate General
FCSO Peter Alois
Box M, APO AE 09624
Tel: 011-39-2-498-2241
Fax: 011-39-2-481-4161
•• plll
American Consulate General
FCSN Christiano Sartorio
Box 18, FPO AE 09624
Tel: 011-39-81-583-8206
Fax: 011-39-81-761-1592
JAMAICA
KI"IIO.
MOROCCO
u.s. Dept of State (Almaty)
Washington, DC 20521-7030
Tel: 011-7-3272-631770
Fax: 011-7-3272-633883
ClIIIII••u
American Consulate General
SCO Frederic Gaynor
APO AE 09718
Tel: 011-212-26-45-50
Fax: 011-222-02-59
KENYA
N.lrolll
R.II.I
American Embassy
SCO Gene Harris
APO AE 09831
Tel: 011-254-2-334-141
Fax: 011-254-2-216-648
American Embassy
FCSN Karima Hammond
APO AE 09718
Tel: 011-212-7-622-65
Fax: 011-212-7-656-51
KOREA
American Embassy
SCORobert Bucalo
(Resident in Santo Domingo
u.S. Dept. of State (Kingston)
Washington, DC 20521-3210
Tel: 1-809-929-4850
Fax: 1-809-926-6743
Sloll
NETHERLANDS
American Embassy
SCO Robert Connan
APQ AP 96205
Tel: 011-82-2-739-4114
Fax: 011-82-2-739-1628
nl H"II
KUWAIT
A.lllr~ ••
JAPAN
KuwllI
Tokyo
American Embassy
SCO George Mu
APO AP 96337
Tel: 011-81-3-3224-5060
Fax: 011-81-3-3589-4235
U.S. Trade Center
Van Tran
Tel: 011-81-3-3224-5094
Fax: 011-81-3-3987-2447
F.klok.
American Consulate
FCSN Yoshihiro Yamamoto
Box 10, FPO AP 98766
Tel: 011-81-92-751-9331
Fax: 011-81-92-713-9222
.,,1,.
American Consulate
FCSO Todd Thurwachter
clo American Embassy Tokyo
APO AP 96337
Tel: 011-81-52-203-4077
Fax: 011-81-52-201-4612
Ollk.-Koill
American Consulate General
FCSO Ira Kasoff
APO AP 96337
Tel: 011-81-6-315-5900
Fax: 011-81-6-361-5978
Sapplro
American Consulate General
FCSN Kenji Haya
APO AP 96503
Tel: 011-81-11-641-1115
Fax: 011-81-11-643-1283
KAZAKHSTAN
AI.."
American Embassy
FCSO Susan Weidner
American Embassy
SCO Ralph Fermoselle
APQ AE 09715
Tel: 011-31-70-310-9417
Fax: 011-31-70-363-2985
American Consulate General
FCSO Tapan Banerjee
APO AE 09715
Tel: 011-31-20-575-5351
Fax: 011-31-20-575-5350
American Embassy
SCQ Johnny Brown
APQ AE 09880
Tel: 011-965-242-4151
Fax: 011-965-244-7692
NEW ZEALAND
Alckl•• ~
MALAYSIA
American Consulate General
SCQ M Phillip Gates
FPQ AP 96531
Tel: 011-64-9-303-2724
Fax: 011-64-9-302-3156
Ku.l. LUlipur
American Embassy
SCQ Paul Walters
APQ AP 96535
Tel: 011-60-3-248-9011
Fax: 011-60-3-242-1866
WIIII,.lo.
American Embassy
FCSN Janet Coulthart
FPQ AP 96531
Tel: 011-64-4-472-2068
Fax: 011-64-4-478-1701
MEXICO
MllIlco City
American Embassy
SCQ Kevin Brennan
P.O. Box 3087
Laredo, TX 78044-3087
Tel: 011-52-5-211-0042
Fax: 011-52-5-207-8938
NIGERIA
LI,II
American Embassy
SCQ Walter Hage
U.S. Dept. of State (Lagos)
Washington, DC 20521-8300
Tel: 011-234-1-610-078
Fax: 011-234-1-261-9856
U.S. Trade Center
Robert Miller
Tel: 011-52-5-591-0155
Fax: 011-52-5-566-1115
GI.~.I'I·n
American Consulate General
FCSO Bryan Smith
P.O. Box 3088
Laredo, TX 78044-3088
Tel: 011-52-36-25-0321
Fax: 011-52-36-26-3576
NORWAY
0110
American Embassy
SCO ScOIt Bozek
APO AE 09707
Tel: 011-47-22-44-85-50
Fax: 011-47-22-55-88
10.lomy
American Consulate General
FCSO John Harris
P.O. Box 3098
Laredo, TX 78044-3098
Tel: 011-52-83-452-120
Fax: 011-52-83-425-172
PAKISTAN
K.ncbl
American Consulate General
SCO James L Barnes
APO AE 09814
188
Tel: 011-92-21-568-5170
Fax: 011-92-21-568-1381
L.blre
American Consulate General
FCSN Shalla Malik
APO AE 09812
Tel: 011-92-42-636-5530
Fax: 011-92-42-636-8901
PANAMA
P•••••
American Embassy
SCO Americo Tadeu
Box E, APO AA 34002
Tel: 011-507-27-1777
Fax: 011-507-27-1713
PERU
L1 ••
American Embassy
SCO Ann Bacher
APO AA 34031
Tel: 011-51-14-33-0555
Fax: 011-51-14-33-4687
PHILIPPINES
Mlln.
American Embassy
SCO August Maffry
APO AP 96440
Tel: 011-63-2-818-5482
Fax: 011-63-2-818-2684
POLAND
*.rllw
American Embassy
SCQ Joan Edwards
APO AE 09213-5010
Tel: 011-48-2-621-4516
Fax: 011-48-2-621-6327
PORTUGAL
L1lbo.
American Embassy
SCO Miguel Pardo de Zela
APO AE 09726
Tel: 011-351+726-6600
Fax: 011-351-1-726-8914
Oporto
American Business Center
FCSN Adolfo Coutinho
APQ AE 09726
Tel: 001-351-2-606-3095
Fax: 011-351-2-600-2737
ROMANIA
Ilcb.rul
American Embassy
SCO Bill Crawford
APO AE 09213-5260
Tel: 011-40-1-210-4042
Fax: 011-40+210-0690
RUSSIA
IIUOW
American Embassy
u.s. AND FOREIGN COMMERCIAL SERVICE-OVERSEAS POSTS
SCO Dale Siaghl
APO AE 09721
Tel: 011-7-502-224- 1105
Fax: 011-7-502·224-1106
at. Pltlnburg
Amencan Consulate General
FCSO Karen Zens
Box L, APO AE 09723
Tel: 011-7-812-850-1902
Fax 011-7-812-850·1903
SOUTH AFRICA
JolI••nllbarg
American Consulale General
SCO George Kachmar
u.s. Dep\. of State
(Johannesburg)
Washington, DC 20521-2500
Tel: 011-27-11-331-3937
Fax: 011-27·11-331-6178
ClPI Town
American Consulate General
FSCO Timothy J Smith
APO AE 09721
Tel: 011-7-4232-268-458
Fax 011-7-4232-268-445
American Consulate General
FCSN Nazeem Sterras
U.S. Dept. of State (Cape Town)
Washington, DC 20521-2480
Tel: 011-27-21-214-280
Fax: 011·27-21-254-151
SAUDI ARABIA
RIYldb
SPAIN
...rld
Vlldlvoltok
Washinglon, DC 20521 -5 130
Tel: 011-41-1-422-2372
Fax: 011-41-1-382-2655
FPO AE 09498
Tel: 011-44-1-408-8019
Fax: 011-44-71-408-8020
THAILAND
Blngkok
UZBEKISTAN
Tllbklnt
American Embassy
SCO Carol Kim
APO AP 96546
Tel: 011-66-2-255-4365
Fax: 011-66-2-255-2915
Amencan Embassy
SCO Timothy Smith
U.S. Dept of State
Washington, DC 20521-7110
Tel: 011-7-3712·771·407
Fax: 011-7-3712-776-953
TURKEY
Ankln
American Embassy
SCO James Wilson
APQ AE 09823
Tel: 011-90-312-467-0949
Fax: 011-90-312-467-1366
tstlnbul
American Embassy
SCQ John Steuber
APQ AE 09038
Tel: 01 1-966-1-488-3800
Fax: 011-966-1-488-3237
American Embassy
SCQ Emilio Iodice
APO AE 09642
Tel: 011-34- 1-576-0602
Fax: 011-34-1-575-8655
American Consulate General
FCSQ John Muehlke
APQ AE 09827
Tel: 011-90-212-251-1651
Fax: 011·90·212-252-2417
Olllbrin
alml..1
American Consulate General
FCSQ Dorothy Luner
APO AE 09646
Tel: 011-34-3-280-2227
Fax: 011-34-3-205-5206
Izmlr
American Consulate General
FCSQ Thomas Moore
APO AE 09858
Tel: 011-966-3-891-3200
Fax: 011-966-3-891-8332
Jlddlb
American Consulate General
FCSO Renato Davia
APQ AE 09811
Tel:. 011-966-2-667-0040
Fax: 011-966-2-665-8106
SERBIA
BIlgrlde
American Embassy
SCQ (Vacant)
APO AE 09213-5070
Tel 011-38-11-645-655
Fax: 011-38-11-645-096
SINGAPORE
Slnglporl
American Embassy
SCQ Stephen Craven
APO AP 96534
Tel: 011-65-338-9722
Fax 011-65-338-5010
SLOVAK REPUBLIC
BnUIllVI
American Embassy
FCSN Peter Repka
APO AE 09213-5630
Tel: 011-42-7-335-980
Fax 011-42-7-335-046
SWEDEN
Stockholm
American Embassy
SCQ l3arbara Slawecki
U.S. Dept. ot State (Stockholm)
WaShington, DC 20521-5750
Tel: 011-46-8·783·5346
Fax: 011-46-8-660-9181
American Consulate General
FCSN Bernn Erturk
APQ AE 09821
Tel: 011-90-232-849-426
Fax: 011-90-232-489-0267
UKRAINE
KIIY
American Embassy
SCQ Stephan Wasylko
U.S. Dep\. of State (Kiev)
Tel: 011-7-044-417-2669
Fax: 011·7-044-417-1419
UNITED ARAB EMIRATES
Abu Dhabi
SWlnERLAND
Blrn
American Embassy
SCQ Charles Kestenbaum
U.S Dept. of State (Abu Dhabi)
Washington, DC 20521-60 I 0
Tel: 011-971-2-345-545
Fax: 011-971-2-331-374
American Embassy
SCQ Kay Kuhlman
U.S. Dept. of State (Bern)
Washington, DC 20521-5110
Tel: 011-41-31-357-7345
Fax: 011-41-31-357-7336
Dubll
American Consulate General
SCQ Terry Sorgi
U.S. Department 01 State (Dubai)
Washington, DC 2052 I -6020
Tel: 011-971-4·313-584
Fax: 011-971-4-313-121
GIRIVI
US MiSSion to GATT
SCQ Andy Grossman
U.S. Dept. of State (Geneva)
Washington, DC 20521-5120
Tel: 011-41-22-749-5281
Fax: 011-41-22-749-5308
UNITED KINGDOM
London
Z.rlc~
American Consulate General
FCSN Paul Frei
U.S. Dept. ot State (Zurich)
American Embassy
SCQ Charles Ford
189
VENEZUELA
ClnelS
American Embassy
SCQ Edgar Fullon
APQ AA 34037
Tel: 011-58-2-285-2341
Fax: 011·58-2-285-4971
......
Thl Amlrlcln Inalllull In
Tllwln. In Imporllnl non·
USIFCS commlrCll1 oHlel:
Tllp.1 OffiCI
Commercial Unit Ying Price
Tel: 011-886·2-720· 1550
Fax: 011-886-2-757-7162
Mailing Address (Letters)
American Institute in Taiwan
Commercial Unit
P.Q. Box 1612
Washington, DC 20013
Mailing Address (Packages)
American Institute in Taiwan
CommerCial Unit
U.S Dept of State (Taipei)
Washington, DC 20521
Klobslung OffiCI
Commercial Unit: Amy Chang
Tel: 011-886-7·224-0154
Fax' 011-886-7-223-8237
Mailing Address (Letters)
American Institute in Taiwan
Commercial Unit
P.O. Box 1612
WaShington, DC 20013
Mailing Address (Packages)
American Institute in Taiwan
Commercial Unit
U.S. Dept of State (Kaohsiung)
Washington, DC 20521
PART V
CONTACT LIST
OFFICES OF U.S. EXECUTIVE DIRECTORS
IN
THE MULTILATERAL DEVELOPMENT BANKS
191
SOURCES OF INFORMATION FOR BUSINESS OPPORTUNITIES
THE WORLD BANK GROUP
(lBRD, IDA, IFC, MIGA)
1818 H STREET, NW
WASillNGTON, DC 20433
USED:
Jan Piercy
tel: 202/458-0110
fax: 202/477-2967
Alternate USED:
Michael Marek
tel: 202/458-0115
fax: 202/477-2967
Procurement Liaisons: Thomas Kelsey
tel: 202/458-0120
fax: 202/477-2967
Janice Mazur
tel: 202/458-0118
fax: 202/477-2967
THE INTER-AMERICAN DEVELOPMENT BANK (lOB)
1300 NEW YORK AVENUE, NW
WASHINGTON, DC 20577
USED:
L. Ronald Scheman
tel: 202/623-1031
fax: 202/623-3612
Alternate USED:
Lawrence Harringon
tel: 202/623-1033
Procurement Liaisons: Judith Henderson
tel: 942-8260
fax: 202/942-8275
Michelle Miller
tel: 202/942-8262
fax: 202/942-8275
193
THE ASIAN DEVEWPMENT BANK (ADB)
116 ADB AVENUE
1501 MANDALUYONG METRO MANILA
USED:
Linda Tsao Yang
tel: 011-632-632-6050
fax: 011-632-632-4003
Alternate USED:
N. Cinnamon Dornsife
tel: 011-632-632-6051
fax: 011-632-632-4003
Procurement Liaison:
Janet Thomas
tel: 011-632-632-6054
fax: 011-632-632-4003
(Mail: P.O. BOX 789 MANILA
1099, PIDLIPPINES)
Ms. Thomas also has an office in
Thomas Jefferson Cultural Center, U.S. Embassy Ext.
Makati, Manila.
tel: 632-813-3248.
Lisa Lumbao
AEP Representative
U.S. Liaison to the Asian Development bank
tel: 011-632-813-3248
fax: 011-632-816-7684
THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVEWPMENT (EBRD)
ONE EXCHANGE SQUARE
WNDON EC2A 2EU, UNITED KINGDOM
USED:
(Vacant)
Alternate USED:
Lee F. Jackson
tel: 011-44-171-338-6503
fax: 011-44-171-338-6487
Procurement Liaison:
Sarah Shackelton
tel: 011-44-171-338-6569
fax: 011-44-171-338-6487
194
THE AFRICAN DEVEWPMENT BANK AVENUE JOSEPH ANOMA
01 B.P. 1387
ABIDJAN 01, COTE D'IVOIRE
USED:
Alice M. Dear
tel: 011-225-20-4015
fax: 011-225-33-1434
Alternate USED:
Daniel Duesterberg
tel: 011-225-20-4015
fax: 011-225-33-1434
Procurement Liaison:
Mark Herrling
tel: 011-225-21-4616
fax: 011-225-22-2437
195
Location of 24 U.S. Government Bookstores
GPO operates u.s. Government bookstores all
around the country. You're welcome to come
and browse through the shelves and take your
books home with you. If the bookstore you
visit doesn't have the book you're interested
in, they'll be happy to order it and have it sent
directly to you. All our bookstores accept
VISA, MasterCard and Superintendent of
Documents deposit account orders. For more
information, please contact your nearest U.S.
Government Bookstore.
U.S. Government Bookstore
First Union Plaza
999 Peachtree Street, NE
Suite 120
Atlanta, GA 30309-3964
(404) 347-1900
FAX: (404) 347-1897
U.S. Government Bookstore
U.s. Government Printing Office
Warehouse Sales Outlet
8660 Cherry Lane
Laurel, MD 20707
(301) 953-7974
(301) 792-0262
FAX: (301) 498-8995
U.S. Government Bookstore
O'Neill Building
2021 Third Ave., North
Birmingham. AL 35203
(205) 731-1506
FAX: (205) 731-3444
U.S. Government Bookstore
Thomas P. O'Neill Building
Room 169
10 Causeway Street
Boston, MA 02222
(617) 720-418-4180
FAX: (617) 720-5753
U.S. Government Bookstore
One Congress Center
401 South State St., Suite 124
Chicago, IL 60605
(312) 353-5133
FAX: (312) 353-1590
U.S. Government Bookstore
Room 1653, Federal Building
1240 E. 9th Street
Cleveland, OH 44199
(216) 522-4922
FAX: (216) 522-4714
U.S. Government Bookstore
Room 207, Federal Building
200 N. High Street
Columbus, OH 43215
(614) 469-6956
FAX: (614) 469-5374
U.S. Government Bookstore
Room IC50, Federal Building
1100 Commerce Street
Dallas, TX 75242
(214) 767-0076
FAX: (214) 767-3239
U.S. Government Bookstore
Room 117, Federal Building
1961 Stout Street
Denver, CO 80294
(303) 844-3964
FAX: (303) 844-4000
U.S. Government Bookstore
Suite 160, Federal Building
477 Michigan Avenue
Detroit, MI 48226
(313) 226-7816
FAX: (313) 226-4698
U.S. Government Bookstore
Texas Crude Building
801 Travis Street, Suite 120
Houston, TX 77002
(713) 228-1187
FAX: (713) 228-1186
U.s. Government Bookstore
100 West Bay Street
Suite 100
Jacksonville, FL 32202
(904) 353-0569
FAX: (904) 353-1280
U.S. Government Bookstore
120 Bannister Mall
5600 E. Bannister Road
Kansas City, MO 64137
(816) 765-2256
FAX: (816) 767-8233
U.S. Government Bookstore
ARCO Plaza, C-Level
505 South Flower Street
Los Angeles, CA 90071
(213) 239-9844
FAX: (213) 239-9848
U.S. Government Bookstore
Suite 150, Reuss Federal Plaza
310 W. Wisconsin Avenue
Milwaukee, WI 53203
(414) 297-1304
FAX: (414) 297-1300
U.s. Government Bookstore
Room 110, Federal Building
26 Federal Plaza
New York, NY 10278
(212) 264-3825
FAX: (212) 264-9318
U.S. Government Bookstore
Robert Morris Building
100 North 17th Street
Philadelphia, PA 19103
(215) 636-1900
FAX: (215) 636-1903
U.S. Government Bookstore
Room 118, Federal Building
1000 Liberty Avenue
Pittsburgh, PA 15222
(412) 644-2721
FAX: (412) 644-4547
U.S. Government Bookstore
1305 SW First Avenue
Portland, OR 97201-5801
(503) 221-6217
FAX: (503) 225-0563
U.S. Government Bookstore
Norwest Banks Building
201 West 8th Street
Pueblo, CO 81003
(719) 544-3142
FAX: (719) 544-6719
U.S. Government Bookstore
Marathon Plaza, Room 141-5
303 2nd Street
San Francisco, CA 94107
(415) 512-2770
FAX: (415) 512-2776
U.S. Government Bookstore
Room 194, Federal Building
915 Second Avenue
Seattle, WA 98174
(206) 553-4270
FAX: (206) 553-6717
U.S. Government Bookstore
U.s. Government Printing Office
710 N. Capitol Street, NW
Washington, DC 20401
(202) 512-0132
FAX: (202) 512-1355
U.S. Government Bookstore
1510 H Street, NW
Washington, DC 20005
(202) 653-5075
FAX: (202) 376-5055
(as of September 1994)
All stores are open Monday through Friday. Kansas City store is open 7 days a week.
Department of the Treasury
International Affairs
Washington, D.C. 20220
Official Business Only
Penalty for Private Use, $300
ISBN 0-16-048078-7
90000
9 7801
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 5, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $14,218 million of 13-week bills to be issued
June 8, 1995 and to mature September 7, 1995 were
accepted today (CUSIP: 912794U77).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.42%
5.48%
5.48%
Investment
Rate
5.59%
5.65%
5.65%
Price
98.630
98.615
98.615
Tenders at the high discount rate were allotted 72%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$42,350,503
AcceQted
$14,218,041
$36,921,870
1,432,191
$38,354,061
$8,789,408
1,432,191
$10,221,599
3,287,155
3,287,155
709,287
$42,350,503
709,287
$14,218,041
An additional $1,413 thousand of bills will be
issued to foreign official institutions for new cash.
5.43--98.627
5.46--98.620
RR-344
5.44--98.625
5.47--98.617
5.45--98.622
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 5, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $14,220 million of 26-week bills to be issued
June 8, 1995 and to mature December 7, 1995 were
accepted today (CUSIP: 912794V92).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.32%
5.35%
5.35%
Investment
Rate
5.56%
5.59%
5'.59%
Price
97.310
97.295
97.295
Tenders at the high discount rate were allotted 76%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$45,390,533
Acce:gted
$14,220,380
$38,717,215
1,327,805
$40,045,020
$7,547,062
1,327,805
$8,874,867
3,450,000
3,450,000
1,895 1 513
$45,390,533
1,895,513
$14,220,380
An additional $3,687 thousand of bills will be
issued to foreign official institutions for new cash.
5.33 - 97.305,
RR-345
5.34
- 97.300
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 5, 1995
Contact: Chris Peacock
(202) 622-2960
STATEMENT BY TREASURY SECRETARY ROBERT RUBIN
Today's indictments of the leaders of the Cali drug cartel and their associates is
the result of a four-year investigation led by the U.S. Customs Service. I am proud of
the superb effort of the Customs Service, working with the Drug Enforcement
Administration. This case is a tremendous example of tpe dedicated, patriotic work
performed every day by federal law enforcement agents.
This investigation shows the Administration's continuing commitment to fighting
drug trafficking on all fronts. I'm confident the Treasury Department, through our law
enforcement bureaus, will continue to be vigilant in protecting our borders against illegal
drugs and money-laundering from criminal activities.
-30-
RR-346
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY f~~~~
TREASURY
NEW S
1789
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
For Release Upon Delivery
Expected at 2:30 p.m.
June 6, 1995
STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
BEFORE THE SENATE FINANCE COMMITTEE
Mr. Chairman and Members of the Committee:
I am pleased to appear before the FinanCe Committee today in my role as Managing
Trustee and Chairman of the Medicare Board of Trustees. The Board is required to report
annually to the Congress on the financial status of two separate Medicare trust funds -- the
Hospital Insurance (or HI) Trust Fund and the Supplementary Medical Insurance (or SMI)
Trust Fund.
As you know, thi~ year's report shows that the HI Trust Fund will be exhausted by
the year 2002 and that the' costs of the SMI program continue to rise rapidly. The Board has
repeatedly notified Congress about the HI Trust Fund's short-term insolvency. This
Administration clearly recognizes that the projected Medicare shortfall needs to be addressed.
The Medicare financing problem is a complex interaction of demographics and the
rapidly rising costs that affect all parts of our health care system. We need to carefully
reform Medicare, in the context of health care reform, in order to get the best possible
solution for both the short term and long term. Or, to put the same matter differently, the
Administration believes that the growth of federal health care expenditures, including
Medicare, needs to'be reduced in order to control the budget. But reducing this growth must
be done by carefully weighing trade-offs and reforming these programs in the context of
health care reform. Only such a process will lead to an outcome that best meets the
multiplicity of objectives that need to be considered.
The alternative is arbitrary attempts to resolve the financing crisis that may restore
solvency to the HI Trust Fund, but will create and intensify other problems. Specifically, we
are concerned that deep reductions in Medicare may cause cost shifting, which could raise
health care costs in the private sector, reduce private insurance coverage, and increase
outlays for other government programs.
RR-347
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The Trustees have provided the Congress with an early warning and it is time to
develop effective Medicare reforms in the context of health care reform, an objective this
Administration has energetically pursued since it first took office in January of 1993. But we
do have enough time to fix it right, even if we have to do it in stages, so that we avoid a
hasty, unworkable solution that may have to be undone in the future.
The Medicare program merits this type of careful consideration because it is crucial to
a large number of our citizens. One of the most important things our country has done over
the past 30 years has been to work to reduce poverty and deprivation among senior citizens
and disabled persons, and thereby also reduce the burden on and the anxiety of their
children. Medicare has effectively provided a reliable source of medical care coverage for
aged and disabled Americans. There are few issues of greater concern to working families
than the cost of retirement and the problem of providing health care to the elderly.
Changes to Medicare as part of health care reform can restore Medicare to financial
soundness, while at the same time improving the health of elderly and disabled Americans.
As I mentioned a few moments ago, the Clinton Administration has sought to work with
Congress -- since the Administration first came to office -- to solve the current Medicare
financing problem and the more general health care crisis.
Financial Status of the Medicare Trust Funds
As noted, the Trustees reported in April that the HI Trust Fund will be exhausted in
2002, one year later than projected last year. This slight improvement largely reflects the
effects of the President's 1993 deficit reduction plan, the stronger-than-expected economy in
1994, and lower-than-expected program cost increases. Since this Administration took
office, the exhaustion date has been extended by three years.
Over the long term, the 75-year actuarial deficit (interpreted as the amount of payroll
tax increase or benefit reduction needed now to balance the trust fund over the next 75 years)
was reduced from last year's estimate of 4.14 percent to 3.52 percent of payroll. The
reduction is largely the result of lower expected future increases in HI costs, based on the
recently observed slowdown in HI spending growth. Despite the decline, the HI program
remains substantially out of long-run actuarial balance, and that problem is not addressed by
either of the current Congressional budget resolutions.
The Trustees also continue to project rapid growth in Supplementary Medical
Insurance program costs well into the future. Over the next five years, outlays are expected
to increase 78 percent in the aggregate and 66 percent per enrollee. During the same period,
the program is expected to grow about 38 percent faster than the overall economy.
Combined HI and SMI costs are expected to increase from 2.6 percent of GDP in
1995 to 8.8 percent in 2069 -- roughly tripling -- largely due to anticipated demographic
changes. Because of this rise in long-term program costs and the expected exhaustion of the
2
HI Fund in 2002, the Board of Trustees recommends effective Medicare reform, but again,
we believe that this must be done with a careful weighing and balancing of all impacts and
all considerations and in the context of health care reform.
History of Medicare Costs
When the Hospital Insurance program has faced financing problems in the past,
Congress and the Executive Branch have been able to cooperate on making modest changes
in the program that slowed the rate of ~ost increases.
The program has experienced financial difficulty since its inception in 1966 because
of rapidly rising hospital costs, higher-than-expected utilization, and program expansion.
The actuarial balance deteriorated between 1966 and 1972, leading to an increase in payroll
taxes in 1972 and temporary control of hospital prices between 1972 and 1974. After 1974,
annual hospital costs again increased rapidly until 1983 legislation changed the manner in
which Medicare pays for hospital services (from a retrospective to a prospective basis). As a
result, the annual growth of hospital costs was modest in the mid-1980s.
During the 1990s, program expenditure increases were below those of the previous
decade, reflecting a comparatively moderate rise in overall health care inflation and
utilization. The President's 1993 deficit reduction plan, which included Medicare spending
cuts, removal of the earnings limit for HI contributions, and increased taxation of OASDI
benefits (with the proceeds going to the HI Trust Fund), is partly responsible for the recent
decline in growth rates and the increase in revenues which, together, extended the trust fund
exhaustion date by three years.
Technically the SMI Trust Fund is actuarially sound, but only because the majority of
its funding is from general revenue. Spending for physician services has grown faster than
spending for hospital services in recent years. This is due, in part, to the establishment, in
1983, of Medicare's prospective payment method for hospital services. This payment
procedure, among other things, provided hospitals with an incentive to shift some services
from an inpatient to an outpatient setting, where services were not reimbursed on a
prospective basis. In 1992, the SMI program began to phase in a fee schedule based on the
estimated cost of resources used to provide various physician services. Although this change
should help restrain the future growth of SMI expenditures, SMI and HI face similar nearterm financial pressures because of medical price inflation and rising utilization of services.
Over the long term, demographic change will dominate, as an aging population compounds
the financing problem for both programs.
Medicare Financing and Health Care Reform
The fundamental reason for the rise in Medicare expenditures is the increase in health
care costs affecting all parts of the nation's health care system. A dramatic attempt by
government to contain Medicare spending in a vacuum -- for example, through large
3
reductions in payments to hospitals -- will cause significant distortions and inefficiencies
elsewhere in the health care system, unless such a reduction is undertaken in the context of
health care reform.
Medicare cuts of the magnitude proposed in the House and Senate budget resolutions,
if not accompanied by health care reform, will harm the most vulnerable in society -- the
elderly and the disabled -- and may cause doctors, hospitals, and other health care providers
to shift costs to everyone else. That means that working families will face higher private
insurance premiums or will lose their insurance coverage. In addition, Medicare cuts of this
magnitude, without any other reforms, could lead to the closing of already scarce rural
hospitals; real pressures on big, urban public hospitals and academic health centers; and
reduced services to many vulnerable people through cutbacks in payments for uncompensated
care.
In contrast, much more can be done to strengthen the Medicare program if we
undertake health care reform. Taking steps to extend health insurance coverage to the
uninsured population, and developing, through insurance reform, a competitive health care
market will create a more efficient system. This increased efficiency will slow the growth in
overall health care spending and provide long-term savings to the Medicare program.
In closing, the Administration believes it is possible to address the HI Trust Fund
problem, the rising costs in the rest of the Medicare program, and broader health care reform
objectives in a thoughtful manner, and produce effective, acceptable solutions that will stand
the test of time. We are ready, and we have been from the beginning of this Administration,
to work with the Congress to achieve these goals.
will be happy to answer any questions you may have.
4
DEPARTMENT
OF
THE
TREASURY (i.ff~
~~f
TREASURY
NEW S
~jJ78q~~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
.....................................
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
Adv. 10 a.m. EDT
Remarks as prepared for delivery
June 6, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
As you know, the President, Secretary Christopher and I will be in Halifax next
week for a G-7 summit, at which discussions will include, among other things, how our
international financial institutions can serve as well in the next half century as they have
for the past half century.
The challenges facing the world 50 years ago were immense: rebuild Europe and
Japan; restore lost industrial capacity; rebuild the physical infrastructure of entire
nations; and deal with refugee problems.
It was in that context that the United States, working closely with our allies, led
the world in creating the Bretton Woods institutions. It was a remarkable time, and the
response was of historic importance. We saw in rapid order the Marshall Plan, the
creation of NATO and the United Nations, the World Bank and the IMF.
The intervening half century has seen enormous changes, economically and
politically. I want to briefly discuss that economic history, because those changes, along
with the new post-Cold War political era, are the framework for discussion today.
Europe has been rebuilt and regained its prosperity. The former Warsaw Pact
nations are undergoing an historic economic and political transformation. Japan is now
the world's second-largest economy. Over the past decade, Asia and Latin America have
become, respectively, the fastest and second-fastest growing regions of the world. Trade
barriers have begun to fall with the recognition that growth and protectionism are
incompatible.
Economic health is now the global binding agent. Ensuring that that bond holds
is critical to all our interests and to the next chapters in global history.
RR-348
(MORE)
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
However, we face new challenges. To be certain that the gains of the past 50
years are not at least in part squandered, we must do everything possible to equip the
international financial institutions to meet those challenges, and to address other areas
such as trade market regulation that are critical to meeting those challenges.
I want to examine the challenges the world faces, and discuss what I believe is
necessary for the future.
The challenges are first, to develop effective multilateral mechanisms to deal with
the problems that may arise from the vast increase in the speed and size of the
international financial markets, and to minimize systemic risk from those markets. Our
institutions must be made as modern as the marketplace. The second is to promote
economic reform and development in the developing world, where five-sixths of the
world's population resides and where much of the world's future growth will occur. The
third is to assist in the transformation of the former communist world into the economic
mainstream. And the fourth is to continue the movement towards opening markets.
The United States and the international financial institutions are dealing now with
the issue of Mexico's financial difficulties. Free flows of capital are essential to support
strong, sustainable development, but with Mexico we also have seen how poor policies
and markets that lack depth, in very short order, can destroy a nation's finances and
threaten the spread of financial instability.
How do we deal with the potential for problems created by modern financial
markets? .
First, we need a better capacity and arrangement to avert financial crises. This
must rely primarily on greater and more timely disclosure of financial data to the
markets; in other words, timely and sufficient transparency. Market reaction should then
prevent the build-up of a dangerous situation in most cases. That is one of the primary
lessons of Mexico's difficulties. The principle of disclosure is at the heart of the
regulatory system in the United States, and that principle could serve very powerfully in
the global financial arena with respect to sovereign issuances. Moreover, the IMF must
develop a greater capacity for surveillance, so that it too can playa powerful
preventative role.
Second, the international economy needs enhanced mechanisms to rapidly
mobilize relatively large amounts of conditional financial assistance when problems of
sufficient importance develop. The United States cannot be the lender of last resort to
the world. The multilateral institutions need the capacity to deal with such crises.
3
We want to build on existing mechanisms and expand those arrangements to
include countries who benefit from a stable international monetary system and who now
have the resources to contribute to maintaining that stability, including the newly
prosperous nations of Asia.
Third, there is merit in the cautious exploration of orderly work-out mechanisms
to deal with international debt crises. We no longer have the luxury of bringing in a few
major creditors to find a solution. The financial world has changed too much. The
system would benefit from an arrangement that would involve the broader range of
creditors with a stake in resolving debt problems.
Fourth, steps should be taken to deal with the issue of regulation with regard to
financial markets and the risk of systemic crises arising, not from sovereign defaults but
from the financial markets and their particular nature. Our financial regulators must
cooperate more fully in supervising financial institutions and financial instruments as our
financial system evolves. We cannot eliminate this type of systemic risk, but we can
better monitor and limit it.
We must also determine how we can encourage reform and growth in developing
countries, assist economies in transition, and continue lowering trade barriers.
First, we need to continue to work for a solution for the world's poorest countries
that, despite their best efforts, cannot meet much of their debt obligation. The United
States has pledged to do its share, along with other creditors, to reduce this debt and
help them get back on their feet. With a small amount of funding we can leverage
substantial debt reduction through the participation of other developed nations and
improve prospects for growth and trade.
Second, we must recognize the problems faced by economies emerging from
conflict, the problems of economies in transition such as Russia and Ukraine, and focus
on how the banks and the IMF deal with these issues. Building prosperity in regions
such as the Middle East, for example, is one of the surest ways to promote stability.
Third, we must continue opening markets and leveling the playing field, as we did
with NAFf A, the GAIT and the WTO, and as we are doing by building towards a free
trade agreement in this hemisphere and throughout the Asia and Pacific region.
4
And fourth, on a broader scale, the multilateral development banks themselves
must look to the long term. They must continue moving towards greater priority on
primary education, particularly for women, on health care, and on environmental
preservation. They also must ensure that their lending supports, not supplants the
private sector, the driving force in market economies. The banks must continue
becoming more efficient and more transparent. These institutions have come a great
distance in the past few years, with the United States playing a major leadership role, but
much more remains to be done.
I said at the outset that Halifax is a way station in an evolutionary process. At
Halifax we can review the progress that has occurred in all these areas, and give the
international financial institutions the guidance to meet their global challenges I've
outlined.
The one element absolutely essential to meeting those challenges is the leadership
of the United States. The future prosperity and security of the United States requires
that our nation remain engaged and lead globally in opening markets, in promoting
development, in assisting economies in transition, and in dealing with global financial
problems.
We led on NAFTA, on GATT, and on the WTO, and that is in our interest. We
assisted Mexico and are leading the effort to assist the transforming economies, because
it is in our interests. And, we are working to ensure that we properly support the
international financial institutions, because that is in our interests. What is at stake is
the security and the future prosperity of all Americans. Turning our back on the world,
lessening our engagement and retreating will only endanger what we have worked so
hard to achieve these past 50 years. That must not be permitted to happen.
There is a new isolationism afoot, and it must be aggressively countered. Recall if
you will how difficult it was to get the trade treaties through Congress. Let me talk for a
moment about how an issue you might not have considered recently, support for reform
and growth in developing countries.
At the center of this debate is that tiny fraction of the federal budget devoted to
these institutions. In helping to strengthen economic growth in Latin America, build
markets in Eastern Europe and the former Soviet Union, reduce poverty in Africa and
Asia, and support peace in the Middle East, these institutions provide vital support for
U.S. global objectives on a scale which cannot be replicated by our bilateral programs.
Moreover, the IMF, the World Bank, and the development banks can influence changes
that would be impossible for the United States to do bilaterally.
5
I want speak to our participation in the International Development Association
and the IMF's Enhanced Structural Adjustment Facility, those portions of the World
Bank and IMF lending that promotes growth in the poorest countries and encourages
those countries to make economic and social reforms, open markets, privatize, reform
their financial sectors and reduce poverty. These are among our most important foreign
policy tools for integrating the poorest nations into the global economy, which, again, is
in our economic and national security interest.
IDA is a sound long-term investment for the United States. Last year, we
exported $42 billion to the 20 nations which have graduated from IDA economic reform
programs, and $20 billion to countries currently in those programs. Dropping out of
IDA -- which has an extensive history of bipartisan support -- would undercut economic
growth and reform across the globe, and undercut American leadership in global affairs.
We cannot isolate ourselves from a world in political and economic transition. It is
imperative that the Congress fund our request for the international financial institutions,
most of which is for IDA.
To conclude, we should recall the lessons of leadership during periods of global
transition. After World Wdr I, the United States turned inward, raised the gates and
ignored its responsibility. The consequences for the world ar.d for us were disastrous.
But the United States led the effort to create the international financial institutions
following World War II -- looking toward the problems of the future. That leadership
has produced remarkable results -- today's peace and greater economic prosperity, for us
and the global economy.
Now, again, we face challenges -- different ones for a different time. What has
not changed is the requirement for United States leadership.
Thank you.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
1I....................................~/789~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANlA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
June 6, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $28,400 million, to be issued June 15,
1995.
This offering will result in a paydown for the Treasury of
about $15,550 million, as maturing bills total $43,949 million
(including the 13-day cash management bills issued June 2, 1995,
in the amount of $17,126 million).
Federal Reserve Banks hold $6,658 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $3,225 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are glven in the
attached offering highlights.
000
Attachment
RR-349
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JUNE 15, 1995
June 6, 1995
Offering Amount .
.
.
.
.
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples . . . . . .
$14,200 million
$14,200 million
91-day bill
912794 U8 5
June 12, 1995
June 15, 1995
September 14, 1995
March 16, 1995
$12,466 million
$10,000
$ 1,000
182-day bill
912794 T6 1
June 12, 1995
June 15, 1995
December 14, 1995
December 15, 1994
$17,078 million
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
-
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM
June 6, 1995
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRA.VI FOR MAY 1995
Treasury's Bureau of the Public Debt announced activity_ fi2:Ures
for the month of May 1995 ,
e
of securities within the Separate Trading of Registered Interest and Principal of Securities
program (STRIPS).
~
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$837,372,792
Held in Unstripped Form
$613,113,258
Held in Stripped Form
$224,259,534
Reconstituted in May
$12.251,058
The accompanying table gives a breakdown of STRIPS activity by individual loan description.
The balances in this table are subject to audit and subsequent revision. These monthly figures
are included in Table VI of the Monthlv Statement of the Public Debt entitled "Holdings of
Treasury Securities in Stripped Form."
Information about "Holdings of Treasury Securities in Stripped Form" is now available on the
Department of Commerce's Economic Bulletin Board (EBB). The EBB, which can be
accessed using personal computers, is an inexpensive service provided by the Department of
Commerce. For more information concerning this service call 202-482-1986.
000
PA-186
(RR-350)
TABLE VI - HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, MAY 31,1995
(In thousands)
... - ....
_-_ .. _---------------------- ------------ ---- ------------------------ --- ----------------- ----- --------------_...- ...------ -- ------------------.... _-.._--
Loan Description
Maturity Date
10-112% Note C-1995
9-1/2"A, Note 0-1995
8-7/8% Note A-1996 ....
7-3/8% Note C-1996 ....
7-1/4% Note 0-1996 ....
8-1/2% Note A-1997 ....
8-5/8% Note B-1997
8-7/8% Note C-1997
8-1/8% Note A-1998
9% Note B-1998 ..
9-1/4% Note C-1998 ....
8-7/8% Note 0-1998 .....
8-7/8% Note A-1999 .....
9-1/8% Note B-1999 ....
8% Note C-1999 ........
7-7/8% Note 0-1999 ..
8-1/2% Note A-2000 ......
8-7/8% Note B-2000 ......
8-3/4% Note C-2000 ......
8-1/2% Note 0-2000 ......
7-3/4% Note A-2001 ......
8% Note B-2001 .........
7 -7/8% Note. C-2001 ......
7-112% Note 0-2001.. ....
7-112% Note A-2002 ....
6-3/8% Note B-2002
6-1/4% Note A-2003 ......
5-3/4% Note B-2003
5-7/8% Note A-2004 ......
7-1/4% Note B-2004 ......
7-1/4% Note C-2004 ......
7-7/8% Note 0-2004 ......
7-112% Note A-2005 ......
6-112% Note B-2005 ......
11-5/8% Bond 2004 .......
12% Bond 2005 ...........
10-3/4% Bond 2005 .......
9-3/8% Bond 2006 ........
11-3/4% Bond 2009-14 ....
11-1/4% Bond 2015
10-5/8% Bond 2015
9-7/8% Bond 2015
9-1/4% Bond 2016.
7-1/4% Bond 2016 ..
7-1/2% Bond 2016
8-3/4% Bond 2017.
8-7/8% Bond 2017
9-1/8% Bond 2018 ........
9% Bond 2018 ............
8-7/8% Bond 2019 ........
8-1/8% Bond 2019 .......
8-1/2% Bond 2020 ........
8-3/4% Bond 2020 ..
8-3/4% Bond 2020 .......
7-7/8% Bond 2021
8-1/8% Bond 2021 ..
8-1/8% Bond 2021
8% Bond 2021..
7-1/4% Bond 2022 ....
7-5/8% Bond 2022 .
7-1/8% Bond 2023
6-1/4% Bond 2023 .
7-1!2% Bond 2024
7-5:8% Bond 2025 .
08/15/95
11115/95 ..
02/15/96
05/15/96 ..
11/15/96 ..
05/15/97 ..
08/15/97 ......
11115/97 ......
02/15/98 ......
05/15/98 .....
08/15/98 ..
11/15/98 ......
02/15/99 .....
05/15/99 ......
08/15/99 ......
11115/99
02/15/00
05/15/00 ......
08/15/00 ......
11/15/00 ..
02/15/01
05/15/01.
08/15/01.. ....
11115/01.. ....
05/15/02 ......
08/15/02 ......
02/15/03 ......
08/15/03 ......
02/15/04 .....
05/15/04 ......
08/15/04 ......
11/15/04 ......
02/15/05 ......
05/15/05 ......
11/15/04 ......
05/15/05 ......
08/15/05 ......
02/15/06 ......
11/15/14 ......
02/15/15 ..
08/15/15
11/15/15 ..
02/15/16 ..
05/15/16
11115/16
05/15/17 ......
08/15/17
05/15/18 ......
11/15/18 ...
02/15/19
08/15/19 ....
02/15/20 ...
05/15/20
08/15/20 .....
02/15/21 ..
05/15/21 ......
08/15/21... ...
Principal Amount Outstanding
II
---------------- - - - - - - - - - - - - ---- --------------- II
Total
I . Portion Held in
I
Portion Held in
II
I
Unstripped Form
I
Stripped Form
II
Reconstituted
This Month #1
- - - ------------ -- ---------------- -- -------------------
11115/21.. .
08/15/22
11115/22 ..
02/15/23
08/15/23 ...
11/15/24 ...
02/15;25
7,955,901
7,318,550
8,449,835
20,085,643
20,258,810
9,921,237
9,362,836
9,808,329
9,159,068
9,165,387
11,342,646
9,902,875
9,719,623
10,047,103
10,163,644
10,773,960
10,673,033
10,496,230
11,080,646
11,519,682
11,312,802
12,398,083
12,339,185
24,226,102
11,714,397
23,859,015
23,562,691
28,011,028
12,955,077
14,440,372
13,346,467
14,373,760
13,834,754
14,739,504
8,301,806
4,260,758
9,269,713
4,755,916
6,005,584
12,667,799
7,149,916
6,899,859
7,266,854
18,823,551
18,864,448
18,194,169
14,016,858
8,708,639
9,032,870
19,250,798
20,213,832
10,228,868
10,158,883
21,418,606
11,113,373
11,958,888
12,163,482
32,798,394
10,352,790
10699,626
18,374,361
22.909,044
11,469662
11,725,170
4,909,901
3,385,350
6,691,435
17,144,843
17,510,010
8,818,437
7,697,236
7,253,129
7,951,388
6,760,387
8,901,846
7,123,675
8,066,823
6,832,703
7,965,094
7,709,960
8,642,633
5,918,630
7,412,006
8,256,882
9,268,002
9,769,683
9,945,585
22,182,662
10,871,277
22,790,215
23,112,323
27,431,028
12,955,077
14,440,372
13,315,267
14,373,760
13,834,754
14,739,504
5,364,206
2,863,058
8,233,713
4,753,164
2,480,784
8,442,999
2,445,596
2,443,859
6,267,654
18,335,551
17,772,768
7,566,169
8,556,058
1,919,839
2,344,670
5,375,598
16,078,152
5,083,268
3,200,003
4,865,806
10,186,973
4,579,048
4,786,202
8,147,894
7,255,190
2,874,026
14,427,161
22,593,300
8,854,702
11,033,970
3,046,000 I I
3,933,200 I I
1,758,400 II
2,940,800 II
2,748,800 II
1,102,800 II
1,665,600 I I
2,555,200 I I
1,207,680 I I
2,405,000 I I
2,440,800 I I
2,779,200 I I
1,652,800 I I
3,214,400 I I
2,198,550 I I
3,064,000 I I
2,030,400 I I
4,577,600 I I
3,668,640 I I
3,262,800 I I
2,044,800 I I
2,628,400 I I
2,393,600 I I
2,043,440 I I
843,120 II
1,068,800 I I
450,368 II
580,000 II
011
Oil
31,200 II
011
011
0 I
2,937,600 I
1,397,700 I
1,036,000 I
2,752 I
3,524,800 I
4,224,800 I
4,704,320 I
4,456,000 I
999,200 I
488,000 I
1,091,680 I
10,628,000 I
5,460,800 I I
6,788,800 I
6,688,200 I
13,875,200 I
4,135,680 I
5,145,600 I
6,958,880 I
16,552,800 I
926,400 I
7,379,840 I
7,377,280 I
24,650,500 I
3,097,600 I
7,825,600 I
3,947,200 I
315,744 II
2,614,960 I I
691,200 II
71,600
41,200
65,600
27,200
20,800
54,000
12,800
0
20,160
61,000
50,400
54,400
9,600
57,600
127,000
57,600
10,400
0
2,080
48,000
85,600
0
9,600
124,000
5,200
9,600
11,072
8,000
0
0
0
0
0
0
192,000
305,900
0
0
342,400
2,476,000
623,360
88,000
456,000
0
1,760
663,520
740,800
340,800
275,200
304,000
525,120
300,000
315,840
950,400
262,400
310,080
176,320
631,750
216,000
414,400
99,200
61,056
134,240
0
------------------------------- ----- ------------------------- ---- ------------------------------ -- -----------------------------Total.
837,372,792 I
613,113,258 I
224,259,534 I I
12,251,058
==================== ======================================== ==================== ==================== ===================
#1 Effective May 1. 1987, securities held in stnpped form were eligible for reconstitution to their unstripped form.
0
rt
'
Note On the 4th workday of each month Table VI will be available after 3 00 p m eastern time on the C
ommerce epa ment s
. ,
Economic Bulletin Board (EBB) The telephone number for more 1n,0rmatlon about EBB IS (202) 482-1986 The balances
In thiS table are subject to audit and subsequent adjustments
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
~21789~. . . . . . . . . . . . . . . . . . . . . . . . . .. . .
............................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
For Release Upon Delivery
Expected at 9:30 A.M.
June 7. 1995
STATEMENT OF
CYNTHIA G. BEERBOWER
DEPUTY ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
SENATE FINANCE COMMITTEE
Mr. Chairman and Members of the Committee:
I am pleased to present the views of the Treasury Department
on proposals (i) to increase unified estate and gift tax
exclusions and exemptions and (ii) to increase the expensing
limit for small business.
1. The Administration has strongly supported and will continue
to support the goal of assisting and strengthening small
businesses.
The Administration previously has undertaken both
legislative and administrative initiatives to achieve the goal of
assisting and strengthening small businesses.
In 1993, we
proposed and supported the 50-percent exclusion for capital gains
that result from the sale of small business stock; we supported
the enactment of Section 1044, encouraging investment in small
businesses by allowing gain from selling publicly traded stock to
be invested tax-free in specialized small business investment
companies; and we supported the increase in the amount of
capital investment that small businesses can expense from $10,000
to $17,500.
Administratively, we issued numerous regulations designed to
minimize or eliminate burdensome record-keeping requirements for
small businesses. This year, we have reduced the reporting
requirements necessary to claim an ordinary loss deduction on the
sale of small business stock.
Last year, we issued a variety of
guidances to reduce compliance burdens on small businesses and to
provide them with more flexibility.
For example, we issued
guidances which:
simplified the calculation for computing alternative
minimum tax liability;
simplified the determination of depreciation deductions,
allowing taxpayers to group certain assets in one or more
"general asset accounts";
RR-3S1
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2
-- clarified that S corporations may enter into partnerships
with partners that could not themselves qualify as S
corporations, including nonresident aliens. This guidance gives
S corporations flexibility to raise additional capital and
structure their business relationships as required;
-- clarified that employees did not have any income from the
employer's non-deductible portion of business meals and
entertainment, so long as there was a business purpose for the
expense;
-- clarified that small investment partnerships, including
family partnerships, can take advantage of a simplified form of
accounting for the built-in gains or losses on their securities;
and
-- provided that the rules governing the timing of hedging
gains and losses do not apply to small cash-method taxpayers,
even though such taxpayers are given the benefit of the favorable
character provisions in those regulations.
Similarly, in 1993, we issued mark-to-market regulations
that contain an exception for taxpayers with relatively low
levels of sales activity, and we issued uniform capitalization
rules that provide a de minimis rule for small businesses.
We expect to reduce needless administrative and compliance
costs by proposing that taxpayers be allowed_to elect to be
treated as a partnership by simply checking a box on a return.
This simplified approach would replace the current rules, under
which small businesses could get partnership tax treatment only
by complying with a multi-factored test that is both complex and
uncertain in its application. This check-the-box approach has
been uniformly praised by taxpayers and practitioners.
2. Increase of the Estate Tax Exemption and Addition of Estate
and Gift Tax Indexinq Provisions
Summary
The Administration recognizes that the estate-tax exemption
has not been increased since 1987.
We are concerned however
that.the.Hous 7-passed proposal to incre~se the exemption and '
prov~de ~ndex~ng would cost about $20 b~llion over 10 years and
would affect a limited number of taxpayers -- less than 15 000
taxpayers ~er year would bene~it.from the proposed increas~ in
the exempt~on. We would be w~lllng to work with the Congress to
develop and pay for targeted proposals that would provide
benefits for small family businesses.
3
Background
The first estate tax was enacted in 1916.
The present gift
tax was added in 1932 to prevent avoidance of the estate tax
through lifetime transfers. The initial estate tax was
progressive, with ra~es varying from one to ten percent. Over
the Y7ars~ the h~ghest marginal rate was greatly increased,
reach1ng 1ts maX1mum of 77 percent for the period from 1940 to
1976. At present, the marginal rates range from 18 to 55
percent. The 55 percent rate applies to taxable estates of
$3,000,000 or more.
From the outset, a certain amount of property was exempted
from the tax.
Prior to the unification of the estate and gift
tax systems in 1976, each taxpayer was allowed a specific
exemption from the estate tax and a separate specific exemption
from the gift tax.
In 1976, the estate tax exemption was
$60,000, and the gift tax exemption was $30,000.
These exemptions were converted into a credit in the Tax
Reform Act of 1976. That act made major structural changes in
the estate and gift taxes by unifying the estate and gift tax
systems, applying a single progressive rate schedule to the
aggregate transfers made by gift during life and at death. The
exemption was changed to a credit to equalize the benefit
received by smaller and larger estates.
The amount of the unified credit has been increased over
time to account for inflation (see Chart 1 below). When Congress
introduced the unified credit in 1976, it replaced the $60,000
estate-tax specific exemption which had been in effect since
1942. By 1976, the purchasing power of a dollar had decreased to
less than one-third of its 1942 value. Under the Tax Reform Act
of 1976, the phased-in unified credit effectively exempted from
taxation the first $175,625 of an estate (a unified credit of
$47,000) in 1981.
These exemptions had the effect in 1977 of
subjecting only 7.6 percent of decedents to the estate tax.
Congress reexamined the unified credit in the Economic
Recovery Tax Act of 1981 (ERTA), again determining that the
unified credit had failed to keep pace with inflation. The
Senate Report stated:
Inflation has increased the dollar value of property
and, therefore, the transfer tax burdens, without
increasing real wealth. With the existing level of
unified credit (which permits cumulative tax-free
transfers of $175,625), the estate tax is imposed on
estates of a relatively small size, including those
containing family farms or closely held businesses.
4
Imposing the tax on these smaller, i~liquid est~tes
often results in forced sales of fam~ly enterpr~ses.
S. Rep. 97-144, 97th Cong., 1st Sess. 124 (1981):
ERTA incr 7ased
the amount of the effective exemption over the f~ve-year per~od
from 1982 through 1987, from $175,625 (a unified credit of . .
$47,000) to $600,000 (a unified credit of $192,800). The un~f~ed
credit has remained unchanged since 1987.
CHART 1
History of the Unified Credit
Credit Amount
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987-Present
$30,000
34,000
38,000
42,500
47,000
62,800
79,300
96,300
121,800
155,800
192,800
Which Exempts the First
$120,666
134,000
147,333
161,560
175,625
225,000
275,000
325,000
400,000
500,000
600,000
Current Law
Under current law, the "unified credit" effectively exempts
from the federal estate tax the first $600,000 of an estate's
value. This credit essentially removes from the estate tax
system estates with assets of $600,000 or less. The unified
credit can also be used to exempt lifetime gifts from the gift
tax, but doing so reduces the amount of the credit available at
death.
If a married couple plans their estates carefully, both
spouses' unified credits can be used to pass $1,200,000 to their
children or other persons without imposition of any estate or
gift tax. The credit is phased out for estates in excess of
$10,000,000. The amount of the unified credit has been unchanged
since 1987.
In addition to the amount that can be transferred without
tax by gift or bequest due to the application of the unified
credit, each taxpayer also may make annual tax-free gifts of up
to $10,000 per recipient. A married couple together may make
annual gifts of $20,000 per recipient. The annual exclusion does
not apply to gifts of future interests (such as reversions or
remainder interests). The amount of the annual exclusion has
been unchanged since 1982.
5
.
A gener~tion-skip~in~ transfer tax ("GST tax") generally is
1mposed on d1rect and 1nd1rect transfers to a person in a
generation m9re than one generation below that of the transferor.
This tax is in addition to the estate or gift tax.
Each taxpayer
is allowed an exemption from the GST tax of $1,000 000 for
.
..
'
generat10n-sk1pp1ng transfers occurring during the taxpayer's
lifetime or at death.
The exemption amount was fixed at
$1,000,000 when the GST tax was enacted in 1986 and has remained
unchanged.
The estate tax includes relief provisions for farms and
family businesses. Under Code section 2032A, for example, an
executor may elect for estate tax purposes to value certain
"qualified real property" used in farming or another qualifying
closely held business at its current use value, rather than its
highest and best use value. When Congress adopted this provision
in 1976, it was concerned that a fair market valuation would make
"continuation of farming, etc. activities not feasible because
the income potential from these activities is insufficient to
service extended tax payments or loans obtained to pay the tax.
Thus the heirs may be forced to sell the land for development
purposes." S. Rep. 94-938, 94th Cong., 2d Sess. 15 (1976).
Code section 2032A is a limited departure from the ordinary
estate tax valuation rules, which require that property be valued
at its fair market value, that is, the price at which the
property would change hands between a willing buyer and a willing
seller. The maximum reduction in value of qualified real
property resulting from an election under Code section 2032A is
$750,000.
This maximum amount has been unchanged since 1983.
Another relief provision is Code Section 6166, which permits
an executor to elect to pay the Federal estate tax attributable
to an interest in a closely held business in installments over,
at most, a 14-year period. When this provision was enacted in
1976, Congress believed that "additional relief should be
provided to estates with illiquidity problems arising because a
substantial portion of the estate consists of an interest in a
closely held business or other illiquid assets." S. Rep. 94-938,
94th Cong., 2d Sess. 18 (1976).
Under Code section 6166, for the first five years, only
interest is required to be paid; payment of the principal may be
deferred for five years. To qualify for the election, the
business must be an active trade or business and the value of the
decedent's interest in the closely held business must exceed 35
percent of the decedent's adjusted gross estate. Under Code
section 6601(j), a special four-percent interest rate applies to
the amount of deferred estate tax attributable to the first
$1 000 000 in value of the closely-held business. This
$1', 000', 000 cap relating to the application
of the four-percent
.
interest rate has been unchanged Slnce 1976.
6
Thus , farmers , ranchers and small businesses can
obtain
,
relief from the special use valuation and Code Sect10n 6166 .
. deferral over and above the regular estate-tax exemptions.
For
example, if a farmer who qulaifies for the full special use
valuation election and Code Section 6166 died with a gross estate
valued at $1.5 million, the present value of the estate tax due
would be approximately $22,890 (taking into account the value of
the deferral of payment). ~n contrast, the estate of an employed
person who had accumulated or inherited wealth of $1.5 million
would owe an estate tax of approximately $341,500. The effective
estate tax rate on the farmer's estate would be under 1.6
percent, while the effective tax rate on the wage-earner's estate
would be 23.6 percent.
H.R. 1215
The House-passed tax legislation, H.R. 1215, would increase
the amount of the unified credit against gift and estate tax.
The increase would exempt the first $700,000 for decedents dying
(and gifts made) in 1996; $725,000 in 1997; and $750,000 in 1998.
After 1998, the unified credit would be indexed for inflation.
The bill would also index for inflation the $10,000 annual
exclusion amount, the $1,000,000 GST tax exemption, the $750,000
special use valuation limitation under Code Section 2032A and the
$1,000,000 cap on the four-percent interest rate under Code
Section 6601. The indexed annual exclusion amount would be
rounded to the nearest $1,000; all other indexed amounts would be
rounded to the nearest $10,000.
This proposal, if enacted, would reduce tax receipts by $6.7
billion over the five-year FY1996 - FY2000 period, and by $22.6
billion over the ten-year FY1996 - FY2005 period.
Discussion
The Administration recognizes that the levels of the
unified credit and various other estate and gift tax limitations
have not been increased since 1987. We are willing to work with
Congress to maintain an estate and gift tax system that exempts
small- and moderate-sized estates, and that helps keep intact
small and family businesses, so that they can be passed on to
future generations.
In addi~ion to co~si~ering the proposal contained in H.R.
1215, we bel1eve that 1t 1S appropriate to consider other more
t~rgeted m~dification~ to the,estate and gift tax system that
~1ght prov1d~ appr~p~1ate ~el1ef t~ small family businesses.
For
1nstance, th1s A~m~n1strat10n prev10usly has testified in support
of a proposal, s1m1lar to S. 105, that would modify on a
prospective basis, th~ ~pecia~ valuation rules of C~de Section
2032A to allow a qual1~1ed h~1r to cash-lease specially valued
real property to certa1n fam1ly members of the decedent, who
7
continue to operate the farm or closely held business, without
triggering a recapture of special valuation benefits.
Only a small number of the wealthiest taxpayers would
benefit from the increase in the unified credit in H.R. 1215.
In
1989, for example, 2,150,000 taxpayers died.
Less than 25,000 of
those decedents had taxable estates in excess of $600,000. Thus
with the unified credit provided by current law, the estates of '
only one percent of decedents paid estate tax in 1989. If the
unified credit had been $750,000 rather than $600,000 in 1989,
half of those estates would have paid no tax.
Increasing the unified credit is costly and would benefit
not only small businesses, but also the very wealthy. We are
willing to work with the Congress to achieve a more targeted way
to assist small businesses on a revenue-neutral basis.
3.
Increase of Expensing Limit for Small Business
Current Law
The cost of business or income-producing property that
provides service for more than one year generally must be
deducted over the recovery period of the property. Under Code
Section 179, a taxpayer may elect, however, to deduct currently
up to $17,500 Of the cost of the property (i.e., "expense" the
property). This $17,500 maximum, however, is reduced for each
dollar of the total cost of qualified property acquired during
the year in excess of $200,000. Thus, if the cost of qualified
property placed in service during the year exceeds $217,500, no
expensing is allowed.
H.R. 1215
The House-passed bill, H.R. 1215, would increase the maximum
investment that may be expensed to $22,500 for 1996, $27,500 for
1997, $32,500 for 1998, and $35,000 for 1999 and thereafter.
The proposal, if enacted, would reduce tax receipts by $8.0
billion over the five-year FY1996 - FY2000 period, and by $12.5
billion over the ten-year FY1996 - FY2005 period.
Discussion
The Administration supports increasing, on a revenue-neutral
basis the maximum investment that may be expensed for small
busin~ss. The Administration believes that it is important to
encourage small businesses to invest in,capital a~sets.
In
addition, increasing the maximum expenslng deductlon would
simplify tax reporting for eligible small businesses.
8
OBRA 93 increased the maximum investment that may be
currently deducted from $10,000 to $17,500. At that time, the
Administrat~on supported the House version of OBRA 93, which
would have raised the maximum to $25,000. The Administration
also testified in support of the original House legislation, H.R.
9, reflecting tax provisions of the Contract with America, which
would have raised the maximum to $25,000.
The phased-in increase to $35,000, as contained in H.R.
1215, is substantially more expensive than increasing the limit
to $25,000, which is estimated to lose $4.2 billion over 5 years
and $5.0 billion over 10 years. In this period of budgetary
constraints, we would be willing to work with Congress to develop
an appropriate revenue offset and would be willing to evaluate
whether, in light of these budgetary constraints, the phased-in
increase to $35,000 is likely to best meet the needs of small
businesses in a cost-effective manner.
TREASURY
NEWS
_________
"~--------"~8~q
~~
OFFICE OF PUBUC AFFAJRS • 1500 PENNSYLVANlA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
For Release Upon Delivery
Expected at 10:00 a.m.
June7,1995
ORAL TESTIMONY OF LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
HOUSE WAYS AND MEANS COMMITTEE
Mr. Chairman and Members of the Committee:
I have a longer statement for the record and I'd like to summarize it if I may.
Mr. Chairman, at the outset, I want to congratulate you for calling this hearing.
Frustration with our tax system is unacceptably high. We are committed to working with
Congress to address this serious problem. An excellent way to improve our tax system is
to consider alternatives. Thus, I am pleased to discuss today proposals for fundamental
tax reform.
Several plans have been introduced that would replace all or part of the income tax
and payroll taxes with a tax on consumption. These reform proposals originate in part
from frustration with the complexity of our existing tax system and concerns about our
national savings rate.
The most important reason to consider replacing the income tax with a consumption tax is that the change could increase saving and capital formation, and thereby raise
our standard of living in the long run. Depending on how it is designed, a consumption tax
could also improve economic efficiency and simplify the tax system.
Proponents of consumption taxes argue that a consumption tax would be an
effective way to encourage saving. They also suggest that a consumption tax would
improve economic efficiency and simplify the tax system. Most of our major trading
partners rely more heavily than the United States on consumption taxes, particularly valueadded taxes.
Regardless of how they are collected, consumption taxes have one element in
common--they tax income only when it is spent on consumer goods and services, or, in
order words, they exempt income from new saving from tax.
The proposals that are currently under discussion include Representative Armey's
and Senator Specter's plans to adopt a two-part flat rate consumption tax in place of the
current corporate and personal income taxes. Representative Gibbons has proposed a
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RR-3S2
subtraction method VAT in place of the corporate income tax, the payroll tax, and most of
the individual income tax. Senators Nunn and Domenici propose to replace the individual
and corporate income taxes with two consumption taxes: a flat-rate tax on businesses
and a progressive rate individual consumed income tax. In addition, Chairman Archer
would replace the present income tax system with a national retail sales tax or a VAT.
Criteria for evaluating consumption tax plans
As with all tax proposals, these reform ideas should be carefully evaluated
according to their ability to achieve fundamental tax policy objectives--fairness, efficiency,
and simplicity.
Reforms should also include rules to reduce windfall gains and unexpected losses
during the period of transition to a new system. Consumption tax proposals, in particular,
may require special transition rules to prevent taxing consumption from previously taxed
income, which could impose severe tax burdens on elderly Americans. In this regard, I
would note that when many economists talk about an ideal consumption tax they
postulate that in order to obtain maximum efficiency all existing wealth would be taxed as
part of a transition to a new system.
Also, it is widely acknowledged that consumption tax proposals will need special
rules for certain sectors, such as financial services businesses. Another issue in
considering a Federal-level consumption taxes is coordination with State and local
governments, which depend heavily on retail sales taxes for revenues.
The current Federal income tax promotes widely-held social and economic goals,
such as home ownership, private charitable giving, and the provision of medical insurance
by employers. We expect that a new consumption tax would still promote social and
economic goals. But continued use of the tax system for these purposes would greatly
lessen the possibilities for simplification and tax rate reduction from replacing our current
income tax with a broad-based consumption tax.
Moving from one tax system to another would be complex and costly and would
create both intended and unintended winners and losers. It would also change asset
values, and the level of prices and wages.
Mr. Chairman, we recognize that the current U.S. income tax system has many
defects, and we welcome discussion on how to reform it. But radical changes to the tax
system involve major costs and risks. Replacing the entire income tax with a consumption
tax would be a grand experiment of applying theory to a practical application that no other
country in the world has chosen to undertake. Proponents of these plans must, therefore,
overcome a significant hurdle--they must show that it is worthwhile to conduct this
experiment on the world's largest and most complex economy.
I ~ill comment ~ri~fly ~n four issues: distributional effects, effects on saving, costs
of compliance and ad~lnlstratlon, and the treatment of existing wealth in implementing a
change to a consumption tax.
2
Distributional effects of replacing the income tax with a consumption tax
A consumption tax would typically place a higher burden on low- and middleincome families than an income tax with the same rate structure. In this regard,
eliminating the tax on income from new capital benefits high-income families because they
receive the bulk of capital income.
Chart 1 shows the distributional effect of replacing the revenue of the corporate
and personal income taxes (including the earned income tax credit) with a broad-based
consumption tax with no exemptions and a revenue-neutral flat rate of 14.5 percent. This
baseline proposal is the simplest and most regressive form of consumption tax. It would
increase Federal taxes for families in the first four income quintiles and cut taxes for
families in the highest income quintile. Expressed as a percentage of after-tax income
under current law, a conversion to a broad-based consumption tax would reduce
aggregate after-tax income of the groups of families in the first four quintiles by 3.9
percent to 11.1 percent and increase aggregate after-tax income for families in the
highest-income quintile by 5.4 percent.
There are, of course, a number of ways to make consumption taxes less regressive
or even progressive. European countries reduce the regressivity of value added taxes by
exempting specific goods and services or taxing them at a lower rate. This approach does
not make the VAT much less regressive, however, because tax relief from exempting
specific goods and services is not directly targeted to low-income families.
Consumption taxes that are collected wholly or in part from individuals can more
easily be made progressive than those collected solely from businesses. This can be
achieved by providing standard deductions for low income families or graduated rates.
Chart 2 illustrates the effect of including standard deductions and personal
exemptions in a general consumption tax. It shows the distributional effect of replacing
the individual and corporate income tax with a modified flat tax. With standard deductions
of $24,700 for joint returns and $12,350 for single returns and a $5,000 personal
exemption, the revenue-neutral flat rate is 22.9 percent.
Under this version of the flat tax, the aggregate after-tax income for the top income
quintile would still be 1.6 percent higher than under current law (a net tax cut) and the
aggregate after-tax income for the group of families in the first four income quintiles would
still be 1.0 to 2.2 percent lower than under current law (a net tax increase).
Chart 3 compares the progressivity of the current Federal tax system with the
modified flat tax I just described. It shows that current law is progressive--effective tax
rates rise with each income quintile. The modified flat tax is progressive through the
fourth income quintile. However, the flat tax proposal ceases to be progressive for
families with the very highest incomes. For example, the effective tax rate decreases from
21.7 percent for families in the fourth income quintile to 16.4 percent for families in the
top one percent of the income distribution. Compared to present law, the effective tax
rate decreases from 24.5 percent to 16.4 percent for families in the top one percent of the
income distribution. This decrease in the tax burden occurs because under the flat tax
proposal income from new saving and investment is not taxed.
3
Addressing regressivity is a key challenge in designing a consumption tax that will
not add to the tax burdens of lower- and middle-income families. Thus, in analyzing any of
the proposals, this is the first question to be asked--is it fair? Compared to the current
system, who will be the winners and losers?
Effects on the rate of saving
A consumption tax would not tax the return to new saving and investment. An
income tax does tax this return, and thereby discourages saving and investment to some
degree. Consequently, one might expect that replacing the income tax with a
consumption tax would encourage domestic saving and capital formation.
The national saving rate in the United States has declined in the 1980s compared to
the previous three decades, due to a decline in. private saving and increases in the Federal
budget deficit. We consider the low rate of U.S. saving to be a very serious concern. But
we must ask ourselves how much the proposals under public discussion would help. The
decline in saving does not appear directly related to changes in tax policy. Marginal tax
rates were lowered substantially during the 1980s and new saving incentives were
introduced, but the overall rate of private saving still fell.
How much would substituting a consumption tax for the income tax boost total
private saving? If the after-tax rate of return on savings goes up, individuals may increase
saving for future consumption. Most statistical research by economists, however, finds
that the effect of increasing the rate of return on saving is small or negligible.
Our current income tax includes incentives for employers to provide retirement
saving plans for all their employees--including low-income employees. The incentives for
employers to establish retirement plans would be weaker under a consumption tax.
Simplification of the tax system
Simplification of the tax system is a very important goal of many tax reform
proposals. We strongly support this goal. A simpler tax system would lower compliance
costs for taxpayers and administration costs for the government.
One source of complexity in our current income tax, the measurement of capital
income, would be largely absent under a consumption tax. Three others important sources
of complexity--provisions to distribute the tax burden equitably, rules to measure the
consumption component of business income properly, and provisions that use the tax
system to advance certain social and economic policies, would continue under any
consumption tax.
For example, suppose it is desirable to have a consumption tax that continues to
promote home-ownership. Because consumption taxes, unlike the income tax, would
exempt interest income from tax, continuing to allow a deduction for mortgage interest
paid would encourage homeowners to incur additional borrowing beyond their financing
needs. Rules to prevent this type of tax arbitrage would be complex and difficult to enforce.
4
Some commentators have suggested that a switch from the present income tax to
a simpler consumption tax would promote compliance from the underground economy.
This benefit may easily be overstated. The reporting of income and sales from illegal
activities is unlikely to be affected by changes in the tax system. Incentives for not
reporting income or sales from "informal" activities would also remain under a
consumption tax.
Effect on the balance of trade
Also, it is sometimes argued that, because indirect taxes can be imposed on
imports and refunded on exports, the adoption of a VAT or other indirect consumption tax
to replace part or all of our current income taxes would encourage U.S. exports. However,
trade economists generally agree that such a tax change would not permanently improve
either U.S. exports or the U.S. trade balance.
Taxation of existing wealth
A very significant issue in converting to a consumption tax system is deciding how
to treat the return to wealth that was accumulated out of after-tax income under the
income tax.
For example, without a transition rule for past savings, a retiree who accumulated
$100,000 in a savings account out of after-tax income before the imposition of a
consumption tax would be taxed on withdrawals from that account that are for
consumption.
An exemption for existing wealth may be desirable to relieve the tax burden on
individuals with accumulated savings, may of whom are elderly. However, it would also
require higher tax rates on wage income and reduce much of the gain in economic
efficiency that are predicted from a consumption tax. In this respect, transition rules are
not merely an inconsequential technical issue. How existing wealth is treated during the
transition could have material economic effects.
Conclusion
We are not at this time convinced that the case for completely replacing the income
tax with a consumption tax is compelling. The most frequently cited economic benefit of
such a change, an increase in private saving, is uncertain and could be small. Savings
incentives within the existing income tax can increase saving without replacing the entire
tax system.
The fairness of replacing the income tax with a consumption tax is also a concern.
Moving to a flat-rate consumption tax would increase the tax burden on low-income
families and lower the tax burden on high-income families. Efforts to improve the
progressivity of consumption tax proposals result in complexity. In addition, the effect of
switching to a consumption tax on wage and price levels, interest rates, and the value of
existing assets--including homes--is uncertain.
5
In examining consumption tax proposals, it is inappropriate to compare a
theoretically ideal consumption tax and the income tax system in place today. Instead, we
should analyze a consumption tax that is likely to emerge from the political process.
Exclusions would be made under a consumption tax--either for administrative reasons or to
support social and economic goals-and those exclusions would reduce the economic
benefits of the proposals and increase complexity.
We commend efforts to develop consumption tax proposals that are progressive
and revenue-neutral. We are concerned, however, that such a consumption tax could be
excessively complex.
Mr. Chairman, we look forward to working with the Congress on improving our tax
system. We believe that greater weight should be given to simplification in evaluating tax
reform proposals than has been given in the past. A simpler tax system would lower
compliance costs for taxpayers and administration costs for the government. We will give
serious consideration to proposals that would meet the tax policy objectives set forth in
my testimony--proposals that would simplify the tax system and improve economic
incentives without sacrificing revenue or fairness.
Moreover, while the debate is in process, simplification should be given greater
weight in evaluating changes to our existing tax system. Finally, last year the House of
Representatives passed HR 3419, the Simplification and Technical Corrections Act of
1994. We urge the Committee to consider this legislation again.
Mr. Chairman, I would be pleased to answer any questions you or members of the
Committee may have.
6
Chart 1: Distributional Effect of Replacing Current
Income Taxes with a 14.5% Flat Rate Consumption Tax
Percent Change in After-Tax Income
17.7
15
10
5
o
-5
-10
-11.1
-15 ------------------------------~~~
L'
Lowest
Second
Third
Fourth
Income Quintiles
Source: Department of the Treasury (see Table 1 for details)
Highest
Top 1%
Chart 2: Distributional Effect of Replacing Current
Income Taxes with a 22.9% (Modified) Flat Rate
Consumption Tax
Pe~entChangeinAfte~Taxlncome~~~~~~~~~~~
10
8
6
4
2
1.6
~
o
-2
-2.2
-4~'----------------------------------~
Top 1%
Lowest
Second
Third
Fourth
Highest
Income Quintiles
.
Source: Department of the Treasury (see Table 2 for details)
Chart 3: Distributional Effect of Federal Tax System
Under Current Law and With Income Taxes Replaced
by a 22.90/0 (Modified) Flat Rate ConsumptionTax
Effective Tax Rate (Taxes as a Percent of Pre-Tax Income) - - - - - - - - - ,
•
•
20
10 t-
o
7.6
Current Law (Includes effects of the individual and corporate income taxes,
payroll taxes, and excise taxes)
24.5
Current Law with individual and
corporate income taxes replaced
by 22.9% flat rate tax
8.6
Lowest
Second
Third
Fourth
Income Quintiles
Source: Department of the Treasury
Highest
Top 10/0
Table 1
Replace Current Individual and Corporate Income Taxes (Including the EITC)
with a 14.5% Flat Rate Consumption Tax with No Exemptions(1)
(1996 Income Levels)
Change in After-Tax Income from Proposal (4)
Flat Rate
Family Economic
Income Quintile (2)
,
I
I Consumption
! After-Tax (3)
IIncome Under
I Current Law
I
Repeal
Income Tax
($8)
($8)
I
Lowest (5)
Second
I
I
I
Tax with No
Exemptions
($8)
Percentage
Total Change
Percentage
Amount
Change
($S)
Change
In Total
Federal Taxes
(%)
(%)
171.1
431.0
-4.5
9.9
-14.5
-53.1
-19.0
-43.2
-11.1
-10.0
134.1
70.5
Third
Fourth
Highest
697.9
1,091.9
2,693.1
59.6
126.6
536.7
-100.6
-168.8
-3914
-40.9
-42.2
1454
-5.9
-3.9
54
27.9
15.5
-18.6
Total (5)
5,054.7
7294
-729.4
0.0
0.0
0.0
Top 10%
1,899.8
1,371.5
427.7
341.2
162.8
160.7
202.7
8.6
11.7
17.7
-28.8
-38.7
683.5
-264.9
-180.5
-81.5
Top 5%
Top 1%
121.2
Department of the Treasury
Office of Tax Analysis
-54.6
March 7,1995
(1) This table distributes the estimated change in after-tax income due to the proposal with a revenue-neutral rate of 14.5 percent.
(2)
Family Economic Income (FEI) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income: IRA
and Keogh deductions; nontaxable transfer payments, such as Social Security and AFDC; employer-provided fringe benefits: inside build-up on
pensions, IRAs, Keoghs, and life insurance; tax-exempt interest; and imputed rent on owner-occupied hOUSing. Capital gains are computed on
an accrual basis, adjusted for inflation to the extent reliable data allow. Inflationary losses of lenders are subtracted and of borrowers are added.
There is also an adjustment for accelerated depreciation of noncorporate businesses. FEI is shown on a family, rather than on a tax return basis. The
economic incomes of all members of a family unit are added to arrive at the family's economic Income used in the distributions.
(3) The taxes included are individual and corporate income, payroll (Social Security and unemployment), and excises. Estate and gift taxes and customs
duties are excluded. The individual income tax is assumed to be borne by payors, the corporate income tax by capital income generally, payroll taxes
(employer and employee shares) by labor (wages and self-employment income), excises on purchases by individuals by the purchaser, and excises
on purchases by business in proportion to total consumption expenditures. Taxes due to provisions that expire prior to the end of the Budget period
(i.e., before 2000) are excluded.
(4)
The change in Federal taxes is estimated at 1996 income levelS but assuming fully phased in law and static behavior. The incidence assumptions for
the repealed income taxes is the same as for the current law taxes (see footnote 3). The portion of the flat rate consumption tax that falls on wages,
fringe benefrts, and penSion benefits is assumed to be borne proportionately by wages. fringe benefits. and pension benefits. The remaining portion of
the flat rate consumption tax, which falls on business cash flow, is assumed to be borne by capital income generally.
(5)
Families with negative incomes are excluded from the lowest quintile but Included in the total line.
NOTE: QUlntiles begin at FEI of: Second $15.604: Third $29.717: Fourth $48.660: Highest $79,056: Top 10% $103.70 l . Top 5% 5145.""2. Top 1 % S349.438
Table 2
Replace Current Individual and Corporate Income Taxes
with a 22.9% (Modified) Flat Rate Tax (1)
(1996 Income Levels)
122.9% Tax on 22.9% Tax on i 22.9% Tax on
Income Under Income Tax Wages Over Fringes and
8usiness
Family Economic I Current Law (except EITC) ftand. Ded. (5 Payroll Tax (6) Cash Flow
Income Quintile (2)
($8)
($8)
($8)
($8)
($8)
I After-Tax (3)
I
I
Lowest (7)
Second
Third
i Percentage
Change in After-Tax Income Under Proposal (4)
:
t
:
Repeal
171.1
431.0
697.9
1,091.9
Total
Change
($8)
Percentage
Change
(%)
Change
In Total
(%)
-2.7
-1.9
-1.7
-1.0
12.2
25.0
64.1
-9.0
-17.0
-9.5
-20.7
-5.2
-12.2
-1.2
-1.8
8.5
8.3
-91.5
-300.1
-26.5
-39.5
-33.8
-154.1
-24.2
43.3
-2.2
1.6
8.9
-5.6
0.0
0.0
Fourth
Highest
2,693.1
127.6
537.0
Total (7)
5,054.7
758.6
-443.7
-94.9
-220.0
0.0
1,899.8
427.9
1,371.5
341.2
Top 5%
Top1%
683.5
202.7
Department of the Treasury I Office of Tax Analysis
-211.0
-142.2
-58.5
-21.0
-10.6
-2.3
-128.8
-108.6
-68.3
79.7
73.7
Top 10%
67.0
3.5
-11.9
5.8
-19.2
-33.2
10.8
March 7, 1995
(1) This table distributes the estimated change in after-tax income due to the proposal with a revenue-neutral rate of 22.9 percent (approximately).
(2)
Family Economic Income (FE I) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income: IRA
and Keogh deductions; nontaxable transfer payments, such as Social Security and AFDC; employer-provided fringe benefits; inside build-up on
pensions, IRAs, Keoghs, and life insurance;
t~-exempt
interest: and imputed rent on owner-occupied housing. Capital gains are computed on
an accrual basis, adjusted for inflation to the extent reliable data allow. Inflationary losses of lenders are subtracted and of borrowers are added.
There is also an adjustment for accelerated depreciation of noncorporate businesses. FEI is shown on a family, rather than on a tax return basis. The
economic incomes of all members of a family unit are added to arrive at the family's economic income used in the distributions.
(3) The taxes included are individual and corporate income, payroll (Social Security and unemployment), and excises. Estate and gift taxes and customs
duties are excluded. The individual income tax is assumed to be bome by payors, the corporate income tax by capital income generally, payroll taxes
(employer and employee shares) by labor (wages and self-employment income), excises on purchases by individuals by the purchaser, and excises
on purchases by business in proportion to total consumption expenditures. Taxes due to proviSions that expire prior to the end of the Budget period
(i.e., before 2000) are excluded.
(4)
The change in Federal taxes is estimated at 1996 income levels but assuming fully phased in law and static behavior. The incidence assumptions for
the repealed income taxes is the same as for the current law taxes (see footnote 3). The flat tax on wages (plus pension benefits received) is assumed
to be bome by wages plus pension benefits received in excess of the standard deduction. The flat tax on employer-provided fringe benefits (except
penSion contributions) and payroll taxes is assumed to be borne by employees in proportion to benefits or taxes. The flat tax on business cash flow is
assumed to be bome by capital income generally.
(5) The standard deduction (in 1995$) is 524,700 Goint) or $12,350 (single) plus 55,000 for each dependent. Non-pension fringe benefits of government
and nonprofit employees are included in wages.
(6) The proposal would disallow a deduction for employer-provided fringe benefits (except pension contributions) making these benefits (primarily
employer-provided health insurance) subject to the 22.9 percent flat tax. The employer portion of payroll taxes would likewise be nondeductible.
(l)
Families with negative incomes are excluded from the lowest quintile but included in the total line.
NOTE: Quintiles begin at FEI of: Second $15,604: Third 529.717: Fourth $48.660: Highest $79,056: Top 10% $108,704: Top 5% $145,412: Top 1% 5349.438.
I
i
t
t
Federal Taxes,
-0.9
-11.8
-38.7
3.8
i
Table 3
Replace Current Individual and Corporate Income Taxes
with a 22.9% (Modified) Flat Rate Tax (1)
(1996 Income Levels)
I
Federal
I
I
: Taxes Under:
I
Current
Family Economic
Law (3)
Income Quintile (2)
($8)
Federal
Taxes as a Percent of
Taxes with
Pre-Tax Income Under:
22.9% Flat
Change in :
Rate Tax (4) iFederal Taxes:
($8)
($8)
I
with 22.9%
Current Law
Flat Rate Tax!
(%)
(%)!
Lowest (1)
14.2
15.9
1.7
7.6
8.6
Second
61.2
66.4
12.4
Third
146.5
158.7
5.2
12.2
17.3
13.5
18.8
Fourth
271.8
Highest
779.5
296.0
736.2
24.2
-43.3
19.9
22.4
21.2
Total (7)
1275.1
1275.1
0.0
20.1
20.1
Top 10%
565.3
Top 5%
415.3
Top 1%
221.9
498.3
335.6
148.3
-67.0
-79.7
-73.7
22.9
23.2
24.5
20.2
18.8
16.4
Department of the Treasury
21.7
June 5.1995
Office of Tax Analysis
(1) This table distributes the estimated change in Federal taxes due to a (modifIed) flat rate tax with a revenue-neutral rate of 22.9 percent (approximately)
which replaces the current individual and corporate income taxes.
(2)
Family Economic Income (FE!) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income: IRA
and Keogh deductions; nontaxable transfer payments, such as Social Security and AFDC: employer-provided fringe benefits: inside build-up on
pensions, IRAs, Keoghs, and life insurance; tax-exempt interest: and imputed rent on owner-occupied housing. Capital gains are computed on
an accrual basis, adjusted for inflation to the extent reliable data allow. Inflationary losses of lenders are subtracted and of borrowers are added.
There is also an adjustment for accelerated depreciation of noncorporate businesses. FEI is shown on a family. rather than on a tax return basis. The
economic incomes of all members of a family unit are added to arrive at the family's economic income used in the distributions.
(3) The taxes included are individual and corporate income, payroll (Social Security and unemployment). and excises. Estate and gift taxes and customs
duties are excluded. The individual income tax is assumed to be borne by payors, the corporate income tax by capital income generally, payroll taxes
(employer and employee shares) by labor (wages and self-employment income), excises on purchases by individuals by the purchaser. and excises
on purchases by business in proportion to total consumption expenditures. Taxes due to provisions that expire prior to the end of the Budget period
(i.e., before 2000) are excluded.
(4)
The change in Federal taxes is estimated at 1996 income levels but assumIng fully phased
In
law and static behavior. The incidence assumptions for
the repealed income taxes is the same as for the current law taxes (see footnote 3). The flat tax on wages (plus pension benefits received) is assumed
to be bome by wages plus pension benefits received in excess of the standard deduction. The flat tax on employer-provided fringe benefits (except
pension contributions) and payroll taxes is assumed to be borne by employees in proportion to benefits or taxes. The flat tax on business cash flow is
assumed to be borne by capital income generally.
The standard deduction (in 1995$) is $24,700 Goint) or $12.350 (single) plus $5.000 for each dependent. Non-pension fringe benefits of government
and nonprofit employees are included in wages.
The proposal would disallow a deduction for employer-provided fringe benefIts (except pension contributions) making these benefits (primarily
employer-provided health insurance) subject to the 22.9 percent flat tax. The employer portion of payroll taxes would likeWIse be nondeductible.
(5)
Families with negative incomes are included in the total line but not shown separately.
DEPARTMENT
OF
THE
'l'RRASURY
I}'_/Y<'~\
,~
i~te1~~
TREASURY
NEW S
178f'l~• • • • • • • • • • • • • • • • • •
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 7, 1995
RECORD TESTIMONY OF LESLIE B. SAMUELS
ASSISTANT SECRETARY FOR TAX POLICY
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
RR-353
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Table of Contents
Introduction . . . .
page number
....... 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.?
Wh at IS
a consumptIon tax. . . . . . . . . . . . . . . . . . . . . . . . . . .
Options for taxing consumption . . . . . . . . . . . . . . . . . . . . . . . .
1. Retail sales tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Value-added tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Two-part individual/business consumption tax . . . . . . . . ..
4. Consumed income tax . . . . . . . . . . . . . . . . . . . . . . . . .
2
3
4
5
5
5
6
Distributional effects of replacing the income tax with a consumption tax . .. 6
Replacing the income tax with a fiat-rate consumption tax . . . . . . .. 6
Addressing the regressivity of a consumption tax . . . . . . . . . . . . . 10
Economic effects of replacing the income tax with a consumption tax . . . . . 17
Saving and investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1. National saving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2. Tax policy and private saving . . . . . . . . . . . . . . . . . . . . 20
3. Saving and investment . . . . . . . . . . . . . . . . . . . . . . . . 21
4. Interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Prices and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Asset values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Economic efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1. Allocation of capital . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2. Taxation of existing wealth . . . . . . . . . . . . . . . . . . . . . . 25
3. Labor supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4. Consumption-saving choice . . . . . . . . . . . . . . . . . . . . . 26
International trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Sector-specific issues of adopting a consumption tax . . . . . . . . . .. 28
Simplicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Distribution of the tax burden . . . . . . . . . . . . . . . . . . . . . . . . . 31
Measuring consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Promoting social and economic goals . . . . . . . . . . . . . . . . . . . . . 32
The underground economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Coordination with State and local taxes . . . . . . . . . . . . . . . . . . . . . . . . 33
Transition to a consumption tax and the tax on existing wealth . . . . . . . . . . 33
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5
Mr. Chairman and Members of the Committee:
Introduction
I am pleased to discuss today proposals for fundamental reform of the tax system.
During the last two years, several proposals have been made that would replace all or part of
the income tax and payroll taxes with a tax on consumption. The conceptual proposals under
current discussion include Representative Armey's and Senator Specter's plans to adopt a
two-part flat consumption tax in place of the current corporate and personal income taxes,
Representative Gibbons' plan to adopt a subtraction method value-added tax (V AT) in place
of the corporate income tax, the payroll tax, and most of the individual income tax, and a
plan by Senators Nunn and Domenici to replace the individual and corporate income taxes
with two consumption taxes: a flat-rate tax on businesses and a progressive-rate individual
consumed income tax. In addition, Chairman Archer would replace the present income tax
system with a national retail sales tax or a VAT. Some of these proposals have been
introduced as bills, but we understand that some of them are not yet in final form.
The interest in consumption taxes apparently arises for several reasons. The most
frequently cited benefit of moving from a system that taxes income toward one that taxes
consumption is that a consumption tax will improve saving rates and capital formation, and
our standard of living in the long run. Proponents of consumption taxes also argue that a
consumption tax would improve economic efficiency -- and thereby increase national output
-- and simplify the tax system. Some supporters of consumption taxes point out that most of
our major trading partners rely more heavily on consumption taxes, particularly VATs, and
that adoption of a VAT in the United States would be more compatible with international
practices.
Mr. Chairman, we recognize that the current U.S. income tax system has many
defects, and we welcome the discussion on how to reform it. Since radical changes to the
tax system -- especially changes that would completely replace the existing system -- involve
costs and risks, they should be carefully evaluated according to their ability to achieve the
fundamental objectives of a tax system -- fairness, efficiency, and simplicity. We believe a
tax system should:
•
•
•
•
•
raise sufficient revenue,
distribute the burden of taxes equitably,
avoid excessive intrusion of tax considerations into private economic decisions,
promote economic prosperity and growth,
and limit the costs to families and businesses of complying with the tax and the
costs to the government of administering it.
Reforms should also include rules to reduce windfall gains and losses during the period of
transition to a new system. Consumption tax proposals, in particular, should address the
effect of the transition on the tax burden of the elderly, should include rules for the treatment
of certain hard-to-tax economic sectors, such as financial institutions, and should address the
coordination of a Federal consumption tax with State and local retail sales taxes.
2
In addition to these general tax policy objectives, the Federal income tax has, over the
years, been used to promote widely-held social and economic goals, such as home
ownership, private charitable giving, and provision of medical insurance by employers. It is
likely that these goals would continue to be seen as pursuits worthy of preference under a
reformed tax system. To the extent that a reformed system is to be used to promote social
and economic goals, possibilities for simplification and tax rate reduction would be materially
reduced.
The strongest argument for a consumption tax is that it will probably increase saving
and investment, but the amount of any increase is highly uncertain and could be small.
Other ways of increasing national saving -- such as further deficit reduction or expanding
saving incentives within the income tax -- can be used to further this objective either more
surely or with less overall disruption than a wholesale replacement of the existing income
tax.
Replacing the income tax with a consumption tax also raises concerns about fairness,
because many consumption tax alternatives would increase the tax burden on low- and
middle-income families. Efforts to improve the progressivity of consumption taxes would
require significant increases in costs of compliance and administration. Moving from one tax
system to another would also be complex and costly and would create both intended and
unintended winners and losers. It also would change asset values, and the level of prices and
wages.
Replacing the entire income tax with a consumption tax would be a grand experiment
of applying theory to a practical application that no other country in the world has chosen to
undertake. Proponents of these plans must, therefore, overcome a significant hurdle -- they
must show that it is worthwhile to conduct this experiment on the world's largest and most
complex economy.
The remainder of my testimony will describe (i) various types of consumption taxes,
(ii) the distributional and economic effects of replacing the income tax with a consumption
tax (including the international aspects of the proposals), (iii) some issues related to specific
economic sectors that would have to be addressed in implementing a consumption tax, (iv)
observations about simplifying the tax system, (v) the effect of some consumption tax
proposals on the underground economy, (vi) coordination of proposals with State and local
retail sales taxes, and (vii) transition issues.
Background
Imposing taxes on the basis of income (whether from labor or the return to savings
and investment) arises from the principle that an equitable tax system should take into
consideration the variation among individuals' ability to pay taxes. The "ability-to-pay"
principle is often understood to mean that a tax should be progressive with respect to income;
that is, the portion of income that is paid in taxes should rise as income rises. A broad-
3
based income tax with graduated tax rates, as in the United States and other advanced
economies, satisfies that criterion. An income tax need not have graduated rates, however.
A flat-rate income tax applied beyond some base level of income would be progressive, but
not to the same degree as a graduated-rate tax.
What is a consumption tax?
As an alternative to income-based taxes, consumption taxes are levied only on income
that is spent on consumer goods and services; or, in other words, income that is saved is
exempt from tax. Within this definition, broad-based consumption taxes can be administered
in a number of ways. They can be collected wholly from businesses, either on final sales to
consumers or on the value-added by all businesses at each stage of production. They can be
collected in part from businesses and in part from wage-earners by allowing businesses to
deduct wages and taxing them at the individual level. They can be collected wholly from
individuals by modifying the current individual income tax to allow taxpayers to claim a
deduction for all net saving. Furthermore, the statutory rates under a consumption tax can
be flat, or they can differ across individuals or across different types of consumption. And a
consumption tax that is collected from businesses can be broad-based, or it can exempt
certain goods and services or businesses from tax.
Consumption taxes that are collected from individuals exempt income that is saved
from tax in one of two ways: (1) by allowing a deduction from an income base for income
that is saved and adding to the tax base the amount dissaved, or (2) by including
compensation in the tax base and exempting the return to savings (interest, dividends, and
capital gains). To see how exempting income that is saved is equivalent to exempting the
return to savings, consider the effect of each approach on a taxpayer who begins a year with
$100 of wage income and wishes to postpone all consumption for five years. The taxpayer
saves all of his after-tax wage income in the first year and earns a five percent annual return
on his savings. At the end of five years, he withdraws his principal and accumulated interest
and spends it. In each year, the tax rate is 28 percent.
In the first case, the taxpayer is allowed a deduction for net saving, but is taxed on
net withdrawals from savings. The taxpayer deposits his $100 of wages in a savings
account. He deducts $100 from his taxable income, leaving him with zero taxable income
and zero tax liability. His after-tax consumption in the first year is also zero. Because the
taxpayer reinvests the interest income on his savings, he owes no tax on the interest income
during the next five years. In the fifth year he withdraws $127.63: his original savings of
$100 plus interest of $27.63. At a tax rate of 28 percent, his tax due on $127.63 of taxable
income is $35.74. His after-tax consumption is $91.89.
In the second case, the taxpayer must pay tax on his wage income and receives no
savings deduction. He pays $28 of tax on his $100 of wage income and deposits the
remaining $72 of after-tax income in the bank. He has zero after-tax consumption in the
first year. Over the next five years, his interest income is exempt from tax. In the fifth year
4
he withdraws $91.89, his original savings of $72 plus interest of $19.89. His taxable income
is zero, and his after-tax consumption is $91.89. Assuming that the taxpayer is in the same
tax bracket during the five-year period, exempting the return to saving results in the same
pattern of after-tax consumption as allowing a deduction for income that is saved, leaving the
taxpayer indifferent between the two approaches.
Consumption taxes that are collected from businesses grant an immediate deduction
for purchases of new capital stocks (including machinery, buildings, land, and inventory).
This immediate deduction -- or "expensing" -- effectively eliminates the tax on the return
from new investment. A consumption tax that is collected in part from individuals and in
part from businesses would allow businesses tQ expense capital purchases and, under the
individual tax, either exempt income that is saved or exempt the return to savings. The
combination of these mechanisms ensures that income from capital -- the return to saving and
investment -- is untaxed at any level.
Relieving new saving and new investment from tax is seen as the primary benefit of
taxing consumption instead of income. Because the after-tax return to savers will increase,
families will have an incentive to save more. But exempting the return to new saving
reduces the tax base, requiring higher tax burdens on wage income. Moreover, because lowand middle-income households typically do not save as large a percentage of their incomes as
higher-income households, flat rate consumption taxes are regressive -- effective tax rates
decline as family incomes rise. Addressing the regressivity problem is a key challenge in
designing a consumption tax that will not add to tax burdens of lower- and middle-income
families.
While the key feature of a consumption tax is that it exempts income from new saving
and investment, it should also be noted that many forms of consumption tax would reduce the
number and types of deductions allowed to businesses. In general, a business-level
consumption tax will allow deductions only for payments made to other businesses.
Therefore, wage payments and the cost of non-pension employee fringe benefits -- such as
employer-provided health insurance -- State and local taxes, and payroll taxes would
generally not be deductible to businesses. The disallowance of deductions for fringe benefits
and for·the employer portion of the payroll tax under some proposals represents a "hidden"
tax on employees, since most economists believe that these taxes would be shifted by
employers to their employees.
Options for taxing consumption
There are a number of ways to administer a consumption tax, although the various
forms would all not tax the return from new saving. The distributional effects and
administrative costs would depend on the details of each proposal.
The theoretical model for each general option is described below. Applying theory to
practice, however, will inevitably involve some compromises with the pure models. The
5
degree of the deviations will be important in assessing both the possible viability and the
overall economic effects of any particular proposal.
1. Retail sales tax eRST). Businesses are the sole collection agents for retail sales
taxes -- like those used by most States -- and VATs. A RST is applied to sales of goods and
services to households. In order to tax only sales to consumers, the RST must exempt sales
between businesses and distinguish between taxable and exempt sales of capital goods. If the
RST is levied on a broad base, it is a tax on total consumption. Because a RST is collected
only on retail sales to domestic consumers, it automatically taxes imports and exempts
exports. State sales taxes in the United States are not broad-based for two main reasons.
First, certain purchases, including purchases of housing and necessities like food and medical
care, are tax-exempt for social policy reasons. Second, many services are exempt for
administrative reasons.
2. Value-added tax. Most countries that have a national consumption tax administer
it as a credit-invoice VAT. Under this system, businesses are liable for VAT on their sales,
but receive a credit against their tax liabilities for VAT paid on inputs purchased from other
businesses. Credit-invoice VATs in effect in other countries tax imports and exempt exports.
They achieve this result by not taxing export sales, while allowing exporters a credit for all
purchased inputs, and effectively imposing tax on goods purchased from other countries by
not allowing their costs to be creditable.
Under a subtraction method VAT (also called a "business transfer tax" or BTT), a
business is liable for tax on the difference between its sales and its purchases from other
businesses, including purchases of buildings and equipment (but, as stated above, excluding
other costs such as taxes paid and labor compensation). If the tax is applied to all goods and
services at the same rate, a credit-invoice method VAT is economically equivalent to a
similarly broad-based subtraction method VAT or national RST. Under Representative
Gibbons' proposal, businesses would be subject to a subtraction method VAT.
3. Two-part individual/business consumption tax. Another form of consumption tax
is collected in part from individuals and in part from businesses. The tax could be
administered in the same way as a subtraction method VAT, except that it would allow
wages to be deducted from the business tax base and would tax. them at the individual level.
If wages are subject to the same, single tax rate that is applied to businesses, the tax is
"flat. "
The proposals by Representative Armey and Senator Specter are consumption taxes of
this form. In their proposals, wages are subject to a flat tax rate equal to the business tax
rate, but wage earners are allowed to claim personal exemptions. These plans are
economically equivalent to a VAT with a credit for wages up to the personal exemption
amount. Alternatively, the individual portion of the tax could be levied at graduated rates.
With no exemptions or deductions, the base of this two-part tax is the same as that of a
broad-based VAT or national RST -- total consumption.
6
4. Consumed income tax. A consumption tax collected solely from individuals
would be levied directly on their reported income, just like the current income tax, but would
allow a deduction for net saving. The base of this tax is equal to consumption, because
consumption is the difference between income and net saving. In order to measure income
properly, proceeds from all forms of borrowing would need to be included in the tax base,
and all forms of saving would be deductible.
The USA Tax System proposed by Senators Nunn and Domenici is comprised of both
a flat-rate tax on businesses that is similar to a subtraction method VAT and a progressiverate individual consumed income tax. The Nunn-Domenici proposal would not allow a
deduction for labor costs under the business tax and would include labor income under the
individual tax. This means that wages and salaries and non-pension fringe benefits would be
taxed twice: once at the business level and again at the individual level. However, the tax
burden on wages would be reduced through tax credits to both employers and employees for
payroll taxes paid.
Distributional effects of replacing the income tax with a consumption tax
Re.placing the income tax with a flat-rate consumption tax
The effect on the distribution of the tax burden of replacing the income tax with a
consumption tax depends on the details of the tax that is adopted and on which taxes are
replaced. Generally, however, taxing consumption places a higher burden on low- and
middle-income families -- who typically do not save much of their income -- relative to an
income tax. Because capital income is concentrated among high-income families, eliminating
the tax on income from new capital will disproportionately benefit high-income families. 1
The change will, therefore, shift the tax burden away from high-income families to middleand low-income families.
Table 1 shows the distributional effect of replacing the revenue of the corporate and
personal income taxes (including the earned income tax credit) with a general consumption
tax with no exemptions (such as a broad-based VAT or national RST).2 The revenue-neutral
rate of 14.5 percent used for these calculations assumes that the tax is imposed on all
consumption in the economy, including consumption services supplied by the government and
non-profit sectors, which would probably be exempt from a VAT or RST. In practice,
IFor example, about 40 percent of all taxable interest and dividend income reported on 1991 individual
tax returns was received by the 6 percent of taxpayers with adjusted gross income over $75,000. See U.S.
Internal Revenue Service, Statistics of Income Division, Individual Income Tax Returns-1991, U.S.
Government Printing Office, 1994, pp. 28-30.
2For an explanation of how to design a consumed income tax that is distributionally neutral across
income quintiles, see U.S. Congressional Budget Office, Estimates for a Prototype Saving-Exempt Income Tax,
Congressional Budget Office, 1994, pp. 19-28.
7
therefore, the rate that would be required under a broad-based VAT or RST would probably
be much higher. 3
At the 14.5 percent tax rate, the aggregate after-tax income for the group of families
in the first through fourth income quintiles would be lower under the flat tax (i.e., a net tax
increase), while the aggregate after-tax income for the group of families in the highest
income quintile would be higher under the flat tax (a net tax cut). Expressed as a percentage
of after-tax income under current law, the proposal would cause a reduction in aggregate
after-tax income of between 3.9 percent and 11.1 percent for the groups of families in the
first through fourth income quintiles and a 5.4 percent increase in after-tax income for the
groups of families in the highest income quintile. 4 This amounts to aggregate increases in
Federal taxes ranging from 15.5 percent to 134.1 percent for the group of families in the
first through fourth income quintiles, and a 18.6 percent reduction in taxes for the group of
families in the highest income quintile. 5 ,6
In this analysis, the burden of the consumption tax is distributed to taxpayers
according to components of current income. But individuals may base current expenditures
on their expectation of future income as well as on current income. For example, college
students who earn very little while they are in school might, nevertheless, have high current
consumption expenditures if they are able to borrow against the expectation that they will
have high incomes in the future. In such cases, annual income understates economic wellbeing. Annual income may overstate economic well-being in a year when a family receives
lne 14.5 percent tax rate would be applied on a tax-inclusive basis, in a manner similar to the income
tax. The equivalent rate calculated on a tax-exclusive basis, as would be relevant under a VAT, is 17.0
percent.
'These results are illustrated in Chart 1.
5The
distributional estimates shown in the Table 1 are based on the assumption that the consumption tax
is borne by taxpayers in proportion to their earnings and income from existing capital. Alternative assumptions
could be made about who bears the burden of the tax. A traditional assumption is that a consumption tax is
borne by consumers in proportion to their consumption. We have not followed this approach, because it
overstates the tax cut for high-income families and the tax increases for low- and middle-income families by
failing to adjust for temporary income fluctuations and normal life-cycle patterns of consumption and income.
In addition, lack of reliable data on consumption by families with very high and very low incomes make
distributional estimates based on the traditional approach less reliable than those shown in Table 1. Following
this approach would lead to a more regressive distribution of the tax than that shown in Table 1.
~e finding that replacing the income tax with a flat-rate consumption tax would redistribute tax
burdens from low-income to high-income families is consistent with previous analyses. For example, CBO and
JCf find that, under a broad-based VAT, low-income families would pay a higher fraction of their income in
tax compared to high-income families. See U.S. Congressional Budget Office, Effects of Adopting a ValueAdded Tat, U.S. Congressional Budget Office, 1992, pp. 32-7, and Joint Committee on Taxation, Methodology
and Issues in Measuring Changes in the Distribution of Tat Burdens, U.S. Government Printing Office, 1993,
p.54-5.
Table 1
Replace Current Individual and Corporate Income Taxes (Including the EITC)
with a 14.5% Flat Rate Consumption Tax with No Exemptions(1)
(1996 Income Levels)
Change in After-Tax Income from Proposal (4)
I
I
I
Family Economic
Income Quintile (2)
After-Tax (3)
Income Under
Current Law
($8)
Repeal
Income Tax
Flat Rate
Consumption
I
Tax with No
Exemptions
II
($8)
($8)
I
Percentage
Total Change
Percentage
Amount
($8)
Change
I
IFederal Taxes
:
(%)
Change
In Total
(%)
171.1
431.0
-4.5
9.9
-14.5
-53.1
-19.0
-43.2
-11.1
-10.0
134.1
70.5
Third
Fourth
Highest
697.9
1,091.9
2,693.1
59.6
126.6
536.7
-100.6
-168.8
-391.4
-40.9
-42.2
145.4
-5.9
-3.9
5.4
27.9
15.5
-18.6
Total (5)
5,054.7
729.4
-729.4
0.0
0.0
0.0
Top 10%
Top 5%
1,899.8
1,371.5
427.7
341.2
162.8
160.7
8.6
11.7
Top 1%
683.5
202.7
-264.9
-180.5
-81.5
121.2
17.7
-28.8
-38.7
-54.6
Lowest (5)
Second
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _ . _ - - - - --Department of the Treasury
Office of Tax Analysis
March 7,1995
(1) This table distributes the estimated change in after-tax income due to the proposal with a revenue-neutral rate of 14.5 percent.
(2)
Family Economic Income (FE I) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income; IRA
and Keogh deductions; nontaxable transfer payments. such as Social Security and AFDC; employer-provided fringe benefits; inside build-up on
pensions, IRAs, Keoghs. and life insurance; tax-exempt interest; and imputed rent on owner-occupied housing. Capital gains are computed on
an accrual basis. adjusted for inflation to the extent reliable data allow. Inflationary losses of lenders are subtracted and of borrowers are added.
There is also an adjustment for accelerated depreciation of noncorporate businesses. FEI is shown on a family. rather than on a tax return basis. The
economic incomes of all members of a family unit are added to arrive at the family's economic income used in the distributions.
(3)
The taxes included are individual and corporate income. payroll (Social Security and unemployment). and excises. Estate and gift taxes and customs
duties are excluded. The individual income tax is assumed to be borne by payors. the corporate income tax by capital income generally. payroll taxes
(employer and employee shares) by labor (wages and self-employment income). excises on purchases by individuals by the purchaser, and excises
on purchases by business in proportion to total consumption expenditures. Taxes due to provisions that expire prior to the end of the Budget period
(i.e .• before 2000) are excluded.
(4)
The change in Federal taxes is estimated at 1996 income levels but assuming fully phased in law and static behavior. The incidence assumptions for
the repealed income taxes is the same as for the current law taxes (see footnote 3). The portion of the flat rate consumption tax that falls on wages.
fringe benefits. and pension benefits is assumed to be borne proportionately by wages. fringe benefits. and pension benefits. The remaining portion of
the flat rate consumption tax. Which falls on business cash flow. is assumed to be borne by capital income generally.
(5)
Families with negative incomes are excluded from the lowest quintile but included in the total line.
NOTE: Quintiles begin at FEI of: Second $15.604; Third 529.717; Fourth 548.660; Highest $79.056: Top 10'10 $108.704; Top 5'10 $145.412. Top 1% $349.438.
Chart 1: Distributional Effect of Replacing Current
Income Taxes with a 14.5% Flat Rate Consumption Tax
Percent Change in After-Tax Income
17.7
15
10
5.4
,.,..,.,.,.,..,
5
o
-5
-10
-11.1
-15IL--------~~~~~~~----~~~
Lowest
Second
Third
Fourth
Highest
Top 10/0
Income Quintiles
Source: Department of the Treasury (see Table 1 for details)
10
income from a transitory source, such as a large bonus. For these reasons, some economists
argue that lifetime income is a better measure of an individual's long-term economic wellbeing than annual income. Our analyses, however, do not distribute tax burdens according
to lifetime income because future earnings are uncertain, and even if future earnings were
known, lifetime income would be difficult to measure with accuracy. In addition, lifetime
income is an inappropriate measure of current well-being if individuals are unable to smooth
their consumption over their lifetime by borrowing and saving. For example, if the college
students mentioned above are not able to borrow against their uncertain future earnings, it
may be inappropriate for the tax system to view them as well-off currently.7 Nevertheless,
some studies show that distributing a general consumption tax to families according to their
estimated lifetime income makes the tax appear to be less regressive.
Addressin~
the
re~ressivity
of a consumption tax
An important difference among the various forms of consumption taxes lies in the
mechanisms available for distributing the tax more equitably among families with different
incomes. One way that European countries attempt to reduce the regressivity of the V AT is
by exempting specific goods and services from the tax or taxing them at a lower rate. This
approach does not reduce regressivity effectively because tax relief from exempting specific
goods and services is difficult to target to low-income families. While the tax preference
does relieve the burden on low-income families, middle- and upper-income households also
benefit when they purchase tax-preferred goods and services, requiring higher rates on other
goods and services that low-income families buy to raise the same revenue. Other
approaches, such as refundable credits and expansion in government transfer programs are
more effective ways to offset regressivity, but would add to administrative and compliance
costs and require explicit increases in government outlays.
A consumption tax that is collected at least in part from individuals can better account
for differences in ability to pay among families and individuals than one that is collected
solely from businesses. Such a tax can be made less regressive through standard deductions,
as under Representative Armey's and Senator Specter's flat tax proposals, and/or graduated
rates, as under the Nunn-Domenici plan. Refundable credits like the earned income tax
credit (EITC) can also be used to reduce the tax burden on low-income families, but credits
carry with them administrative costs. For example, low-income families, who otherwise
might be excluded from the tax system, would be required to file a return in order to receive
the credit.
As an illustration of the effect of including standard deductions and personal
exemptions in a general consumption tax, Table 2 shows the distributional effect of replacing
the corporate and individual income taxes with a stylized flat tax similar to the Armey
7For a more detailed discussion of these points, see Joint Committee on Taxation, Methodology and
Issues in Measuring Changes in the Distribution of Tax Burdens, U.S. Government Printing Office, 1993, pp.
82~.
Table 2
Replace Current Individual and Corporate Income Taxes
with a 22.9% (Modified) Flat Rate Tax (1)
(1996 Income Levels)
I
I
,
Change in After·Tax Income Under Proposal (4)
I After-Tax (3),
Income Under
Family Economic
!
Current Law
Income Quintile (2)
•
($B)
Repeal
I Income Tax
(except EITC)
,
($8)
Percentage
22.9% Tax on 122.9% Tax on 22.9% Tax on
Wages Over
Fringes and
land. Oed. (5 Payroll Tax (6)
($B)
($8)
Change
Business
Total
Cash Flow
($B)
Percentage
In Total
Change
Change
IFederal Taxes'
($B)
(%)
I
I
(%)
Lowest (7)
171.1
3.8
-0.9
-2.7
-1.9
-1.7
-1.0
Second
431.0
25.0
-11.8
-9.0
·9.5
-52
-1.2
8.5
Third
697.9
64.1
-38.7
-17.0
-20.7
-12.2
-1.8
8.3
12.2
Fourth
1,091.9
127.6
-91.5
-26.5
-33.8
-24.2
-2.2
8.9
Highest
2,693.1
537.0
-300.1
-39.5
-154.1
43.3
1.6
-5.6
Total (7)
5.054.7
758.6
-443.7
-94.9
-220.0
0.0
0.0
00
Top 10%
1,899.8
427.9
-211.0
-21.0
-128.8
67.0
3.5
-11.9
Top 5%
1,371.5
341.2
-142.2
-10.6
-108.6
79.7
5.8
-19.2
Top 1%
683.5
202.7
-58.5
-2.3
-68.3
73.7
10.8
-33.2
Department of the Treasury I Office of Tax Analysis
March 7, 1995
(1)
This table distributes the estimated change in after-tax income due to the proposal with a revenue-neutral rate of 22.9 percent (approximately).
(2)
Family Economic Income (FE I) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income: IRA
and Keogh deductions: nontaxable transfer payments, such as Social Security and AFDC: employer-provided fringe benefits: inside build-up on
pensions, IRAs, Keoghs, and life insurance: tax-exempt interest: and imputed rent on owner-occupied housing. Capital gains are computed on
an accrual basis, adjusted for inflation to the extent reliable data allow. Inflationary losses of lenders are subtracted and of borrowers are added.
There is also an adjustment for accelerated depreciation of noncorporate businesses. FEI is shown on a family, rather than on a tax return basis. The
economic incomes of all members of a family unit are added to arrive at the family's economic income used in the d!stributions.
(3)
The taxes included are individual and corporate income, payroll (Social Security and unemployment), and excises. Estate and gift taxes and customs
duties are excluded. The individual income tax is assumed to be borne by payors, the corporate income tax by capital income generally, payroll taxes
(employer and employee shares) by labor (wages and self-employment income). excises on purchases by individuals by the purchaser. and excises
on purchases by business in proportion to total consumption expenditures. Taxes due to provisions that expire prior to the end of the Budget period
(i.e., before 2000) are excluded.
(4)
The change in Federal taxes is estimated at 1996 income levels but assuming fully phased in law and static behavior. The incidence assumptions for
the repealed income taxes is the same as for the current law taxes (see footnote 3). The flat tax on wages (plus pension benefits received) is assumed
to be borne by wages plus pension benefits received in excess of the standard deduction. The flat tax on employer-provided fringe benefits (except
penSion contributions) and payrOll taxes is assumed to be borne by employees in proportion to benefits or taxes. The flat tax on busmess cash flow
IS
assumed to be borne by capital income generally.
(5)
The standard deduction (in 1995$) is $24,700 Ooint) or $12,350 (single) plus $5,000 for each dependent. Non-pension fringe benefits of government
and nonprofit employees are included in wages.
(6)
The proposal would disallow a deduction for employer-provided fringe benefits (except pension contributions) making these benefits (primarily
employer-provided health insurance) subject to the 22.9 percent flat tax. The employer portion of payroll taxes would likewise be nondeductible.
(7)
Families with negative incomes are excluded from the lowest quintile but included in the total line.
NOTE: OUlntlles begin at FEI of Second $15.604 Third $29,717: Fourth S48.660: Hignest 579.056. Top 10% 5108 704 Top 5% 5145.412. Top 1% 5349 438
Chart 2: Distributional Effect of Replacing Current
Income Taxes with a 22.90/0 (Modified) Flat Rate
Consumption Tax
Percent Change in After-Tax Income
10.8
10
8
6
4
2
1.6
~
o
-2
-2.2
-4~'----------------------------------~
Top 1%
Lowest
Second
Third
Fourth
Highest
Income Quintiles
.
Source: Department of the Treasury (see Table 2 for details)
13
S
proposal. With standard deductions of $24,700 (for joint returns) or $12,350 (for singlefilers) and a $5,000 exemption for each dependent, the revenue-neutral rate for the flat tax
rises to 22.9 percent. Under this version of the flat tax, the aggregate after-tax income for
the group of families in the first through fourth income quintiles would still be lower than
under current law (i.e., a net tax increase), while the aggregate after-tax income for the
group of families in the highest income quintile would be higher under the flat tax (a net tax
cut). However, compared to the proposal without exemptions, the Armey-style proposal
would cause a smaller reduction in aggregate after-tax income (between 1.0 percent and 2.2
percent of current-law after-tax income) for the group of families in the first through fourth
income quintiles. The percentage increase in after-tax income for the group of families in
the highest income quintile, 1.6 percent, would.also be smaller than the increase shown in
Table 1. These changes amount to aggregate increases in Federal taxes ranging from 8.9
percent to 12.2 percent for the group of families in the first through fourth income quintiles
(compared to 15.5 percent and 134.1 percent, respectively, under the proposal without
exemptions), and a 5.6 percent reduction in taxes (compared to 18.6 percent in Table 1) for
the group of families in the highest income quintile. 9
Table 3 compares the progressivity of the current Federal tax system together with the
revenue-neutral, stylized flat tax described above. The last two columns in the table show
taxes as a percentage of pre-tax income (effective tax rates) for groups of taxpayers. The
current tax system is progressive with respect to income by quintile -- that is, effective tax
rates rise with each income quintile -- and the flat tax is progressive through the fourth
income quintile, although the effective tax rate falls slightly from the fourth income quintile
to the highest. The flat tax proposal, however, ceases to be progressive for the group of
families with the very highest incomes. The effective tax rates for the groups of families in
the top ten percent, five percent, and one percent of the income distribution fall to 20.2
percent, 18.8 percent, and 16.4 percent, compared with a rate of 21. 7 percent for families in
the fourth income quintile. Under current law, effective tax rates continue to rise for the
families with the very highest incomes. 1o This decrease in tax burden on higher-income
families under the flat tax occurs because income from new saving and investment (which is
not taxed under a consumption tax) is concentrated among families at the top of the income
distribution.
While Treasury has not completed a study of the distributional effect of the NunnDomenici consumption tax, their proposal was designed to achieve progressivity through
graduated rates under the individual consumed income tax. A top statutory individual tax
8Except for the inclusion of standard deductions and personal exemptions and the disallowance of
certain deductions for taxes paid by businesses, the distributional estimates shown in the Table 2 are based on
the same assumptions as those in Table 1.
~ese results are illustrated in Chart 2.
l<7hese results are illustrated in Chart 3.
Table 3
Replace Current Individual and Corporate Income Taxes
with a 22.9% (Modified) Flat Rate Tax (1)
(1996 Income Levels)
Federal
Taxes Under
Family Economic
Income Quintile (2)
Cu".nt
Law (3)
($8)
I
Taxes as a Percent of
Pre-Tax Income Under:
Federal
Taxes with
I 22.9% Flot
Change in
Rate Tax (4) Federal Taxes
($8)
($8)
I
with 22.9%
Current Law Flat Rate Tax
i
(%)
(%)
i
1.7
7.6
8.6
66.4
158.7
5.2
12.2
12.4
17.3
13.5
18.8
271.8
779.5
296.0
736.2
24.2
-43.3
19.9
22.4
21.7
21.2
Total (7)
1275.1
1275.1
0.0
20.1
20.1
Top 10%
Top 5%
Top 1%
565.3
415.3
221.9
498.3
335.6
148.3
-67.0
-79.7
-73.7
22.9
23.2
24.5
20.2
18.8
16.4
14.2
Lowest (7)
Second
Third
61.2
146.5
Fourth
Highest
15.9
Department ofthe Treasury
Office of Tax Analysis
(1)
June 5,1995
This table distributes the estimated change in Federal taxes due to a (modified) flat rate tax with a revenue-neutral rate of 22.9 percent (approximately)
which replaces the current individual and corporate income taxes.
(2)
Family Economic Income (FE I) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income; IRA
and Keogh deductions; nontaxable transfer payments, such as Social Security and AFDC; employer-provided fringe benefits; inside build-up on
pensions, IRAs, Keoghs, and life insurance; tax-exempt interest; and imputed rent on owner-occupied housing. Capital gains are computed on
an accrual basis, adjusted for inflation to the extent reliable data allow. Inflationary losses of lenders are subtracted and of borrowers are added.
There is also an adjustment for accelerated depreciation of noncorporate businesses. FEI is shown on a family, rather than on a tax return basis. The
economic incomes of all members of a family unit are added to arrive at the family's economic income used in the distributions.
(3)
The taxes included are individual and corporate income. payroll (Social Security and unemployment), and excises. Estate and gift taxes and customs
duties are excluded. The individual income tax is assumed to be borne by payors. the corporate income tax by capital income generally, payroll taxes
(employer and employee shares) by labor (wages and self-employment income), excises on purchases by individuals by the purchaser, and excises
on purchases by business in proportion to total consumption expenditures. Taxes due to provisions that expire prior to the end of the Budget period
(i.e., before 2000) are excluded.
(4)
The change in Federal taxes is estimated at 1996 income levels but assuming fully phased in law and static behavior. The incidence assumptions for
the repealed income taxes is the same as for the current law taxes (see footnote 3). The flat tax on wages (plus pension benefits received) is assumed
to be borne by wages plus pension benefits received in excess of the standard deduction. The flat tax on employer-provided fringe benefits (except
pension contributions) and payroll taxes is assumed to be borne by employees in proportion to benefits or taxes. The flat tax on business cash flow is
assumed to be bome by capital income generally.
The standard deduction (in 1995$) is $24,700 Goint) or $12,350 (single) plus $5,000 for each dependent. Non-pension fringe benefits of government
and nonprofit employees are included in wages.
The proposal would disallow a deduction for employer-provided fringe benefits (except pension contributions) making these benefits (primarily
employer-provided health insurance) subject to the 22.9 percent flat tax. The employer portion of payroll taxes would likewise be nondeductible.
(5)
Families with negative incomes are included in the total line but not shown separately.
Chart 3: Distributional Effect of Federal Tax System
Under Current Law and With Income Taxes Replaced
by a 22.90/0 (Modified) Flat Rate ConsumptionTax
Effective Tax Rate (Taxes as a Percent of Pre-Tax Income) - - - - - - - - - - - ,
•
III
20
10 t-7. 6
o
Current Law (Includes effects of the individual and corporate income taxes,
payroll taxes, and excise taxes)
24.5
Current Law with individual and
corporate income taxes replaced
by 22.9% flat rate tax
8.6
Lowest
Second
Third
Fourth
Income Quintiles
Source: Department of the Treasury
Highest
Top 1%
16
rate of 40 percent, together with the loss of a deduction for labor costs under the 11 percent
business tax, means that consumed labor income in excess of $24,000 (for joint filers) would
be taxed at an effective rate of 46.6 percent under the Nunn-Domenici proposal. With the
family living allowance and personal and dependent exemptions, a family of four would pay
income tax at an effective rate of 46.6 percent on consumed labor income in excess of
$41,600.
As an alternative to a complete replacement of the income tax system, a V AT or BIT
could be imposed at a moderate rate to replace a portion of the revenue from the income tax.
A variant of this approach, taken by Representative Gibbons, would impose a V AT to
replace most of the revenue from income and _payroll taxes, but would retain an income tax
for high-income individuals to ensure that they continue to pay an equitable share of taxes.
Refundable credits or other mechanisms could be used to offset the effects of the
consumption tax on low-income families.
While consumption taxes can be made less regressive, there is a clear and important
tradeoff between progressivity and simplicity. The forms of tax that are the simplest and
probably the least costly to administer and with which to comply (the RST and VAT) cannot
be made progressive without retaining some income-based taxes on high-income families and
credits for low-income families. The forms that are collected solely from individuals are
more easily made progressive, but would be at least as complex -- and probably more
complex -- than our current tax system. Consumption taxes collected from individuals -such as the individual portion of the Nunn-Domenici USA Tax -- would impose numerous
reporting requirements on taxpayers and would introduce complicated tax calculations in
ways that would be new to taxpayers, tax preparers, and the IRS. I will describe some of
these complexities in more detail later in my testimony when I evaluate the effects of tax
reform on simplicity.
Transition from the existing income tax to a new consumption tax raises an additional
series of issues regarding equity, compliance, economic efficiency, and the impact on wages,
prices, interest rates, and the values of assets. These important issues are also discussed
below.
17
Economic effects of replacing the income tax with a consumption taxi I
Saving and investmentl2
The main reason to consider replacing the income tax with a consumption tax is that
this change could encourage domestic saving and capital formation and promote economic
growth. A consumption tax would not tax the return to new saving and investment. The
income tax does tax this return, and thereby discourages saving and investment to some
degree. The key issue is whether substituting a consumption tax for an income tax will raise
saving enough to overcome its other problems.
1. National saving. The low rate of U.S. saving is a serious concern. The national
saving rate in the United States has declined in the 1980s compared to the previous three
decades (Table 4). Although private saving decreased during this period, it remained
positive. Public saving, however, has been consistently negative as a result of Federal
budget deficits.
Table 4. Components of Net U.S. National Savings
as a Percentage of GDP: 1950-1994
Net
Personal
Saving
Net
Business
Saving
Total Net
Private
Saving
Public
Saving
Total Net
National
Saving
Average 1950-59
4.7
2.9
7.6
-0.1
7.5
Average 1960-69
4.7
3.6
8.2
-0.1
8.1
Average 1970-79
5.5
2.6
8.1
-1.0
7.2
Average 1980-89
4.5
1.5
6.0
-2.4
3.6
Average 1990-94
3.4
1.8
5.1
-3.1
2.1
Year
Source: Department of Commerce, Bureau of Economic Analysis
llTbis section analyzes the long-run economic effects of switching to a consumption tax system. The
short-run effects could be quite different from the long-run effects, but analysis of short-run effects is beyond
the scope of this testimony.
12Discussion of the points made in this section of the testimony appears in Joint Committee on
Taxation, Factors Affecting the Competitiveness of the United States, U.S. Government Printin~ Office, 1991,
pp. 44-52; u.S. Congressional Budget Office, Effects of Adopting a Value-Added ~ax, CongresslOnal Budg~t
Office, 1992, pp. 51-5; and Joint Committee on Taxation, Description and Analysls of Tax Proposals Relatmg
to Individual Saving, U.S. Government Printing Office, 1995, pp. 63-72.
18
The reasons for the decline in private saving rates in the United States are unclear. It
could be due to demographic factors that may reverse as the baby boom generation enters
later middle age and saves for retirement. It may also be attributable to an increase in the
availability of insurance and Social Security benefits, which reduce the necessity for private
saving. 13 The decline in saving does not appear to have been caused by changes in tax
policy. Marginal tax rates were lowered substantially during the 1980s and new saving
incentives were introduced, but the rate of saving still fell.
According to a recent report by the Organization for Economic Cooperation and
Development, the saving rates of our major trading partners also have declined since the
1960s. 14 All of these countries except Japan, however, rely more heavily on consumption
taxes for revenues than does the United States, both as a percentage of gross domestic
product (GOP) and as a share of total tax revenues (Tables 5 and 6). While Japan depends
the least on consumption taxes for revenues, it also had the highest saving rate during the
1980s (Table 7) and the highest rate of growth in real per capita GOP (Table 8).
The most direct way to increase national saving is to reduce the Federal budget
deficit. The Federal government may also be able to affect private saving through changes
in tax policy. However, if tax policy changes also increase the Federal budget deficit, there
may be no net increase in national saving.
13Por a more detailed discussion, see Joint Committee on Taxation, Description and Analysis of Tax
Proposals RelaJing to Individual Saving, U.S. Government Printing Office, 1991, p 72.
14Organization for Economic Cooperation and Development, Taxation and Household Saving, 1994, pp.
17-24.
19
Table 5. Tax Revenues by Type of Tax as a Percentage of GDP
for Selected Countries: 1992 1
Total
Income &
Profits
Social
Security
Property
Goods &
Services
Other
Canada
36.5
16.4
6.0
4.0
9.5
0.5
France
43.6
7.6
19.5
2.2
11.7
2.7
Germany
39.6
12.7
15.2
1.1
10.6
0.0
Italy
42.4
16.6
13.3
1.0
11.4
0.1
Japan
29.4
12.5
9.7
3.1
4.1
0.1
United Kingdom
35.2
12.7
6.3
2.8
12.1
1.3
United States
29.4
12.2
8.8
3.3
5.0
Source: Organization for Economic Cooperation and Development, Revenue Statistics of OECD Member
Countries, 1965-1993, 1994.
Includes taxes at all levels of government.
Includes certain payroll taxes that are not earmarked for social security, taxes imposed on other bases not
otherwise identified or identifiable and fines and penalties.
1
2
Table 6. Tax Revenues by Type of Tax as a Percentage of
Total Taxation for Selected Countries: 19921
Income &
Profits
Social
Security
Property
Goods &
Services
Other
Canada
45.0
16.5
11.1
26.1
1.4
France
17.3
44.6
5.0
26.8
6.3
Germany
32.0
38.4
2.7
26.9
Italy
39.1
31.3
2.4
26.9
0.3
Japan
42.4
32.8
10.5
14.0
0.3
United Kingdom
36.1
17.8
7.9
34.4
3.7
United States
41.5
29.9
11.4
17.1
Source: Organization for Economic Cooperation and Development, Revenue Statistics of OECD Member
Countries, 1965-1993, 1994.
Includes taxes at all levels of government.
Includes certain payroll taxes that are not earmarked for social security, taxes imposed on other bases
not otherwise identified or identifiable and fines and penalties.
1
:2
20
Table 7. Average Net National Saving Rates for Selected Countries
1990
1991
1992
8.4
5.0
2.5
1.5
France
7.9
8.6
7.6
6.5
Germany
9.8
12.5
10.4
9.8
Italy
9.8
7.8
6.8
5.2
Japan
18.2
19.8
20.0
18.2
United Kingdom
4.8
3.6
2.4
2.0
United States
4.5
3.1
2.8
1.9
Country
1980's
Canada
Source: OECD, National Accounts 1980-1992, 1994.
Note:
Data are based on the OECD System of National Accounts (SNA) methodology
which differs slightly from the U.S. National Income Accounts System.
Table 8. Average Annual Growth Rates of Real
Per Capita GDP for Selected Countries: 1980-1992
(percent)
Country
1980 to 1990
1990 to 1992
Canada
1.9
-1.9
France
1.8
0.4
Germany
2.0
2.0
Italy
2.0
0.9
Japan
3.5
2.4
United Kingdom
2.5
-1.8
United States
1.8
-0.1
Source: Organization for Economic Cooperation and
Development
2. Tax policy and private saving. Two effects from substituting a consumption tax
for the income tax could boost total private saving. Economic theory suggests that if the
after-tax rate of return on savings goes up, individuals would increase saving to consume
more in the future since the "price" of future consumption in terms of foregone current
consumption is lower. However, most empirical studies find that the effect of increasing the
21
rate of return on the level of saving would be quite small. 15 In addition, some people are
"savers," while others consume essentially all their income. Shifting the overall burden of
taxes from saver to consumer households can increase aggregate private saving, but it would
also result in an increased concentration of private wealth.
While a pure consumption tax would encourage private saving more than a pure
income tax, the effect on saving of substituting a consumption tax for our existing income tax
is less clear. Our current income tax includes powerful incentives for employees to receive
part of their compensation in the form of retirement savings plan contributions, and for
employers to provide such plans for all their employees -- including low-income employees
who would not be likely to respond to direct tax incentives. The incentive to establish
retirement plans would be much weaker under a consumption tax.
An alternative way to use tax policy to increase private saving is to broaden saving
incentives within the framework of the existing income tax. Provisions that directly
encourage people to deposit some of their earnings in tax-favored accounts, such as IRAs and
401(k:) plans, could be more cost-effective ways of increasing saving without replacing the
entire tax system. Toward that end, the Administration's budget has proposed an expansion
in the eligibility rules for contributing to IRAs.
3. Saving and investment. Advocates of replacing the income tax with a
consumption tax often discuss effects on saving and investment as if they are interchangeable.
But saving and investment can diverge significantly because of the increased amount of
international capital flows in today's global economy. More specifically, the relative effects
on saving and investment would depend in part on the extent to which the consumption tax
revenues were used to reduce corporate or individual income tax rates. Eliminating the
corporate tax would increase domestic investment more than private saving, while eliminating
the individual tax would increase private saving more than domestic investment. 16
15 See Joint Committee on Taxation, Description and Analysis of Tax Proposals Relating to Individual
Saving, U.S. Government Printing Office, 1995, p. 46. For additional discussion of this point, see
Organiution for Economic Cooperation and Development, Taxation and Household Saving, 1994. In
Descriptions and Analysis of Proposals to Replace the Federal Income Tax (U.S. Government Printing Office,
1995, p. 69), the staff of the Joint Committee on Taxation states that the results of studies of the empirical
response of saving to changes in the after-tax rate-of-return are inconclusive.
16Under U.S. tax rules, corporate income tax is imposed on the return to equity-financed capital used in
the United States regardless of who owns it, whereas the individual income tax is imposed on the return to
capital owned by U.S. residents regardless of where it is used. (U.S. corporations are taxed on their worldwide
income, but receive a tax credit for foreign income taxes paid. The residual U.S. tax rate on active foreignsource income of U.S. corporations, after accounting for foreign taxes, is generally quite low.) Eliminating the
corporate tax would be expected to increase domestic investment more than saving, because it would reduce the
cost of capital to both U.S. corporations and foreign corporations investing in the United States by much more
than it would increase the after-tax return to U.S. savers. In contrast, eliminating the individual income tax
would be expected to increase saving more than domestic investment because it would increase the after-tax
return to U.S. personal saving invested both in the United States and abroad, but, with internationally-linked
22
4. Interest rates. It is not clear how a switch to a consumption tax would affect U.S.
interest rates in the long runY The net demand by U.S. investors for interest-bearing assets
would be expected to increase, pushing bond prices up and yields down. This would occur
because the consumption tax would remove interest flows from tax calculations. Also, under
a consumption tax, domestic borrowers would not be willing to pay as high a rate of interest
because interest would no longer be deductible, and U. S. lenders would be willing to accept
a lower rate of interest because interest income would no longer be taxed. But in today's
world economy, the U.S. interest rate is closely ·linked to rates in other advanced countries.
With foreign interest rates unchanged and debt capital flowing freely across international
borders, any reduction in U.S. interest rates would be dampened significantly. The likely
result is that U.S. interest rates would fall somewhat, but by much less than the initial tax
benefit to savers. After-tax yields to U.S. savers and after-tax interest costs to U.S.
borrowers would increase.
Prices and wages
A frequent concern is that the introduction of certain types of consumption taxes,
particularly RSTs and VATs, would lead to a higher price level because such taxes are
generally added to the price of the product.
It is likely that such a one-time increase in the prices of consumption goods could
occur. In addition, the indexing provisions of social welfare benefits and some labor
contracts could lead to continuing inflationary pressures in later periods as a delayed effect of
the initial price level change. The extent of this one-time increase and any further increases
in the price level depend on the actions of the Federal Reserve. Such price increases can
only occur if the Federal Reserve provides accommodative monetary policy. 18,19
If the introduction of a consumption tax does lead to an increase in the overall price
level, wage-earners will suffer a proportionate reduction in their purchasing power. If the
price level does not rise, however, after-tax payments to factors of production such as wages
would have to be reduced. In either case, the net after-tax returns to labor are likely to be
reduced under a consumption tax because of the need to obtain revenues to offset the
reduction in taxes on capital income.
capital markets, would not provide a relative advantage to capital invested in the United States.
171be short-run effects on interest rates would depend on actions taken by the Pederal Reserve during
the period of transition to a new tax system.
18Por additional discussion of the effects on prices of adopting a VAT, see U.S. Congressional Budget
Office, Effects of Adopting a Value-Added Tax, Congressional Budget Office, 1992, pp. 64-65.
ll1f the consumption tax is a replacement for part of the income tax, however, there may be decreases
in the prices of investment goods that would produce an offsetting effect and further reduce the likelihood of
price increases.
23
Asset values
Changing from income taxation to consumption taxation is likely to have material
effects on the values of different kinds of assets. It is clear that there will be major winners
and losers. But it is difficult to identify all effects on assets because such effects depend in
complex ways on the details of specific proposals and on the economic responses to some of
the changes. We can only comment generally on what some of the effects might be.
Several economists have argued that expensing of new investments under a
consumption tax will adversely affect stock prices to the extent that those prices reflect the
value of existing capital. 20 Expensing of new investment lowers the rental price of capital
that is required to make new investment profitable. These lower rents, in turn, depress the
value of claims to existing assets. But the actual effect on the overall level of stock prices is
likely to be less than predicted by these studies. These studies are based on changing from
pure income to pure consumption taxes, but the current income tax system already
incorporates some features of a consumption tax such as accelerated depreciation and savings
preferences. The short-run adverse effects on overall levels of stock prices are likely to be
further cushioned because the adjustment costs associated with incorporating new investment
will reduce the rate at which the capital stock increases. This will keep rental returns of
capital from falling by maintaining the value of scarce capital. 21
The exemption under a consumption tax for interest income and the elimination of
interest deductions would tend to reduce interest rates, pushing up the price of existing
taxable bonds. But in today's international capital markets, high-grade bonds of different
countries are close substitutes. Consequently, a change in the tax treatment of debt in the
United States is not likely to affect world interest rates. On net, interest rates in the United
States would probably fall only slightly in response to the imposition of a consumption tax,
pushing bond values up only slightly.
If the consumption tax is collected from businesses, and the Federal Reserve
accommodates the tax by expanding the money supply, the price level will rise. Increased
prices will effectively transfer real wealth from lenders (current holders of long-term bonds)
to borrowers (current issuers of long-term bonds). New borrowers and lenders would be
unaffected by this wealth transfer.
Tax-exempt interest rates would be expected to rise in response to a switch to a
consumption tax because, under most consumption tax proposals, tax-exempt bonds would no
2OSee , for example, Alan Auerbach and Laurence Kotlikoff, Dynamic Fiscal Policy, Cambridge University
Press. 1987, and David Bradford "Consumption Tax Alternatives: Implementation and Transition Issues," paper
at Hoover Institution Conference, May 11. 1995.
21See Andrew Lyon, "The Effect of the Investment Tax Credit on the Value of the Firm," Journal of
Public Economics. 38 (1988). pp.227-247.
24
longer be favored relative to taxable bonds. Consequently, existing holders of long-term
municipal bonds would suffer a capital loss.
Under the current income tax, investment in owner occupied housing is substantially
tax favored compared to other forms of investment. These advantages include allowing
deductions for certain homeownership costs, such as mortgage interest and property taxes,
even though housing produces no taxable income. Under most consumption tax proposals,
housing would lose its relative advantage over other forms of investment. The switch to a
consumption tax would affect housing most directly through the repeal of the mortgage
interest deduction and corresponding elimination of the tax on interest income.
Consequently, the cost of both debt and equity capital invested in housing would increase. 22
The loss of preferential treatment means that the consumption benefits from housing would
rise relative to the returns from other investment. This would lower the price of existing
housing and substantially reduce the number of new homes that are built. 23 In the absence of
special transition rules or a continuation of tax preferences, housing values could fall
considerably in the short run. Over time, the housing stock would be expected to decline,
and the resulting scarcity of homes would push the prices of existing houses back towards
their initial level.
Economic efficiency
1. Allocation of capital.
Because a consumption tax does not tax the return to new investment and treats all
businesses uniformly, it would not favor some assets or industries over others. Unlike the
current U.S. income tax, it would not favor non-corporate over corporate investment or
investments in capital owned by State and local governments, owner-occupied housing,
consumer durables, and other personal assets over business investments. As a consequence,
investors would be encouraged to hold assets that were expected to produce the highest
economic returns. Investment would be expected to shift out of the sectors that enjoy favor
under the income tax -- owner-occupied housing, other personal assets, and noncorporate and
State and local capital -- and into corporate capital. In addition, a consumption tax, unlike
the current income tax, would not favor corporate debt over equity financing, reducing tax
considerations from business financial decisions.
22A similar conclusion is drawn in Joint Committee on Taxation, Descriptions and Analysis of
Proposals to Replace the Income Tax, 1995, U.S. Government Printing Office, p. 86.
D-rhe decline in housing prices would be proportionately greater for high-priced homes than for lowpriced homes. The owners of high-priced homes are typically in high tax brackets, making the mortgage
interest deduction relatively more valuable to them, while the owners of low-priced homes may be in low
brackets or may be non-itemizers.
25
The resulting gains in economic efficiency are substantially reduced if the replacement
consumption tax departs from a very broad base. However, such departures may be desired
for a number of reasons. For example, most countries attempt to reduce the number of
taxpayers in the system by exempting small businesses from the VAT. Some industries, such
as banking and insurance, are typically excluded from the VAT because their tax bases are
difficult to define. Some forms of capital, such as owner-occupied housing, might be given a
preference to support social and economic goals. Each such exemption reduces the
efficiency and simplification benefits attributable to the uniform treatment of capital.
2. Taxation of existing wealth.
Economic analyses show that much of the gain jn economic efficiency predicted to
result from a switch to a consumption tax arises from the taxation of wealth in place at the
time of transition to the new tax. Saving and investment that take place after the imposition
of a consumption tax will be exempt from tax, but consumption out of existing wealth will be
taxed, unless provisions are made to relieve this burden explicitly. Economists believe that a
tax on existing wealth will not distort taxpayer behavior. Therefore, collecting revenue
through this non-distorting tax will allow lower tax rates on the remainder of the
consumption tax base, significantly increasing economic efficiency. Nevertheless, a full or
partial exemption for existing wealth might be desired to prevent savings that had been taxed
under the income tax from being taxed a second time under the consumption tax. An
exemption for all existing wealth would effectively convert the consumption tax to a tax on
wage income alone, however, requiring higher tax rates on wages to compensate for the lost
revenue.24 Consequently, allowing a full exemption for existing wealth under a new
consumption tax will substantially reduce, and could entirely eliminate, the gains in economic
efficiency that many economists expect from the switch. 25
3. Labor supply.
Both an income tax and a consumption tax affect the choice between work and leisure
by reducing the relative purchasing power of wages. An income tax reduces the relative
value of wages by taxing them directly. A consumption tax that is collected from businesses
reduces the value of wages to the extent that the business tax is passed forward to consumers
in the form of higher prices or back to workers in the form of lower wages. 26
24A consumption tax with an exemption for existing wealth would be levied not only on wages, but
would also collect revenue on profits that reflect "economic rents," for example, profits resulting from the
ownership of a monopoly.
25For a discussion of the relative economic benefits of a consumption tax, wage tax, and income tax,
see Alan Auerbach and Laurence Kotlikoff, Dynamic Fiscal Policy, Cambridge University Press, 1987.
26See
U.S. Congressional Budget Office, Effects of Adopting a Value-Added Tax, U.S. Congressional
Budget Office, 1992, p. 57.
26
The effect on labor supply of switching to a consumption tax depends on changes in
effective tax rates. Effective tax rates reflect the combined effects of the statutory rate
structure and other tax proposal provisions, such as denying deductions for wages and
employee fringe benefits at the business level and retaining payroll taxes. Examining the
proposed statutory rate structure alone would overstate the possible decline in tax rates and
the increase in work incentives.
4. Consumption-saving choice.
One source of economic inefficiency under an income tax is the distortion the tax
imposes on a consumer's choice of how much to save. Because an income tax is imposed on
the return to savings, it effectively increases the "price" of consumption in the future in
terms of consumption foregone today. That is, under an income tax, a consumer must
deposit more money in the bank today to finance a given amount of spending in the future
than would be required in the absence of the income tax. Economic theory suggests that this
increase in the price of future consumption reduces consumers' incentive to save. A
consumption tax, which does not tax the return to savings, does not increase the price of
future consumption relative to current consumption. A consumption tax is, therefore, neutral
with respect to the consumer's choice of how much to save. As I stated earlier in my
testimony, however, while economic theory suggests that individuals might increase saving in
response to the higher return to saving resulting from the switch to a consumption tax, most
empirical studies find that the effect of increasing the rate of return on the level of saving
would be quite small.
International trade
It is sometimes argued that, because indirect taxes can -be imposed on imports and
refunded on exports, the adoption of a VAT or other indirect consumption tax to replace part
or all of our current income taxes would encourage U.S. exports. However, trade
economists generally agree that such a tax change would not permanently improve either
U.S. exports or the U.S. trade balance. 27
To see how a refund or exemption for exports under a consumption tax and the
imposition of the tax on imports (called border tax adjustments), in fact, amount to neither a
subsidy for domestic exports nor a penalty on imported goods, consider a very simple
example. Imagine that both New York and New Jersey produce apples for consumption
within the state and for "export" to neighboring states. Assume a competitive market for
apples sets the price per bushel at $5.00. Now imagine that New York adopts a broadbased, 10 percent VAT that exempts exports and is imposed on imports. The price of apples
produced and bought in New York would be expected to rise to $5.50. Since the New
u.s.
27See
Congressional Budget Office, Effects of Adopting a Value-Added Tax, U.S. Congressional
Budget Office, 1992, p. 63. A similar conclusion is drawn in Joint Committee on Taxation, Description and
Analysis of Proposals to Replace the Federal Income Tax, U.S. Government Printing Office, 1995, pp. 69-70.
27
Jersey apples that are trucked into New York are subject to the 10 percent VAT, they would
also sell for $5.50 per bushel. Imports into New York would, therefore, not be penalized
relative to domestic produce. Over the border, New Jersey apples would still sell for $5.00
per bushel, as would imported New York apples that are exempt from New York's VAT.
The exemption for exports, therefore, results in no subsidy for New York's exports. 28
While adopting a consumption tax with border tax adjustments is generally considered
to have no long-run effect on the balance of trade, eliminating or substantially reducing
income taxes could affect the trade balance, because income taxes may discourage both
saving by U.S. residents and investment in the United States, and lowering U.S. income
taxes could affect private saving and investment by differing and uncertain amounts. If
private saving increased more than investment, the United States would import less capital
and net exports would increase; if investment increased more than private saving, net exports
would decline. Which effect would dominate depends on the specific form of the income tax
cut and on the relative responsiveness of saving and investment.
Eliminating or reducing U.S. income taxes could also affect the relative
competitiveness of different industries, because the income tax imposes different effective tax
rates on production in different economic sectors. For example, reducing the cost of capital
in the United States would generally favor the production of capital-intensive goods over
labor-intensive goods. This differential benefit would affect the composition of trade,
because goods that became relatively more expensive to produce in the United States would
be increasingly imported, and goods that became relatively inexpensive to produce at home
would be increasingly exported. However, there is little reason to believe that the net trade
balance would be much affected by this change in relative trade positions. 29
Although border tax adjustments under a consumption tax are generally considered to
have no long-run affect on the balance of trade, it should be noted that some types of
consumption taxes are accepted as border-adjustable under the General Agreement on Tariffs
and Trade (GAIT), and others are not. Indirect taxes, such as credit-invoice VATs used in
most other countries, are border-adjustable under the GATT. Consumption taxes collected
wholly or in part from individuals, such as a consumed income tax and a flat-rate tax of the
type proposed by Representative Armey and Senator Specter, are unlikely to be refundable
under the GAIT. Although a broad-based, single-rate subtraction method VAT is
28It is not necessary to have border tax adjustments to obtain this result. If the market price for apples
is $5.00, it will not be possible for producers to increase the price charged or lower the price and remain in
business. Labor will bear the burden of the tax through a fall in wages and there will be no effect on trade
between New York and New Jersey. In the international context, it is also possible for the currency of the
country that imposed the tax to depreciate, offsetting the effect of the tax on the exported good.
2~e Joint Committee on Taxation finds that replacing part or all of the corporate income tax with a
VAT does not directly affect the U.S. trade balance. See Joint Committee on Taxation, Factors Affecting lhe
Competitiveness of the United States, U.S. Government Printing Office, 1991, pp. 303-4.
28
economically equivalent to a similarly broad-based credit-invoice VAT, a GAIT ruling
would consider other factors. Whether a subtraction method VAT would survive a GATT
challenge is an untested issue. 30,31
Sector-specific issues of adopting a consumption tax32
Special treatment may be appropriate for specific business sectors under those forms
of tax that are collected at least in part from businesses. High administrative and compliance
costs relative to revenue collected may justify special treatment for certain sectors and for
small businesses. Special rules are required for taxing goods and services with hard-tomeasure tax bases, such as financial services. 33, The tax base for these services is not
explicitly separated from other charges, and it is difficult to apportion the benefit from
financial services to those who receive them. For example, the charge for intermediation
services provided by banks is included in the difference between the interest rates charged to
borrowers and paid on deposits. That difference also includes the return to equity-holders.
Moreover, it is difficult to allocate the intermediation charge to a specific savings account or
loan.
While the current version of the Armey and Specter proposals contain no special rules
for the treatment of financial institutions, the Nunn-Domenici plan would tax banks and
insurance companies under a separate set of rules from those applied to non-financial
businesses. 34
3<7hese points are discussed in more detail in Joint Committee on Taxation, Factors Affecting the
Competitiveness of the United States, U.S. Government Printing Office, 1991, pp. 302-4, and U.S.
Congressional Budget Office, Effects of Adopting a Value-Added Tax, U.S. Congressional Budget Office, 1992,
pp.63-4.
3lThe Treasury Department responded on February 3, 1995, to a query by Senators Nunn and
Domenici on this issue.
32nese issues are discussed in detail in Joint Committee on Taxation, Factors Affecting the
Competitiveness of the United States, U.S. Congressional Budget Office, 1991, pp. 314-20, and U.S.
Congressional Budget Office, Effects of Adopting a Value-Added Tax, U.S. Congressional Budget Office, 1992,
pp.26-30.
33For a discussion of the difficulties related to taxing insurance and other financial services under a
VAT, see Joint Committee on Taxation, Factors Affecting the Competitiveness of the United States, U.S.
Government Printing Office, 1991, pp. 315-18.
~s is less of a problem under two-part consumption taxes like the Armey and Specter proposals than
under other forms of consumption taxes, because the portion of value-added generated within the financial
services sector by labor would be captured under the wage tax. Only the portion of value-added generated by
capital would be lost.
29
Taxing governments and non-profit organizations is difficult because there often is no
market price for their production and many are currently not subject to tax. Most countries
with V ATs attempt to tax the commercial operations of this sector, but this approach requires
differentiating between taxable and non-taxable activities which can be administratively
complex. While special treatment for specific sectors might ease administration of a
consumption tax, exclusions from the tax base would increase economic distortions relative
to a very broad-based consumption tax. The business tax portions of the Nunn-Domenici
proposal would generally include the commercial activities of governments and many
currently non-taxable non-profit organizations in the tax system.
Taxation of housing and consumer durables also raises important issues. To minimize
economic distortions, rental housing, owner-occupied housing, and other durable goods
should be treated similarly. When businesses are allowed to expense capital purchases,
purchases of buildings or durables for use as rentals would be deductible, and rental receipts
would be taxed. However, the same theoretical treatment of owner-occupied housing and
durable goods would require taxing the total purchase price, which reflects the current value
of the services the home or durable good provides over its useful life. 35 This approach can
lead to significant tax bills for buyers and windfall gains for current owners, who would not
owe tax on the consumption of their existing housing or durable good.
Many consumption tax proposals assume that exports will be relieved of the tax and
imports will be taxed. Making the appropriate adjustments can be difficult if the tax base is
not broad or if tax rates vary. Border adjustments for certain services also create
complexity, because it is generally more difficult to determine the location of supply or
purchase in the case of non-tangible services than for goods.
Simplicity
Simplification of the tax system is a primary goal of many tax reform proposals, and
one which we support. A simpler tax system would have lower compliance costs for
individuals and businesses, such as the costs related to learning the tax rules, recordkeeping,
and preparing tax returns, and lower administrative costs for the government, such as the
costs of processing tax returns and conducting audits.
To evaluate reform proposals on the basis of simplification, however, it is useful to
examine the sources of the complexity that plagues our current system. One source of
complexity, the measurement of capital income, would be reduced under some forms of
consumption tax. Three other sources of complexity, the desire to distribute the tax burden
equitably, the necessity to measure the consumption component of business income properly,
and the use of the tax system to advance certain non-tax social and economic policies, would
lSSee u.s. Congressional Budget Office. Effects of Adopting a Value-Added Tax,
Budget Office, 1992, pp. 28-9.
U.s.
Congressional
30
likely persist under any consumption tax. If a consumption tax were implemented in the
United States, the final form of the tax would likely differ from the ideal for these same
reasons. Divergence from the simple, broad-based, fiat-rate, consumption tax model -- for
whatever reason -- will tend to lead to complexity, with higher administrative and compliance
costs, higher tax rates overall, and reduced efficiency gains.
Correctly measuring capital income is difficult, and approximations designed to
reduce that complexity can invite tax avoidance and an inefficient use of economic resources.
Therefore, one of the attractions of a consumption tax is that many of the onerous
calculations related to capital income would be eliminated, and no tax would be owed on
interest, dividends, and capital gains. Under a RST, capital purchases by businesses and
capital income are excluded. Under a consumption tax levied at the business level, such as
Representative Gibbon's VAT or the business tax portions of the Armey and Nunn-Domenici
proposals, depreciation and other cost-recovery provisions would be replaced with expensing.
Administrative and compliance costs would be reduced, since it would not be necessary to
maintain records on asset costs in order to compute cost-recovery allowances and gains on
the sale of assets.
Unlike the existing income tax, however, a consumed income tax collected from
individuals would require the measurement of annual changes in wealth. As suggested
earlier in this testimony, a consumed income tax system like the Nunn-Domenici individual
level tax could, therefore, be at least as complex as the current system, posing numerous new
taxpayer reporting requirements and introducing new tax concepts and calculations.
Compliance costs are likely to be significant for individuals who must report their net
savings, particularly for taxpayers that both borrow and save and roll over prior savings into
new accounts, and for the banks, mutual funds and other businesses that would be required to
provide reports on investment and borrowing activities of individuals. Under one approach
to a consumed income tax, proceeds from all forms of borrowing -- whether through a loan
or a balance carried over to the next year on a credit card -- would be added to a family's
tax base. The net contribution to all forms of savings would be deducted from the tax base
and withdrawals from savings would be taxed. It might not be complicated to calculate tax
liability under this approach for a family that borrowed no money during the year, had no
end-of-the-year credit card balance, and only made contributions to a passbook savings
account. But in the modem U.S. economy, even a moderate-income family might in a
typical year purchase deductible mutual fund shares through a dividend reinvestment plan,
sell a taxable bond, and carry taxable balances on several credit cards. Some proposals
might not require families to pay tax on some minimum amount of borrowing, such as under
the Nunn-Domenici proposal, or might allow tax-free withdrawals from savings in cases of
hardship, but these modifications would require complex rules to determine eligibility for
exemptions and to prevent tax avoidance.
31
Distribution of the tax burden
Most of the mechanisms available under a consumption tax for minimizing the
regressivity of the tax introduce complexities and their resultant costs. Exempting certain
goods and services from a national RST or VAT and taxing others at alternate rates increases
the compliance burden on businesses that would have to determine which rates to charge for
their products and, in some cases, would be required to apportion their deductible costs
among taxable and non-taxable sales. To make up the revenue loss from reducing tax on
some goods and services, tax rates on the remaining goods and services would have to be
raised. None of the proposals discussed in this testimony exempt specific goods and
services, though State retail sales taxes in the United States and VATs in most DECD
countries do use this approach.
A tax that is collected wholly or in part from individuals can be applied at graduated
tax rates, which would complicate the tax slightly: it is not much more difficult for taxpayers
to look up their tax liability on a table -- as they do now -- than it would be for them to
apply a single rate to all taxable income. In the case of a two-part consumption tax, like the
Armey proposal, ensuring that the same top statutory rate applies to both individuals and
businesses would lower administration and compliance costs by enabling taxes on some forms
of income to be collected wholly from businesses.
Many consumption tax proposals, such as those of Gibbons, Armey, and Nunn and
Domenici, offer large standard deductions and exemptions for dependents in order to relieve
some income from tax and to remove large numbers of people from the tax system
altogether. The latter benefit is reduced, however, if refundable tax credits -- like the EITC
-- are used to minimize the burden of the tax, as is done in some proposals. Low-income
families that otherwise might not be required to file a tax return would have to fill out a
return in order to receive the credit. So that credits can be targeted to needy households, a
family might be required to calculate income, which it otherwise would not have to report
under some forms of a consumption tax. The relative increase in administrative and
compliance burdens of offering refundable credits might be small in the case of a consumed
income tax, under which much of the income tax structure would be retained. The relative
burden would be more significant, however, if the income tax had been completely replaced
by a business-level consumption tax.
Measuring consumption
Like the existing income tax, a consumption tax that is collected from businesses,
such as a VAT or two-part flat tax, would require rules for determining deductible business
costs. Some business purchases have a consumption component that should be excluded
from deductible business purchases. For example, a business' purchase of a company car
that is also available for an employee's personal use has a consumption component, as do
many business expenditures for travel and entertainment. The rules for determining
allowable costs under a consumption tax would be similarly complex to the related rules
32
under the income tax. Moreover, the timing of deductions for capital purchases would make
the problem more serious under a consumption tax. Under a consumption tax, business
assets would be expensed, accelerating the benefit received by the taxpayer -- and tax
revenue lost to the government-- from circumventing the rules.
Promotin~
social and economic
~oals
A U.S. consumption tax is likely to be used to advance certain widely-held social and
economic goals. To the extent that these goals are promoted through the tax system,
administrative and compliance costs are increased under a consump.tion tax as they are now
under the current income tax system. Home-ownership is treated preferentially under the
current income tax primarily by allowing families a deduction for interest they paid on their
home mortgages. Allowing current law treatment of mortgage interest under a consumption
tax would encourage homeowners to incur additional borrowing beyond their financing
needs. Because mortgage loan proceeds under current law are not included in taxable
income, while the amounts deposited in a savings account under a consumption tax would be
deductible, mortgage loans used to transfer money to a savings account would reduce tax
liability. In addition, allowing only some forms of loans to be exempt, such as under the
Nunn-Domenici proposal, would introduce complexity and distortions relative to a system
that treated all borrowing equally. As under the existing income tax, taxpayers would have
an incentive to reclassify all forms of household debt as mortgage debt to maximize the
benefit of the tax preference.
Deductions for charitable contributions and State and local taxes paid could be
allowed for families under a consumed income tax and for wage-earners and businesses
under a two-part consumption tax. A tax preference for employer purchases of health
insurance and fringe benefits could be provided under a two-part consumption tax by
allowing businesses to deduct these costs. Under an individual-level consumption tax,
employer-provided health insurance and other fringe benefits could be taxed by imputing
their value to the recipients and including the imputed value in taxable income; not imputing
the value to recipients would treat these benefits preferentially relative to other forms of
compensation. Each of these tax preferences, however, would require rules to determine
which fringe benefits are included in or excluded from the tax base, and these rules would be
equally complex as those under current law. Rules would also be required to determine
which business expenses to include or exclude from the tax base. The Armey and Specter
proposals would disallow deductions for state and local taxes, and the employer portion of
the FICA tax. The Nunn-Domenici proposal also would disallow those deductions, but
would permit a credit for the employer portion of the payroll tax.
The underground economy
The underground economy consists of illegal activities and those which are
"informal," but not illegal. A suggested benefit of a consumption tax system is that it may
promote greater compliance with the tax laws from those presently operating in the
33
underground economy. Some commentators have suggested that a consumption tax collected
at the business level would enable tax to be imposed on income of the underground economy,
particularly the informal sector, that is untaxed under the current individual income tax.
This benefit may easily be overstated. The reporting of income and sales from illegal
activities, such as sales of illegal drugs, is unlikely to be affected by changes in the tax
system. Incentives for not reporting income or sales from informal activities are likely to be
similar under an individual income tax or a business-level consumption tax. For example, an
electrician who does not pay income tax can charge a lower price, just as an electrician who
does not collect a national RST or VAT for his services. Since income and sales from
purchases of goods and services in the legal sector by the underground economy, such as the
electrician's tools and supplies, are taxable now, it is unclear whether additional revenues
would be obtained from this source by switching to a consumption tax.
Coordination with State and local sales taxes
An additional administrative consideration is the coordination of a Federal
consumption tax with State and local government tax systems. Historically, States have
depended heavily on retail sales taxes and excise taxes for revenues. 36 The adoption of a
national sales tax or Federal VAT is likely to be seen as an infringement upon this important
revenue source for State and local governments. In addition, a Federal VAT or national
sales tax would create a new type of tax for businesses to administer. Some businesses
would be responsible for either the VAT (or national RST) or a State sales tax, while others
would be liable for both. The amount of State sales tax or VAT (or national RST) collected
would depend on which tax was applied first and whether that tax was included in the tax
base for the other one. Particular goods and services might be taxable under a VAT (or
national RSn and exempted under the State sales tax, or vice versa, thereby creating
additional administrative and compliance problems. Although sales taxes are generally under
the purview of the States, the closeness of the tax bases would put the States under pressure
to conform to Federal law.
Transition to a consumption tax and the tax on existing wealth
The most significant issue in converting from an income to a consumption tax system
is deciding how to treat the return to wealth that was accumulated out of after-tax income
under the income tax. The return to new saving and investment would be exempt under a
consumption tax, but without an explicit exemption for old wealth, the return to and
withdrawals from the stock of existing assets that are not reinvested will be taxed. For
example, imposing a Federal VAT would automatically tax all withdrawals from existing
savings that are used for consumption -- even if those savings were accumulated out of after-
Advisory Commission on Intergovernmental Relations, Significant Features of Fiscal Federalism,
Volume 2, Washington, DC, 1994, Table 31, p.4.
36See
34
tax income. A full or partial exemption for current wealth might be desired to relieve the
tax burden on individuals with accumulated savings, many of whom are elderly. But such an
exemption would reduce the taxes paid by the holders of wealth, making the tax less
progressive. In addition, economists believe that a tax on existing wealth would not distort
taxpayer behavior, and that this non-distorting wealth tax is the source of much of the gain in
economic efficiency predicted to result from a switch to a consumption tax. Consequently,
an exemption for all existing wealth would effectively convert the tax into a tax on wage
income alone, requiring higher tax rates on wages. The effect would be to redu~
significantly, and possibly completely eliminate, the gains in economic efficiency that some
economists expect from a consumption tax. 37
To illustrate the magnitude of this problem, consider the value of current household
wealth. The total wealth of U.S. households is estimated at about $23 trillion. 38 Much of
this wealth is in the form of assets, such as pensions and unrealized capital gains, which have
not yet been taxed. Excluding housing, the basis of private assets in the United States could
be as much as $10 trillion. Rules governing the treatment of consumption financed by
existing wealth during the period of transition to the new tax will determine to what extent
this significant amount of previously taxed savings is subject to the consumption tax. In this
case, transition rules are not merely an inconsequential technical issue; how existing wealth
is treated during the transition could have material economic effects.
Transition rules could be designed to relieve completely the tax burden on savers who
have already paid income taxes on their savings and would otherwise be taxed again when
those savings were spent under a consumed income tax. For example, without a transition
rule for past savings, a retiree who accumulated $100,000 in a savings account out of aftertax income before the imposition of a consumption tax would be taxed on withdrawals from
that account that are for consumption expenditures. A transition rule could allow savings
that were accumulated under the income tax to be segregated from "new" savings and
deducted from income. This rule would treat the $100,000 as tax-paid savings and would
enable the retiree to make tax-free withdrawals from the savings account. It is difficult,
however, to design rules that differentiate between individuals who reduce their accumulated
savings in order to cOnsume, and individuals who only rearrange assets among accounts.
Allowing tax-free withdrawals from past savings, for example, would enable any individual
with accumulated wealth to gain a tax deduction simply by transferring old assets into "new"
savings accounts. Such a rule would enable a millionaire living off the interest on her
accumulated assets, for example, to receive the equivalent of tax-free interest income -- a
37For a discussion of the relative economic benefits of a consumption tax, wage tax, and income tax,
see Alan Auerbach and Laurence Kotlikoff, Dynamic Fiscal Policy, Cambridge University Press, 1987.
38Board of Governors of the Federal Reserve System, Balance Sheets of u.s. Households.
35
substantial benefit compared with current law. 39 The Nunn-Domenici plan includes detailed
rules that would prevent the taxation of most previously-taxed savings while prohibiting
taxpayers from generating savings deductions out of existing savings. While these rules
would largely prevent the imposition of unfair burdens on elderly households, they would
add to the complexity and costs of the tax system and would result in lower economic
benefits than if the return to accumulated assets were subject to tax.
A similar problem exists for businesses that have purchased equipment prior to the tax
change and have unused depreciation allowances. Denying depreciation deductions under the
consumption tax would mean that businesses would not be able to recover fully the cost of
those capital purchases, and that income from capital purchased before the effective date
would be overtaxed. It would impose windfall losses on firms that invested prior to the
effective date, placing them at a disadvantage relative to businesses that purchased equipment
just after the effective date of the new consumption tax.
Transition rules could reduce windfall losses in this case, but they would likely
sacrifice tax revenue and lead to greater complexity. For example, if the consumption tax is
collected only at the business level, businesses could be allowed to deduct immediately the
balance of their depreciation allowances, though little revenue would be collected from
businesses during the early years of the tax under this scheme. Extending the depreciation
deductions over a number of years, an approach taken by the Nunn-Domenici plan, would
spread out the revenue loss, but it would require businesses to segregate old and new assets
during the transition period and, therefore, would increase complexity.
Conclusion
A change as dramatic as replacing the income tax system with a consumption tax
should only be attempted if the expected economic benefits of taxing consumption are
reasonably certain to be larger than the total costs, burdens, and risks of moving to a
completely new tax system. In making such a determination, it is misleading to compare a
theoretically ideal consumption tax and the income tax system in place today. A realistic
comparison would recognize that exclusions would likely be made under the replacement
system -- either for administrative reasons or to support social and economic goals -- and that
those exclusions would reduce the economic benefits of the change and increase complexity.
A realistic comparison would also recognize that what we call an income tax in the United
States is really a hybrid tax system. While it is based on income, it incorporates a number
of consumption tax features that help promote saving. For example, contributions to
39Under a transition rule that treats withdrawals from existing savings that are deposited into new
savings accounts as new savings, an individual could draw down existing savings, deposit the amount in a new
savings vehicle, and receive a tax deduction for the amount deposited. If the return to this "new· savings is
used for consumption, the individual would pay tax on that return. But the original tax deduction would provide
a benefit that would be equivalent to receiving the interest income tax-free. For an illustration of this result, see
the example in the "Background· section of the testimony.
36
pensions, deductible IRAs, and other types of retirement savings are deducted from taxable
income, and the earnings on these savings are not taxed until they are withdrawn. Most of
the savings of middle-income Americans are in assets such as pensions and home equity that
are already exempt from tax. Proposals for further reduction in taxes on income from
savings of middle-income Americans, such as the proposal in the President's budget to
expand the use of IRAs, should be carefully examined before we consider doing away with
the income tax.
Based on all of the considerations described in my testimony today, we are not
convinced that the case for completely replacing the income tax with a consumption tax is
compelling. The most frequently cited economic benefit of such a change, an increase in
private saving, is uncertain and could be small. The fairness of replacing the income tax
with a consumption tax is also a concern. Moving to a flat-rate consumption tax would
increase the tax burden on low-income families and lower the tax burden on high-income
families. Efforts to improve the progressivity of consumption tax proposals result in
complexity. In addition, the effect of switching to a consumption tax on wage and price
levels, interest rates, and value of existing assets -- including homes -- is uncertain.
In general, divergence from the simple, broad-based, flat-rate, consumption tax model
-- for administrative reasons, to address distributional problems, or to promote social and
economic goals -- will result in more complicated tax calculations, higher tax rates overall,
and reduced efficiency gains. In addition, the transition could take many years to complete,
and could be very costly and complex. Absent special transition rules, the move to a
consumption tax could create many unintended winners and losers. New savers would be
advantaged relative to those who saved in the past, including many of the elderly.
Businesses that invest after enactment of the consumption tax would have a competitive
advantage over businesses that invested just prior to the change. Rules could be designed to
address these situations, but they would be complex and could lead to significant reductions
in the economic benefits expected from a switch to a consumption tax.
We commend efforts to develop consumption tax proposals that are progressive and
revenue-neutral. We recognize that the details of some of the recent tax reform proposals
have not yet been provided, and that the details will affect the analysis of any particular
proposal. However, we believe that completely replacing the income tax with a consumption
tax ultimately could be excessively complex and could create economic disruption.
Moreover, while there has been substantial international experience with credit-invoice VATs
and broad familiarity within the United States with State retail sales taxes, adopting a form of
consumption tax other than a credit-invoice VAT or national RST would be venturing into
the unknown. We can only speculate as to how a consumption tax collected at the individual
taxpayer level would work. There is no experience upon which to gauge its effects on the
U.S. economy or its administrative and compliance costs, and no way to anticipate all the
potential tax avoidance schemes that could be designed to exploit the new tax rules.
37
Other countries have typically introduced consumption taxes, not as replacements for
progressive income taxes, but in place of existing distorting sales or turnover taxes. Most of
our trading partners now rely on a mixed tax system that combines income and consumption
taxes. Consequently, a wholesale replacement of the income tax with a consumption tax
would represent a grand international experiment. The burden lies with the proponents of
consumption taxes to show that it is worthwhile to conduct this experiment on the world's
largest and most complex economy.
Mr. Chairman, the Administration is keenly aware of growing taxpayer frustration
with the complexity of the income tax system, and we think that grea.ter weight should be
given to simplification in evaluating tax reform proposals than has been given in the past. A
simpler tax system would have lower compliance costs for individuals and businesses and
lower administrative costs for the government. Moreover, while the debate is in process,
simplification should be given greater weight in evaluating any changes to our existing tax
law. In this regard, we note that last year's House of Representatives passed H.R. 3419, the
Simplification and Technical Corrections Act of 1994. We urge the Committee to consider
this legislation again on an expedited basis. We look forward to working with the Congress
on these and other initiatives to improve our tax system. While continuing to work to
improve our current income tax, we will give serious consideration to broader reform
proposals that meet the tax policy objectives set forth above -- proposals that would simplify
the tax system and improve economic incentives without sacrificing revenue or fairness.
DEPARTMENT
OF
THE
TREASURY {~J
TREASURY
NEW S
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
For Release Upon Delivery
Expected about 10:30 a.m.
June 7, 1995
STATEMENT OF JOHN D. HAWKE, JR.
NOMINEE FOR
UNDER SECRETARY FOR DOMESTIC FINANCE
DEPARTMENT OF THE TREASURY
BEFORE THE
SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
Mr. Chairman, Senator Sarbanes, and members of the Committee, I am deeply
honored to appear before the Committee today. I especially want to thank you,
Chairman D'Amato, for allowing me to appear before the Committee so promptly, and I
appreciate the graciousness that you and Senator Sarbanes extended in letting me visit
with you yesterday.
The prospect of serving in President Clinton's Administration is enormously
exciting and challenging, as is the prospect of participating in the important work of this
distinguished Committee, whose activities I have followed for more than 30 years. I have
had the great pleasure of getting to know many of the members of the Committee's staff
on both sides of the aisle over the years, and I have the highest professional and
personal regard for them. I am particularly grateful to Secretary Rubin and Deputy
Secretary Newman for their strong support and for the confidence they have reposed in
me. They have assembled a tremendously talented group of people at the Treasury
Department, and it is my earnest hope that I will be able to make a contribution to their
efforts.
While I have always considered myself a New Yorker -- having been born,
brought up and educated there -- my professional life has been spent in Washington -- as
a law clerk to a wonderful appellate judge, Judge E. Barrett Prettyman; as counsel to a
House Education Subcommittee; as a practicing lawyer at Arnold & Porter, where I
served as Chairman for eight years; as a teacher of law at Georgetown University; and as
a banking regulator, in the position of General Counsel to the Federal Reserve Board
under the chairmanship of Arthur Burns. Since my time at the Federal Reserve 20 years
ago, it has been my hope that I would be able some day to return to government service,
and I am profoundly grateful to the President for making this hope come true.
RR-3S4
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2-
I am especially pleased to have the opportunity to serve at the Department of the
Treasury. Treasury is at the epicenter of some of the most critical issues our country
.
confronts, and the Under Secretary for Domestic Finance will have important
responsibilities with respect to many of these issues -- particularly those dealing with the
health, efficiency and competitiveness of our system of financial institutions. We have
before us not only the challenge of energizing the financial services system of the 21st
Century, but also the imposing responsibility of assuring that American taxpayers will
never again be called upon to shoulder the burden of losses suffered by that system.
While I have had the good fortune to be able to learn something of these issues
during my career, I approach the challenge of the Under Secretary's position with great
humility. Even a lifetime of experience cannot prepare one fully to deal with the
subtleties and complexities of the issues on our agenda today.
I can pledge to the Committee, however, that I will devote my full energies to the
task, and I look forward to working with this and other committees of the Congress as
we jointly try to serve the public's interest in finding effective means of dealing with
these issues.
I would be pleased to respond to any questions the Committee may have.
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 7, 1995
CONTACT: Scott Dykema
(202) 622-2960
TREASURY OFFERS FOREIGN TAXPAYER J.D. PROPOSAL
The Treasury Department today proposed regulations that would require U.S. tax
returns filed by foreign individuals with the Internal Revenue Service after December 31,
1995 to include taxpayer identification numbers.
"The goal of the new regulations is to ensure compliance with federal income tax
laws," said Assistant Treasury Secretary for Tax Policy Leslie Samuels. In addition to the
new requirement, the regulations tell foreign taxpayers how they can obtain taxpayer
identification numbers.
These proposed rules will have no impact on current withholding tax rules.
Rather, they would solve a long-standing problem of some foreign taxpayers having
trouble getting tax identification numbers for their U.S. tax returns. The new
identification number requirement also should speed up processing of tax returns filed by
foreign individuals after December 31, 1995.
The proposals do not apply to information reporting documents, such as
Form W-S. Treasury is considering streamlining current tax regulations regarding
withholding tax on interest and dividend payments to foreign investors. Options for
proving eligibility for the benefits of favorable tax rules and treaty benefits may include,
but will not mandate, identification numbers.
"Both the proposed regulations and the review of current tax withholding rules are
designed to encourage compliance with federal law and reduce unnecessary paperwork
without disrupting financial markets," Samuels said.
Copies of the proposed regulations may be obtained by writing the Internal
(MORE)
RR-355
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2-
Revenue Service Freedom of Information Reading Room at P.O. Box 388, Ben Franklin
Station, Washington, D.C. 20044, or by calling (202) 622-5164. Copies may also be
obtained by writing the Office of Public Mfairs, U.S. Treasury Department, Room 2315,
Washington, D.C. 20220, or by calling (202) 622-2960.
-30-
The United States Mint
WCl~hiIl9Ioll. IJ.C. 20220
From 'he: Ojfi<:e qf PlLblic .·U!uit's
FOR IMMEDIATE RELEASE
JUNE 7, 1995
FOR FURTHER INFORMATION:
MICHAEL WHITE (202) 874-3134
HINT ANNOUNCES 1995 PROOF EAGLE SALES
60% of Limited-Edition 4-coin Sets Already sold - 38% of Limited-Edition 10th Anniversary Set Already sold Washinqton rD. c. .-- The U. S. Mint today announced it
has sold 60 percent of the 10,000 limited-edition four-coin 1995
Eagle Proof sets and 38 percent of the 45,000 limited-edition
five-coin loth Anniversary Eagle Proof Sets since sales started
on April 21.
As of June 6, the Mint had sold 6,027 four-coin sets
containing one-ounce, half-ounce, quarter-ounce and tenth-ounce
Proof Gold Eagles. Actual sales of the 10th Anniversary Set,
which contains the four gold coins plus a Proof Silver Eagle
bearing a west Point mint mark, were 16,948.
Revenue from actual sales exceeded $32.2 million on
June 6, equaling 56 percent of total revenues from last year's
Eaqle proof program.
Shipments of four-coin sets began May 19 for delivery
within five weeks. CUstomers can order and pay for the five-coin
anniversary set now, but deliveries will start in the fall.
"With seven lElonths remaining in the sales period, these
results are very gratifying and stronger than we expected. They
are an endorsement by our customers for changes we made to the
Proof Eagle program this year," said Mint Director Philip N.
Diehl.
Those changes included limiting
sets and launching sales in April instead
limited-edition lOth Anniversary Set with
and for the first time offering discounts
individual proof Eagles.
- over -
mintages on four-coin
of fall, creating the
the unique Silver Eagle
to bulk purchasers of
- 2 -
"We made these enhancements to the Proof Eagle program
in response to customers' requests, and this is one of our most
successtul customer service initiatives so far," the director
said, adding, "We're especially proud to have held the line on
prices for proof sets while offerinq discounts for bulk buyers."
Price of the 1995 4-coin set remains at $999, unchanqed
since 1990, when Proof Eagle prices were reduced. The 10th
Anniversary Set also is priced at ~999.
Purchased sinqly, a one-ounce Proof Gold ·Eagle is $570,
a half-ounce $285, a quarter-ounce $150 and a tenth-ounce $70.
The one-ounce Proof Silver Eagle is $23. Proof Silver Eagles
purchased singly will be struck in Philadelphia with the liP" mint
mark. Only Silver Eaqles in the anniversary set bear the "W"
mint mark~
Throuqh the first-ever bulk program for individual
Eagles, the gold one-ounce coin costs $490 for orders of
five coins or more, the gold half-ounce is $250 for five or more,
the gold quarter-ounce is $135 for 10 or more and the gold tenthounce is $65 tor 10 coins or more. Proof Silver Eagles are $19
when 25 or more are ordered.
proo~
Sales of 1995 Proof Gold Eagles end December 31. Proof
Silver Eagles will be sold while supplies last. The Mint
reserves the right to limit quantities and to cease accepting
orders. coins miqht be delivered in multiple shipments at
different times.
Actual Eagle sales by option as of June 6
Total
Mintage
Gold One-Ounce
Gold Half-Ounce
Gold Quarter-ounce
Gold Tenth-Ounce
Silver One Ounce
Gold Four-Coin Set
loth Anniversary Set
Bulk Coins
purchased
w~re:
'l'otal coins
Sold
70,000
46
3,728
65,000
20
3,335
70,000
11S
4,049
85,000
130
11,266
500,000
13,241 (P)
215,096 (P)
10,000
Bulk Not Offered
6,027
45,000 (W) Bulk Not Offered 16,948
Phone (800) 420-6300 to oraer Proof Eaqles. For
information about bulk purchases, call (202) 874-6323.
# ##
DEPARTMENT
OF
THE
TREASURY
'78<)
1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C.· 20220· (202) 622-2960
FOR DELIVERY AT 9:30 A.M.
June 8, 1995
ORAL STATEMENT OF
LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
Chairman Packwood and Members of the Committee:
I am pleased to have the opportunity today to discuss the scope and the purpose of the
earned income tax credit (EITC), as well as steps that are being taken to improve the credit.
While I will briefly touch upon compliance issues, Commissioner Richardson's testimony
will address administrative matters more completely.
The Administration is strongly committed to the goals of the EITC, which are to
make work pay and to lift workers out of poverty in the most efficient and administrable
manner possible. With its message of "work pays," the EITC helps reduce dependency on
welfare and increase reliance on jobs. This is why the EITC has been supported on a
bipartisan basis during its 20-year history. During the 7-year period between 1986 and 1993,
Congress voted to significantly expand the EITC in three major pieces of legislation under
three Presidents -- the Tax Reform Act of 1986, OBRA 1990, and OBRA 1993. Both of the
1990 and 1993 expansions were deliberately phased in over a period of years by Congress.
The EITC provides tax relief to millions of working Americans, and that relief is not
and has never been intended to be limited solely to federal income taxes. Under current law
over 78 percent of EITC costs offset federal payroll and income taxes. Accordingly, it is
inappropriate to evaluate the EITC solely under budget accounting conventions since those
rules ignore payroll, excise, and other tax burdens borne by low-income workers.
Reductions in the EITC increase the tax burdens of low- and middle-income taxpayers
and reduces the EITC's incentives to work. Under the Senate budget resolution, the EITC
would be reduced, and tax burdens increased, for over 14 million working families.
Working families with two or more children would be hit the hardest, with an average tax
increase of $305 per year.
During the past several months, some observers have suggested that the EITC is
growing uncontrollably. To the contrary. the increases in the EITC have resulted from
carefully considered actions by Congress to gradually phase in the 1990 and 1993 expansions
over a period of years. Once the 1993 expansion is fully phased in in 1996, future growth
will be slightly less than projected growth of GOP.
-2-
We share the concerns of those members of this Committee and others who are
troubled by the error rates associated with the EITC, just as we are troubled by error rates in
other areas that contribute to the overall tax gap. This Administration is strongly committed
to reducing both inadvertent taxpayer errors and the less common, but more troubling, fraud.
We welcome the opportunity to work further with this Committee to address these areas.
However, the only EITC compliance proposals that we understand are being considered are
those that are contained in the President's budget. Significant reductions of the EITC, such
as those contemplated in the Senate budget resolution, do not address compliance matters in
any other way. In fact, those would actually result in increases in both work disincentives
and, because of the complexity in certain proposals, non-compliance.
The Administration's commitment to improving the EITC for low-income working
families has been demonstrated through more than a dozen legislative and administrative
actions since early 1993. In taking these actions, we have been guided by the following four
key goals:
(1)
to make work pay for those who might otherwise be on welfare;
(2)
to ensure that an individual who works full time throughout the year will not
live in poverty;
(3)
to target benefits to those with the greatest needs while minimizing distortions;
and
(4)
to make it easier for eligible individuals to claim the credit and for the IRS to
verify their eligibility.
As the design of the EITC under current law reflects a balance among these four goals, I
would like to address each of them individually.
First, for low-income families, the EITC makes work pay in two ways. Unlike many
other assistance programs for low-income families, the EITC is limited to working families.
Moreover, the credit amount initially increases -- rather than decreases -- for each additional
dollar of earnings.
The positive link between the EITC and work can help offset the work disincentives
created by other tax and transfer programs, such as social security taxes and food stamp
benefits. The EITC, with its positive credit rate on low earnings, is the only program
designed to help offset the marginal tax rates imposed by these other programs.
A second goal is to ensure that a person who works at a full-time job for the entire
year will not live in poverty. In order to ensure that a family of four dependent on a fulltime worker earning the minimum wage is lifted out of poverty, it would require a
combination of food stamps, enactment of the President's proposal to increase the minimum
wage, and effective implementation of the expanded EITC.
-3Third, the benefits of the EITC should be targeted to families with the greatest needs
and to those who can be best served by the positive incentives associated with the EITC.
The credit rate is highest at very low earning levels where individuals are often making the
critical step from welfare to work. Because larger families have greater needs than smaller
families, taxpayers with two or more children are entitled to a larger EITC than taxpayers
with one or no children. Also, by providing the EITC to families with incomes of up to
$28,524 in 1996, the program provides modest relief from the effects of wage stagnation.
The fourth goal of the EITC is simplicity and verification. If eligibility rules are
simple, taxpayers can more accurately claim the EITC and avoid costly errors. With simple
and verifiable eligibility rules, the IRS can also better ensure that the EITC is paid only to
taxpayers who are eligible for the credit. Consequently, simplification should be given great
weight in evaluating any proposal.
Legislative and Administrative Actions
As I mentioned, the Administration and Congress have taken a number of important
legislative and administrative actions during the past two years to improve the effectiveness
and administration of the EITC. For example, OBRA 1993 expanded the EITC and makes
the program more effective in achieving its policy objectives. Last year's Uruguay Round
legislation contained four provisions to improve compliance as well as the targeting of the
EITC to those with the greatest need. As Commissioner Richardson will explain in her
testimony, the Administration has taken very significant steps to ensure that those who are
not eligible for the EITC do not receive it.
FY 1996 Budget Proposals. The Administration included several proposals to
improve the targeting and administration of the EITC in this year's budget submission. The
Administration's proposal to deny the EITC to taxpayers having more than $2,500 of taxable
interest and dividends was included, in modified form, in H.R. 831. Under a second budget
proposal, only individuals who are authorized to work in the United States would be eligible
for the EITC beginning in 1996. Taxpayers claiming the EITC would be required to provide
a valid social security number for themselves, their spouses, and their qualifying children.
Social security numbers would have to be valid for employment purposes in the United
States.
Our third proposal would authorize the IRS to use simplified procedures to resolve
questions about the validity of a social security number. Under this approach, taxpayers
would have 60 days in which they could either provide a correct social security number or
request that the IRS follow the current-law deficiency procedures. If a taxpayer failed to
respond within this period, he or she would be required to refile with correct social security
numbers in order to obtain the EITC.
Demonstration Project Proposal. Last year the Administration proposed that States be
given additional flexibility with respect to the EITC by allowing four demonstration projects
to determine the effects of alternative methods of delivering advance payments of the EITC.
We continue to support this important project.
Other Legislative Proposals
The Administration evaluates other proposals to modify the EITC by the same criteria
we apply to our own proposals. We are concerned that many of the options that may be
considered by this Committee will not meet these criteria. The affects of the two proposals
described below are shown on the attached Table and Graph.
Senate Budget Resolution
The Senate budget resolution assumes that savings can be achieved by (1) repealing
the EITC for workers without qualifying children, (2) scaling back the increases for families
with children, and (3) adopting the Administration's EITC compliance proposals from the FY
1996 budget. According to our estimates, the EITC proposals in the Senate budget
resolution would reduce the EITC by $16.6 billion over the next five years and $25.6 billion
over the next seven years.
These proposals would limit the effectiveness of the EITC in reducing poverty
generally and in encouraging work. We estimate that 14 million working Americans would
be adversely affected. EITC recipients with two or more children would lose, on average,
$305 in 1996. Very low-wage workers with only one child would lose, on average, $137
relative to current law.
The budget resolution also assumes the repeal of the EITC for 4.4 million very lowwage workers who do not reside with qualifying children. The EITC for these workers was
designed to help offset the work disincentive effects of the social security tax. Under the
resolution, these 4.4 million low-wage workers would loose eligibility for an EITC up to
$324 and would incur, on average, a tax increase of about $173 in 1996.
The Senate budget committee resolution claims to address the problems of fraud and
abuse and exploding costs in the EITC program. But EITC costs are not exploding and the
only true compliapce provisions are those included in the Administration's budget.
Welfare Reform Amendment
During the recent deliberations on welfare reform in this Committee, a possible
amendment was circulated that would reduce the EITC far more deeply than budget
resolution. Under the amendment, indexation of the EITC would be repealed. Indexation is
necessary to ensure that taxpayers do not lose eligibility for the EITC. Under current law,
an estimated 16.7 million taxpayers with children will claim the EITC in 1996. If benefit
thresholds are not adjusted for inflation, participation would shrink to 14.8 million by 2000.
Eliminating indexation does not address the issue of fraud and abuse. Rather, it
denies eligibility for the EITC to millions of law-abiding working taxpayers and reduces the
?enefi~ of millions of othe!~ who ~e ~laying by the rules. It is inappropriate to suspend
mdexatIon on the one p~o~SlO~ whIch IS solely targeted to low-income taxpayers.
Consequently, the Admmlstratlon strongly opposes proposals to eliminate indexation.
-5-
The amendment would also limit eligibility for the EITC by adding new restrictions
on the amounts and types of income held by recipients. For example, the investment income
cap would be lowered from $2,350 to $1,000. We have serious reservations about this
proposal. Low and moderate-income families should be encouraged to save for downpayments on homes, start-up capital for businesses of their own, their children's education or
their own retraining.
The amendment would also restrict eligibility for the EITC by expanding the
definition of income to include non-taxable social security benefits, child support payments,
non-taxable pension income, and tax-exempt interest. We would have serious concerns about
imposing an additional tax on social security benefits of taxpayers who qualify for the EITe.
Low-income elderly workers with children could be subject to higher taxes on social security
benefits than some of their better-off neighbors. The proposal could affect non-elderly
workers with young children, too. The EITC would be reduced or eliminated for a lowwage worker whose disabled spouse receives disability insurance benefits.
The tax system does not count child support as income to the custodial parent because
child support payments are a continuation of the other parent's obligation to support his or
her child. Custodial parents should be encouraged to seek child support, rather than being
penalized for obtaining it. As a result, we have serious reservations about this provision as
well. Moreover, this change would be extremely difficult for the IRS to administer because
it does not currently receive information about child support payments.
The combined effect of these proposals, once fully phased in, would be to reduce the
EITe for 19 million taxpayers by $602 on average. For 8 million taxpayers with two or
more children, the EITC would be reduced, on average, by $886.
The Administration is committed to improving compliance with the EITC rules. Its
actions in the last two years are clear evidence of this commitment. The compliance
problems which the Administration is addressing should not be used as an excuse to eliminate
or reduce the EITC benefits to millions of low-income working Americans.
Finally, my written statement contains additional areas of possible improvement we
would like explore with the Committee.
****
This concludes my remarks. Thank you once again for providing me with the
opportunity to testify. I would be pleased to answer any questions that the Committee may
have.
Average Tax Increase for Taxpayers with Two or More Children
1996 Dollars
1,000
I
$886
800
600
$516
400
$305
200
o Budget Resolution Budget Resolution
as Confirmed
in May
Actual Assumptions
Welfare Reform
Amendment
1996 Law
Welfare Reform
Amendment
2000 Law*
* Estimate reflects effects of deindexation by the year 2000, estimated at 1996 income levels.
Average EITC Tax Increases
1996 Income Levels
l?~cJg~t flesolutior}
----
~----
---
---~----
Actual
assumptions
1996
Law
2000
Law*
12 million
14 million
19 million
19 million
$235
$239
$311
$602
8 million
8 million
8 million
8 million
$269
$305
$516
$886
o
2 million
7 million
7 million
$0
$137
$166
$563
4 Million
4 Million
4 Million
4 Million
$173
$173
$173
$173
Confirmed
assumptions
___ __ir'l ~ay___ _
-----
Welfare Reform Amendment
IotaLEITCJ3egpients
Number of Affected Taxpayers
Average Tax Increase
TE!x~ayer~~V'!ith_Two_or_Mor~_Qualifyi09Q_hj'-QreJJ
Number of Affected Taxpayers
Average Tax Increase
Iaxpayersvv~b
Qne Qt!E!lifyjng_c:;bU_9
Number of Affected Taxpayers
Average Tax Increase
Taxpayers without qljalifying Chilcj
Number of Affected Taxpayers
Average Tax Increase
Department of the Treasury
Office of Tax Analysis
Estimate reflects effects of deindexation by the year 2000, estimated at 1996 income levels.
June 7,1995
DEPARTMENT
OF
THE
TREASURY (rI1~
TREASURY
NEW S
178<)~~~"• • • • • • • • • • • • • • •
1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C.· 20220· (202) 622-2960
FOR RELEASE AT 9:30 A.M.
June 8, 1995
ST ATEMENT OF
LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SEN ATE
Chairman Packwood and Members of the Committee:
I am pleased to have the opportunity to discuss the scope and the purpose of the earned
income tax credit (EITC)., as well as steps that are being taken to improve the credit. While I
will briefly touch upon compliance issues, Commissioner Richardson'S testimony wi]] address
administrative matters more completely.
The Administration is strongly committed to the goals of the EITC which are to make
work pay. and to lift workers out of poverty in the most efficient and administrable manner
possible. Since Senator Russell Long helped create the EITC in 1975, bipartisan support for the
program and its goals has been growing. With its message of "work pays," the EITC helps
reduce dependency on welfare and increase reliance on jobs. Prior to 1993, Congress voted to
significantly expand the EITC in the Tax Reform Act of 1986 and the Omnibus Budget
Reconciliation Act· of 1990.
This Administration's commitment to the EITC has been demonstrated through a number
of legislative and administrative actions since early 1993. In February 1993. we proposed an
expansion of the EITC in order to improve its effectiveness in encouraging work and increasing
the disposable income of working families. With certain modifications. Congress enacted the
Administration's proposals as part of the Omnibus Budget Reconciliation Act of 1993 (OBRA
1993). The EITC is growing as it was designed to grow pursuant to the three expansions signed
into law by Presidents Reagan, Bush, and Clinton respectively. As soon as those expansions are
fully phased in, the EITC costs will grow at a slower rate than gross domestic product (Figure
1) .
Since the passage of OBRA 1993, we have proposed further legislative changes to
RR-358
-2-
improve the administration and targeting of the EITC, while reduCing the costs of the program.
Four of these proposals were included in the Uruguay Round Agreement Act of 1994 (URAA).
As a consequence of that legislation, the EITC is denied to nonresident aliens and prisoner~,.
taxpayers are required to provide a taxpayer identification number for. each EITC qualifying
child regardless of age, and the Department of Defense is required to report to both the IRS and
military personnel the non-taxable earned income used in computing the EITC.
In this year's budget, we proposed that the EITC be denied to taxpayers with $2,500 or
more of interest and dividend income. A similar, but modified, provision was included in H.R.
831, which extended and expanded the 25 percent deduction for health insurance costs incurred
by self-employed individuals.
We have also made several proposals which are still pending final legislative action. This
year's budget includes proposals to deny the EITC to undocumented workers and to provide the
IRS with the authority to use simpler and more efficient procedures when taxpayers fail to
supply a valid social security number. In addition, the Administration proposed legislation last
year that would permit demonstration projects to test alternative methods of administering
advance payments of the EITC. We hope that Congress will act on these outstanding proposals.
As Commissioner Richardson will testify, the Administration has taken other significant
actions to strengthen the integrity of the EITC. We have expanded our outreach efforts to
ensure that eligible low-income individuals are aware of the EITC and the advance payment
option. We have also conducted studies of EITC compliance and the broader issue of
problematic refunds. Last spring, then-Secretary Bentsen appointed a Task Force to conduct an
independent investigation of the refund fraud, and Under Secretary Noble presented their interim
findings and call for aggressive action to the Ways and Means Oversight Subcommittee last
October. This year, we have intensified our scrutiny of returns claiming the EITC in order to
prevent erroneous refunds from being paid to ineligible individuals.
We understand that members of this Committee are concerned about non-compliance and
are also considering ways in which the EITC could be redesigned to reduce the cost of the credit
to the Federal government. However, in recent weeks we have become quite concerned about
how the goals and purpose of the EITC have been mischaracterized. Moreover, many proposals
that have been discussed to change the EITC, though described as compliance measures, would
not reduce error rates. Rather, these proposals would simply increase the tax burden on low and
moderate-income working families. In fact, some alternative proposals to redesign the EITC
would actually cause both non-compliance and work disincentives to increase. Finally, before
considering significant changes to this important work incentive, we would urge the Congress
to wait until we have had time to observe the effects of both recent legislation and our enhanced
compliance efforts.
In the remainder of my testimony, I will discuss in some detail the goals of the EITC and
the actions taken by the Administration to strengthen the effectiveness of the EITC, as well as
our views regarding proposals for possible modifications to the EITC.
-3-
Description of Earned Income Tax Credit for Low-Income Workers
The EITC is a refundable tax credit that is available only to low and moderate income
workers who have earned income and meet certain adjusted gross income (AGI) thresholds. To
be eligible for the EITC, a taxpayer must reside in the United States for over six months.
Nonresident aliens are not entitled to the EITC beginning in 1995.
The amount of the credit increases significantly if an individual has one or two qualifying
children. A child qualifies a filer for a larger EITC by meeting relationship, residency, and age
tests. To meet the relationship test, the individual must be a child, stepchild, descendent of a
child, or foster child of the taxpayer. The child must generally reside with the taxpayer in the
United States for over half the year. For foster children, the residency test is extended to the
full year. A qualifying child must be under the age of 19 (24 if a full-time student) or be
permanently and totally disabled. By tax year 1997, a taxpayer must provide a taxpayer
identification number (TIN) for each qualifying child.
Computation of the Credit. The credit is determined by mUltiplying an individual's
earned income by a credit percentage. For a family with only one qualifying child, the credit
percentage for 1995 is 34 percent. The credit amount increases as income increases, up to a
maximum income threshold. For 1995, the income threshold is $6,160. Therefore, if there is
only one qualifying child, the maximum credit for 1995 is $2,094 (34 percent of $6,160).
The credit is reduced and eventually phased out once AGI (or, if greater, earned income)
exceeds a certain phase-out threshold. For 1995, the phase-out threshold is $11,290. The
phase-out is accomplished by reducing the credit by a phase-out percentage. In 1995, for a
family with only one qualifying child, the credit is reduced by an amount equal to 15.98 percent
of the excess of AGI (or, if greater, earned income) over $11,290. The credit is completely
phased out and is no longer available to taxpayers with incomes above the end of the phase-out
range. In 1995, this income level is $24,396. The income thresholds for both the phase-in and
phase-out ranges are adjusted for changes in the cost of living.
If there are two or more qualifying children, the credit percentage, income thresholds,
and phase-out percentage are higher. For 1995, the credit percentage for families with two or
more children is 36 percent of the first $8,640 of earned income. Filers with earnings between
$8,640 and $11,290 are entitled to the maximum credit of $3,110 (36 percent of $8,640).
The phase-out percentage for these families is 20.22 percent. As in the case of the credit
for families with one child, the credit is phased out starting at $11,290. However, the phase-out
range for families with two or more children extends to $26,673.
In 1996, the credit percentage for families with two or more children will increase to 40
percent of the first $8,900 of earnings. Filers with earnings between $8,900 and $11,620 will
-4-
be entitled to the maximum credit of $3,560 (40 percent of $8,900). The phase-out percentage
will also increase to 21.06 percent, and the phase-out range will extend to $28,524. Thereafter,
the income thresholds for both the phase-in and phase-out ranges will be adjusted for changes
in the cost of living. (The dollar amounts shown for 1996 are estimates.)
Workers who do not reside with qualifying children may claim the EITC if they are
between 25 and 64 years of age and are not claimed as a dependent on another taxpayer's return.
For these workers, the basic credit is 7.65 percent of the first $4,100 of earned income for a
maximum credit of $314. In 1995, the phase-out range for these workers is between $5,130 and
$9,230 of AGI (or, if greater, earned income). The phase-out percentage is also 7.65 percent.
The income thresholds for both the phase-in and phase-out ranges are adjusted for changes in
the cost of living.
Figures 2 and 3 show the EITC credit structure for 1995 and 1996, respecti"vely.
Advance Payments of the EITC. There are two ways to receive the EITC. Individuals
can claim the credit by completing a Schedule EIC when filing their tax return at the end of the
year. Alternatively, individuals with qualifying children may elect to receive a portion of their
EITC in advance by filing a Form W-5 with their employer. These individuals are entitled to
receive on an advance basis up to 60 percent of the credit allowable for a family with one
qu~ifying child. The employer is not required to verify a person's eligibility for the credit.
At the end of the year, the employer notifies both the IRS and workers of the actual
amounts of advance credits paid to individual workers on the .Form W-2. When filing tax
returns at the end of the year, these workers reduce the amount of EITC claimed by the amount
of advance payments received.
Questionable Claims: The IRS must follow normal deficiency procedures when
investigating questionable EITC claims. First, contact letters requesting additional information
are sent to the taxpayer. If the necessary information is not provided by the taxpayer, a
statutory notice of deficiency is sent by certified mail, notifying the taxpayer that the adjustment
will be assessed unless the taxpayer files a petition in Tax Court within 90 days. If a petition
is not filed within that time and there is no other response to the statutory notice, an assessment
is made in which the EITC is denied.
Refundable Nature of Credit: The EITC offsets Federal taxes paid by low and moderateincome families. In recent discussions, there has been some confusion regarding the refundable
nature of the EITC. In large part, this confusion appears to stem from the distinction between
Congressional intent and budgeting conventions. Under conventional budaet
accountinaI:>
I:>
practices, the EITC is shown in the budget as a reduction in taxes only to the extent to which
it offsets a taxpayer's liability for taxes paid through the income tax system. This is because
the EITC is claimed through the income tax system and as a practical matter, the credit can be
most easily measured as an offset against the taxes paid through this system. Thus, under these
as a reduction
conventions, about 23 percent of EITC costs in FY 1995 are shown in the budaet
I:>
-5in Federal income taxes and other taxes paid through the income system, including selfemployment taxes (SECA). About half of EITC recipients have an income or SECA tax liability
prior to the receipt of the EITC.
Given that the EITC is created to offset the tax burden of low and moderate-income families,
the EITC should not simply be measured as an offset to income and SECA taxes. When the
reduction in the employee and employer portions of all social security taxes are included in the
calculation, about 78 percent of EITC costs offset individual income and payroll taxes paid by
recipients. Nearly all EITC recipients are subjeCt to either individual income or social security
taxes before qualifying for the EITC. Even this measure does not take into account other taxes
which are offset by the EITC. During the consideration of both OBRA 1990 and 1993, the
EITC expansions were also viewed as a way of offsetting the burden of increases in excise taxes,
particularly the increases in the gasoline tax.
There has also been some confusion about the fact that most EITC recipients choose to clai 111
the credit at the end of the year as a lump-sum payment rather than by adjusting their
withholding or by taking advantage of the advance payment option. In that regard, EITC
recipients are not very different from the majority of taxpayers who choose to receive a refund
at the end of the year, rather than reduce their income tax withholding during the year. About
70 percent of non-EITC recipients receive an average refund of $1,150 at the end of the year.
Goals of the EITC
In developing the Administration's agenda for the EITC, we have been guided by the
three basic principles of tax policy: efficiency, fairness, and simplicity. Specifically, we have
sought expansions and modifications to the EITC in order to achieve the following four goals:
(1)
(2)
(3)
(4)
to make work pay for those who might otherwise be on welfare;
to ensure that an individual who works full time throughout the year will not live
in poverty;
to target benefits to those with the greatest needs while minimizing distortions;
and .
to make it easier for eligible individuals to claim the credit and for the IRS to
verify their eligibility.
I would like to address each of these four goals in more detail.
For low-income families, the EITC makes work pay in two ways. Unlike many other
assistance programs for low-income families, the EITC is limited to working fal~l~)ies.
Moreover , the credit amount initially increases -- rather than decreases -- for
. each addltJonal
.
dollar of earnings. As a consequence, the EITC is different from other 10w-lIlcome assIstance
programs that are characterized by a reduction in benefits for each additional dollar of earnings.
-6-
The EITC significantly increases the marginal return from working for both those who do not
work at all and those who work less than full-time at minimum-wage jobs throughout the year.
The positive link between the EITC and work also helps offset the work disincentives
created by other tax and transfer programs. Between 1983 and 1990, payroll taxes increased
five times. Currently, workers are taxed at the combined employer and employee rates of 15.3
percent on the first dollar of earnings for the old-age, survivors, disability and health insurance
(OASDHI) program~. Beyond a relatively low income threshold, food stamp benefits are
reduced by 24 cents for each additional dollar of earnings. The EITC. with its positive credit
rate on low earnings. is the only program designed to help offset the marginal tax rates imposed
by these other programs.
A person who works at a full-time job for the entire year should not live in poverty. The
Federal government assists low-income families in a number of ways. The Federal government
requires employers to pay workers at least the minimum wage, and provides direct assistance
to families through food stamp benefits and the EITC. In order to ensure that a family of four
dependent on a full-time worker earning the minimum wage is lifted out of poverty, it would
require a combination of food stamps, enactment of the Pre~ident's proposal to increase the
minimum wage, and implementation of the expanded EITC.
Earlier this year, Secretary Rubin visited a volunteer income tax assistance (VITA) site
here in the District of Columbia. At the site, he met Rhonda Clark, a mother from Maryland.
Talking of her experiences with the EITC, Ms. Clark said, "I enjoy working and I want to
continue. The EIC gives me some of the help I need -- to keep working, to stay independent,
and to support my family. It's a help I can not do without." Ms. Clark's experience provide
a vivid example of how the EITC makes a difference in people's lives by encouraging them to
work and providing them with additional assistance.
As the EITC has increased in recent years, the mInImUm wage and other benefits
received by low-income working families have declined in real value. Without an increase in
the minimum wage, its real value in 1996 will decline to its lowest value in forty years. In
addition, AFDC benefits are no longer provided for most families in which a mother works at
least half-time. In the early 1970s, most states provided AFDC benefits as a wage supplement
to a mother with two children whose earnings equaled 75 percent of the poverty level.
Currently, only three states provide comparable benefits. The EITC expansions have been
and
necessary to at least partially offset the reductions in the real value of the minimum waoe
o
other Federal benefits.
The benefits of the EITC should be targeted to families with the greatest needs and to
those who can be best served by the positive incentives associated with the EITC. As a
consequence, the credit rate is highest at very low earning levels, thus reaching individuals who
are often making the critical step from welfare to work. Because larger families have oreater
needs than smaller families, taxpayers with two or more children are entitled to a laroe; EITC
than taxpayers with one or no children.
0
-7Families with incomes slightly above the poverty level also require assistance. Wages
have stagnated for many workers and declined markedly for low-wage workers. Between 1973
and 1993, real hourly wages of full-time male workers at the tenth percentile (that is, those
whose wages are just above those of the lowest-paid 10 percent of workers) declined 16 percent,
while real hourly wages at the median fell 12 percent. By providing the EITC to families with
incomes of up to $28,524 in 1996, the program provides a cushion to protect moderate-income
families from the effects of wage stagnation.
We recognize that the targeting of the EITC to the neediest workers could have
unintended effects. First, the EITC increases the income of all recipients, allowing them to
maintain their standard of living with less work .effort. For very low-wage workers, these
negative effects are largely offset by the fact that the credit also increases their after-tax wage
rate and thus the pay-off to work. As incomes increase above $ J J ,290, EITC benefits begin to
phase-out. As a consequence, the marginal tax rates for families of modest means increase.
Among recipients in the phase-out range, the EITC could cause some individuals, primarily the
spouses of other workers, to reduce the number of hours worked in response to higher marginal
tax rates.
In this regard, the EITC is similar to any benefit program which targets assistance to the
very neediest families. We cannot target assistance to low-income families without causing
marginal tax rates to increase for families with slightly higher income. However, we can seek
to minimize such distortions.
The fourth goal of the EITC is simplicity and verification. If eligibility rules are simple,
taxpayers can more accurately claim the EITC and avoid costly errors. With simple and
verifiable eligibility rules, the IRS can al~o better ensure that the EITC is paid only to taxpayers
who are eligible for the credit.
Simplicity is particularly important, because eligible individuals can claim the EITC
directly when they file their tax return. It is likely that this simple application process has
contributed to high participation rates in the program. It has been estimated that between 80 and
86 percent of eligible persons claimed the EITC in 1990.
From the IRS's perspective, it is easier to verify eligibility for the EITC if the rules are
simple. Moreover, because the IRS does not ordinarily interview EITC claimants, it is
important that eligibility be based on criteria which can be verified as quickly as possible
through independent reporting sources. Simplicity and verification prior to the payment of the
EITC are key to the successful operation of the program.
This Committee recognized the importance of the need for simplicity during consideration
of OBRA 1990. At that time, data from the 1985 Taxpayer Compliance Measurement Program
(TCMP) became available, showing an unacceptable number of erroneous EITC claims. In
response, then-Chairman Bentsen requested that the B~sh ~dminist.r~tion work. wit~ the taxwriting committees to address this problem. The simpllficatlon proVIsIons contallled In OBRA
-81990 were a first step toward reducing EITC error rates. As described below, additional steps
have been taken since 1990 to further reduce EITC error rates.
Legislative and Administrative Actions in 1993 and 1994
As I outlined in the beginning of my testimony, the Administration and Congress have
taken a number of important legislative and administrative actions during the past two years in
order to improve the effectiveness and administration of the EITC. I would like to review with
you our accomplishments during this period.
OBRA 1993. OBRA 1993 expands the EITC and makes the program more effective in
achieving its policy objectives.
First, OBRA 1993 increased the returns from working for those outside the workforce
and for other. very low-wage workers. (See Figure 4.) For very low-wage workers without
qualifying children, the EITC offsets the employee portion of the OASDHI tax. During the past
decades, these workers had borne the full burden of increases in OASDHI taxes because they
were not entitled to the EITC. For a family with one child, the credit rate' for those with low
earnings was increased by 11 percentage points from 23 percent to 34 percent. For a family
with two or more children, the credit rate for those with earnings below $8,900 in 1996 was
increased by 15 percentage points from 25 percent to 40 percent. For low-wage workers with
two or more children, the EITC will fully offset the combined employee and employer portions
of the OASDHI taxes and the food stamp benefit reduction formula:
The OBRA 1993 expansion was also a critical step toward achieving the goal that a fulltime worker should not live in poverty if he or she works throughout the year. In combination,
a minimum wage job, food stamp benefits, and the EITC can lift a single parent with one or two
children out of poverty. But, the income (including the EITC and food stamps and subtracting
the employee portion of OASDHI taxes) of a family of four with only one full-time, minimum
wage worker falls below the official poverty threshold. Prior to the passage of OBRA 1993, the
poverty gap for a family of four would have been $2,435 in 1996. The OBRA 1993 expansion
significantly closes that gap. However, since the minimum wage has not kept pace with
inflation, the job is not completed yet. This is why the President has proposed that the minimum
wage be increased over two years by 90 cents.
OBRA 1993 reduced the poverty 'gap for minimum wage workers by increasing the
maximum benefits by nearly $1,500 in 1996 for a family with two or more children. For these
families, this increase in the maximum credit, without a change in the phase-out range, would
have resulted in a phase-out rate of 30 percent. In OBRA 1993, we tried to find a balance
between the goals of providing low-income families with sufficient income support, while
minimizing the marginal tax rates placed on families with higher, but still modest, levels of
income.
Thus, the increases in the maximum credit were accompanied by changes in the income
-9thresholds. For all families with children, the beginning of the phase-out range was lowered by
about $1,600. As a consequence, the phase-out rate actually fell slightly for a family with 'one
child since the end of the phase-out range was left unchanged. To reduce marginal tax rates
among families in the phase-out range, eligibility for the EITC was extended to families with
two or more children that have incomes in 1996 of up to $28,524 (or about $3,000 above the
prior level). The combination of these factors increased the phase-out rate from 17.86 percent
to 21.06 percent, rather than 30 percent.
While the effect of OBRA 1993 can not be measured yet, we believe that the legislation
will, on net, increase work effort. While some workers with latger families will face slightl y
higher marginal tax rates, they are unlikely to change their behavior much in response. These
are individuals who are already very attached to the work force. They cannot easily adjust their
hours of work in response to a small change in tax rates; they need both their jobs and the EITC
to meet their day-to-day needs. and most employers will not allow them the discretion to work
fewer hours. The effect of the higher marginal tax rates on some workers in the phase-out range
will likely be far outweighed by the effect of the increase in the credit rate. By making work
pay, the OBRA 1993 increase in the credit rate will encourage non-workers to enter the
workforce and other low-income part-time workers to increase their hours of work.
Finally,OBRA 1993 simplified the eligibility criteria for the EITC beginning in 1994 by
eliminating the two supplemental credits for health insurance coverage and for taxpayers with
children under 1 year of age. These two supplemental provisions added several paragraphs to
the instructions, 10 additional lines on the Schedule EIC, and two additional look-up tables. The
IRS could not easily verify eligibility for the supplemental credits because it did not receive
independent verification of taxpayers' eligibility for them. These changes should improve
compliance by reducing errors and improving verification.
URAA. URAA contains several provisions to improve the targeting of the EITC to those
with the greatest need. Under this legislation, nonresident aliens are denied the EITC beginning
in 1995. Under prior law, nonresident aliens could receive the EITC based on their earnings
in the United States, even though they were not required to report their world-wide income to
the IRS. Thus, it was possible for a wealthy foreign student to obtain the EITC based on his
or her earnings as a teaching assistant at an American university.
In addition, prisoners will not be eligible for the EITC based on their earnings while
incarcerated. In the past, prisoners generally would not have been able to clai m the EITC
because they did not reside with a qualifying child for over half the year. When the EITC was
made available to workers without children in 1994, it became possible for prisoners to receive
the EITC based on their earnings at prison jobs. Because this provision was made effective for
tax year 1994, the EITC will not be paid to these individuals.
URAA also contained two provisions to improve the administration of the EITC. By
1997, taxpayers will be required to provide TINs for all dependents and EITC qualifying
children, regardless of their age. By requiring EITC claimants to provide the TINs of all
-10children, regardless of age, URAA improves the ability of the IRS to verify the eligibility of a
taxpayer for the EITC.
Under the legislation, the Department of Defense is required to provide military
personnel and the IRS with information regarding basic housing and subsistence allowances (or
in-kind equivalents) and income excluded by reason of service in a combat zone. These changes
will not increase their taxable income but will improve accuracy in reporting and verification
of earned income. The savings from this provision are somewhat offset by another provision
which extends EITC eligibility to military personnel stationed abroad.
Administrative Actions. The Administration has taken a number of steps to ensure that
eligible individuals know about the EITC and the advance payment option. While many eligible
persons receive the EITC, fewer than 1 percent of EITC claimants receive the credit through
advance payments. The reasons for the low utilization rate are not fully known. One possible
explanation is that workers simply do not know that they have the option of claiming the credit
in advance. A General Accounting Office study in 1992 provided some support for this theory
when investigators found widespread ignorance about the advance payment option among lowincome workers. 1
The Administration has intensified its efforts to alert taxpayers of their eligibility for
advanced payments. As one of the first steps, President Clinton announced a Federal campaign
in 1994 to enroll eligible government workers in the advanced payment system. The Treasury
Department and a group of business executives have also joined forces to encourage privatesector employers to notify their workers about the advanced payment option. As required by
OBRA 1993, the IRS sends out notices to EITC claimants after the filing season, informing them
about the advance payment option and (although not required by the 1993 legi slation) also
supplying a Form W-5 for their use.
As Commissioner Richardson will explain, the Administration has also taken steps to
ensure that those who are not eligible for the EITC do not receive it. During a two-week period
in January, 1994, the IRS conducted a pilot study to determine what additional enforcement tools
might be necessary to detect and prevent erroneous refunds during the remainder of the 1994
filing season. The results of the pilot compliance study, drawn from a sample of over 1,000
taxpayers who filed electronically during a two-week period in January, 1994, found that about
26 percent of every dollar claimed in the EITC was in excess of the actual amount owed to the
taxpayer.
The results of this pilot study are not representative of the EITC filing population as a
whole. Nonetheless, the IRS has taken a number of responsible and needed steps to limit the
EITC to those who are entitled to the credit. Beginning this year, the IRS is validating the
1 U.S. General Accounting Office. Earned Income Tax Credit: Advance Payment Option
is Not Widely Known.or Understood by the Public. (GAO/GGD-92-26, February 19, 1992).
-11social security numbers on all tax returns claiming the EITC. Refunds on returns with incorrect
or missing numbers are being delayed while the IRS checks the accuracy of the refunds claimed.
We estimate that the effects of the social security validation tests, along with conventional
enforcement activities and the repeal of the complicated supplemental credits, should reduce the
error rate to 19 percent. Using the results of the pilot study and other information, the IRS is
also increasing its screening and review of all returns to ensure that only those taxpayers entitled
to refunds receive them. As a consequence, refunds may be delayed on other questionable
returns. These additional enforcement procedures should further reduce erroneous payments of
the EITC. Moreover, we anticipate that the error rates should be further reduced as a
consequence of other legislative steps, described above, which are still being implemented over
the next several years (e.g., the requirement that taxpayers provide a taxpayer identification
number for all children regardless of age). Also, Congressional action on the Administration's
In
remaining legislative proposals, described below, should further reduce error rates.
combination, implementation of these enforcement procedures will make it more difficult for
taxpayers to erroneously claim the EITC.
Finally, the IRS stopped providing Direct Deposit Indicators in the 1995 filing season to
lenders who were providing refund anticipation loans. This action is also expected to reduce
compliance problems that were associated with refund anticipation loans. The IRS's actions this
filing season have been applauded as both responsible and necessary by Ways and Means
Oversight Subcommittee Chairman Johnson and Ranking Member Matsui in a recent "Dear
Colleague" letter to House members.
FY 1996 Budget Proposals
The Administration included several proposals to improve the targeting and administration
of the EITC in this year's budget submission. We are ready to work with the Congress on those
proposals which have not yet been enacted.
Deny EITC to taxpayers having more than $2,500 of taxable interest and dividends.
Under this proposal, the EITC would be denied to taxpayers having more than $2,500 of taxable
interest and dividends beginning in 1996. This threshold would be indexed for inflation
thereafter.
This proposal would improve the targeting of the EITC to the families with the greatest
need. Under current law, a taxpayer may have relatively low earned income and be eligible for
the EITC, even though he or she has significant interest and dividend income. Most EITC
recipients do not have significant resources and must rely on their earnings in order to meet their
day-to-day expenses, but taxpayers with significant interest and dividend income can draw upon
the resources that produce this income to meet family needs.
This proposal, with some modification, was included in H. R. 83 I. which extended and
expanded the 25 percent health insurance deduction for self-employed individuals. H.R. 831
-12lowered the asset income threshold to $2,350 and expanded the categories of income subject to
the threshold to include tax-exempt interest and net positive rents and royalties. The asset
income threshold is not indexed.
In developing the Administration's proposal, we considered a broader list of asset income
subject to the cap. We recognized that a broader list might increase equity, by treating the
recipients of certain other types of asset income in the same manner as those who receive
interest and dividend income. An expanded list would also reduce the incentive to choose a
particular type of investment based on its tax or refund consequences. However, we were also
concerned because the inclusion of net positive rents and royalties would add complexity to the
determination of the EITC. These items are not reported separately on the Form 1040. We did
not include the broader list of asset items because we were also concerned that low-income
taxpayers could not convert real estate holdings and other types of assets into cash as easily as
savings accounts and stocks in a time of need.
While we did not oppose the inclusion of tax-exempt interest and net rents and royalties
in H.R. 831, we are very concerned about the asset income threshold not being indexed. We
believe that the asset income threshold should be indexed in the same manner as all other income
parameters for the EITC. Without indexation, the number of persons affected by this provision
will increase over time. By 2000, the threshold would be equal to about $2,075 in 1996 dollars
and would increase the number of affected taxpayers from about 550,000 to 650,000.
EITC Compliance Proposals. Under this budget proposal, only individuals who are
authorized to work in the .United States would be eligible for the EITC beginning in 1996.
Taxpayers claiming the EITC would be required to provide a valid social security number for
themselves, their spouses, and their qualifying children. Social security numbers would have
to be valid for employment purposes in the United States. Thus, eligible individuals would
include U.S. citizens and lawful permanent residents. Taxpayers residing in the United States
illegally would not be eligible for the credit.
In addition, the IRS would be authorized to use simplified procedures to resolve questions
about the validity of a social security number. Under this approach, taxpayers would have 60
days in which they could either provide a correct social security number or request that the IRS
follow the current-law deficiency procedures. If a taxpayer failed to respond within this period,
he or she would be required to refile with correct social security numbers in order to obtain the
EITC.
In combination, these provisions would strengthen the IRS's ability to detect and prevent
erroneous refunds from being paid out. In addition, the proposals would improve the targeting
of the EITC by providing the credit only to individuals who were authorized to work in the
United States.
Tax Systems Modernization. The budget submission for the IRS contains funding for the
continuation of its tax systems modernization (TSM). We urge the Congress to continue to fund
-13TSM. TSM is vital to the long-run efficiency of the IRS's collection functions. TSM will also
enhance the IRS's ability to detect erroneous EITC claims.
Demonstration Projects Proposal
In June 1994, the Administration introduced the Work and Responsibility Act (H.R.
4605). One of the provisions in H.R. 4605 would provide additional flexibility to States with
respect to the EITC. We continue to support this proposal.
The proposal would allow four demonstration projects to determine the effects of
alternative methods of delivering advance payments of the EITC. States would apply to the
Department of the Treasury to provide advance payments of the EITC directly to eligible
residents through a State agency. Such agencies could include food stamp offices, Employment
Services, and State revenue departments. State plans would be required to specify how payment
of the EITC would be administered. To finance these payments, States would reduce payments
of withholding taxes (for both income and payroll taxes) from their own employees by the
amount of the advance payments made during the prior quarter. . The fOllr selected projects could
operate for three years beginning in 1996.
This pilot program is designed to determine whether another approach would be more
effective for delivering advance payments than the current employer-based system. For
example, a State could choose to allow all eligible EITC recipients to apply for advance
payments. By receiving the credit as they earn wages, workers would observe the direct link
between work effort and the EITC. Through a State program, individuals could have a choice
of receiving the credit from a neutral third-party, without fear of the consequences of notifying
their employers of their eligibility for the EITC. Moreover, they could receive assistance in
determining the appropriate amount of the EITC to claim in advance.
A State could instead choose to target the advance payments of tile EITC to welfare
recipients -- as a way of driving home the message that "work pays." These individuals may
not know about the EITC, and how it can "make work pay," because they do not have to file
a tax return if their adjusted gross incomes are below the tax thresholds (which are generally less
than the poverty thresholds).
If the legislation passes, we will evaluate these demonstration projects in order to
understand better how individuals respond to receiving advance payments of the EITC. We will
pay careful attention to whether the use of State agencies can increase both utilization of the
advance payment system and labor force participation by non-workers.
States also have the resources to verify many of the eligibility criteria for the credit better
than employers, reducing the risk of erroneous payments being made to ineligible persons. This
option would also allow for an evaluation of alternative delivery systems on compliance.
-14Other Suggestions
The Administration evaluates other proposals to modify the EITC by the same criteria
we apply to our own proposals:
(1)
(2)
(3)
(4)
Does the proposal make work more attractive to those outside the workforce and
to others with minimal ties to the workforce?
Does the proposal reduce the poverty gap for full-time workers?
Does the proposal improve the targeting of the EITC to the neediest individuals
and families in the least distortionary manner? and
Does the proposal make it easier. for eligible taxpayers to accurately claim the
EITC and for the IRS to verify their eligibility before refunds are paid out?
We are concerned that many of the options that may be considered by this Committee do not
meet these criteria.
1. Senate Budget Committee Resolution
The Senate budget resolution assumes that this Committee will reduce the EITC by $13
billion between FY 1996 and 2000 and $21 billion between FY 1996 and 2002. The resolution
further assumes that these savings can be achieved by repealing the EITC for workers without
qualifying children, limiting the increases for families with children, and adopting the
Administration's EITC compliance proposals from the FY 1996 budget. During the Budget
Committee's deliberations on the budget resolution, we believed that the resolution assumed the
repeal of the final phase of the OBRA 1993 expansion, which is scheduled to occur on January
1, 1996. As a consequence, the credit.rate for families with two or more children would be
frozen at 36 percent instead of 40 percent.
During the floor debate on the budget resolution by the Senate, we learned that the
reductions in the EITC are deeper than had been earlier thought. The budget resolution does
not merely limit the increases for families with children. Instead, it reduces the EITC for many
families below the 1995 levels. Under the resolution, the credit rate for a family with two or
more children would be reduced from its 1995 level of 36 percent to 35 percent. In addition,
the credit rate for families with one child would be reduced from 34 percent to 30.15 percent.
According to Treasury's estimates, the EITC proposals in the Senate budget resolution would
reduce the EITC by $16.6 billion over the next five years and $25.6 billion over the next seven
years.
These proposals would generally limit the effectiveness of the EITC in reducing poverty.
For example, in 1996, the maximum EITC for families with two or more children is scheduled
to increase from $3,110 to $3,560. This.is the level necessary, in combination- with a 90 cent
increase in the minimum wage, to close the poverty gap for a full-time minimum wage worker
who supports a family of four. Under the Senate budget resolution, the maximum credit would
be $445 less than current law.
-15By lowering the credit rate for families with children, the proposal also reduces the
effectiveness of the credit for encouraging work effort. Under the proposal, many EITC
recipients with earnings of less than $8,900 could receive a smaller EITC than in 1995. The
reductions in the credit rate would also adversely affect those who are currently outside the
workforce, but who are choosing between work and welfare.
The Treasury Department estimates that 14 million EITC recipients would be adversely
affected by the proposals. Of these 14 million, 10 million workers and their families would be
adversely affected by the proposed reductions in the credit for families with children. About 8
million EITC recipients with two or more children would lose, on average, $305 in 1996.
About 2 million very low-wage workers with only one child would lose, on average, $137
relative to current law. (See Figure 5 and attached table.)
The budget resolution also assumes the repeal of the EITC for 4 million very low-wage
workers who .do not reside with qualifying children. The OBRA 1993 expansion of the EITC
for these workers was designed to help offset the work disincentive effects of the social security
tax. If repealed, these workers will lose up to $324 in 1996. At the poverty level ($7,710 in
1996), a single taxpayer would have a combined income and social secu·rity tax liability of
$1,350 (including $170 of income tax liability prior to the receipt of the EITC). Under the
proposal, the taxpayer's tax liability would increase by $138. On average, low-wage workers
who do not reside with qualifying children would incur a tax increase of about $173 in 1996.
The Senate budget committee resolution claims to address the problems of fraud and
abuse and exploding costs in the EITC program. But EITC costs are not exploding. After
OBRA 1993 is fully implemented in 1996, EITC costs will increase in tandem with inflation and
population growth. Moreover, the resolution contains only one proposal to address fraud and
abuse: the Administration's proposal to deny the EITC to undocumented workers and to provide
the IRS with the authority to use simpler and more cost-effective procedures when taxpayers fail
to provide valid social security numbers. Instead, the Senate budget resolution would reduce
the EITC for 14 million working families, on average, by about $239.
2. Welfare Reform Amendment
During the recent deliberations on welfare reform in this Committee, an amendment to
reduce the EITC was circulated. (This amendment was ruled as non-germane under Committee
rules, along with other tax amendments.) Copies of the amendment were made available at the
time of the mark-up, and we would like to take the opportunity to comment on the proposals.
This amendment adopts most of the proposals assumed in the Senate budget resolution.
However, it would reduce the EITC far more deeply than was considered in the resolution.
According to Treasury estimates, the amendment would reduce the EITC by $37 billion between
FY 1996 and 2000 and $66 billion between FY 1996 and 2002.
Under the amendment, indexation of the EITC would be repealed. As a consequence,
EITC recipients would be entitled to a maximum benefit of $3,024 in 1996, a reduction of $536
-16relative to current law. The maximum benefit amount would not change after 1996. By 2000,
the maximum credit amount would be reduced by $1,016 -- or 25 percent -- relative to current
law.
Indexation is necessary to ensure that taxpayers do not lose eligibility for the EITC.
Under current law, an estimated 16.7 million taxpayers with children will claim the EITC in
1996. If benefit thresholds are not adjusted for inflation. participation would shrink to 14.8
million by 2000.
Eliminating indexation does not address the issue of fraud and abuse at all. Instead, it
denies eligibility for the EITC to millions of law-abiding working taxpayers and reduces the
benefits of millions of others who are playing by the rules. A number of tax provisions are
indexed for inflation each year. These include the personal exemption, standard deduction
amount, the width of the income tax' brackets, the phase-out ranges for the personal exemption
and deduction amounts, and the social security earnings ceiling. It is inappropriate to suspend
indexation on the one provision which is solely targeted to low-income taxpayers.
The amendment would also limit eligibility for the EITC by adding new restrictions on
the amounts and types of income held by recipients. The investment income cap would be
lowered from $2,350 to $1,000. Net capital gains and passive partnership and estate income
would also be added to the investment income cap. We would have serious reservations about
lowering the investment income cap from $2,350 to $1,000.
.
The amendment's sponsors argue that at prevailing interest rates, a $1,000 investment
cap is associated with about $16,700 of assets, and that it is inappropriate to provide the EITC
to taxpayers with savings this high. While we agree that taxpayers with large amounts of assets
should not receive the EITC, we view the $1,000 investment income cap as too restrictive. Low
and moderate-income families should be encouraged ~osave for down-payments on homes, startup capital for businesses of their own, their children's education or their own retraining. For
example, the median price for a home purchased in 1994 by a first-time homeowner was
$125,000, with an average downpayment of 13.7 percent of the price (or $l7, 125), while the
costs of a four-year education at a typical state university exceeded $25,000. Under the
proposal, the EITC would be denied to many families saving· for these investments in their
futures unless they liquidated their savings or shifted their investments to exempted assets.
The amendment would also restrict eligibility for the EITC by expanding the definition
of income. For purposes of determining eligibility for the EITC, adjusted gross income would
be expanded to include non-taxable social security benefits, child support payments, non-taxable
pension income, and tax-exempt interest. We have serious reservations about the expansion of
adjusted gross income to include these items.
We have serious concerns about the imposition of an additional tax on social security
benefits of taxpayers who qualify for the EITC. The EITC would be reduced by up to over 19
cents for each additional dollar of social security benefits. Low-income elderly workers with
-l7children could be subject to higher taxes on social security benefits than some of their better-off
neighbors. In part, a portion of workers' social security benefits (as well as non-taxable pension
income) represent the return of their own contributions from previously taxed ,income. The
proposal could affect non-elderly workers with young children, too. The EITC would be
reduced or eliminated for a low-wage worker whose disabled spouse receives disability insurance
benefits. Reducing the EITC benefits of social security recipients could al so compound the work
disincentives already present in the social security programs.
The tax system does not count child support as income to the custodial parent because
child support payments are a continuation of the other parent's obligation to support his or her
child. Custodial parents should be encouraged to seek child support, rather than being penalized
for obtaining it. As a result, we have serious reservations about this provision as well. This
provision would also add complexity to the determination of EITe eligibility and would be
difficult to verify. In particular, the IRS does not currently receive information about child
support payments.
In combination, these proposals would reduce the EITC for 19 million taxpayers, on
average, by $602 (2000 law measured at 1996 income levels). Taxpayers with two or more
families would be most adversely affected by these provisions. For eight million taxpayers with
two or more children, the EITC would be reduced, on average, by $886.
The Administration is committed to improving compliance with the EITC rules. Its
actions in the last two years are clear evidence of this commitment. The compliance problems
which the Administration is addressing should not be used as an excuse to eliminate or reduce
the EITC benefits to all low-income working people. Consequently, the Administration strongly
opposes proposals to eliminate indexation or to add complexity to the EITC eligibility criteria.
The Administration is committed to taking additional steps to improve the administration
of the EITC. We would be interested in exploring with Congress legislative proposals to
improve the ability of the IRS to verify eligibility for the EITe. These efforts might include
requiring States to provide compatible and timely data on welfare and food stamp beneficiaries
to the IRS, so that the IRS could better determine if an EITC qualifying child was claimed by
the appropriate taxpayer. Reporting requirements for non-taxable earned income, which is used
in the calculation of the EITC, could be enhanced as well.
* * * * *
This concludes my remarks. Thank you once again for providing me with the opportunity
to testify. I would be pleased to answer any questions that the Committee may have.
Figure 1: Growth in the EITC and GOP *
1997 - 2002
Growth Rate
10,~--------------------~--------------------~
8
~
6
~
GDP
4~
EITC
2
I-
oI
1997
I
I
1998
1999
I
2000
Calendar Year
*Under current law and Administration's January budget assumptions
2001
2002
Figure 2: The Earned Income Tax Credit, 1995
Credit Amounts
4,000
~i----------------------------------------------------------~
Two or More Children
3,500
$3,110
3,000
I
,---------
I
'
I
I
,,
,/
,
.,
,,
I
I
2,500
One Child
'
No Children
,,
-----
-~-----------'
$2,094
2,000
1,500
,
1,000
I
I.
I
500
$314
°
°
~...
......
...
...
5,000
...
10,000
15,000
20,000
Earned Income or Adjusted Gross Income
,
25,000
30,000
Figure 3: The Earned Income Tax Credit, 1996
Credit Amounts
4,000 I~--------------------------------------------------------'
$3,560
,---------,
3,500
I
I
I
3,000
., ,
Two or More Children
., , ,
,
., .
,,
,
I
One Child
,,
,,
No Children
,
I
2,500
"
,
,
2,000
I
$2,156
,,
,,
I
I
1,500
1,000
,,
$324
500
,,
o~············································· ..... .
o
5,000
15,000 .
20,000
10,000
Earned Income or Adjusted Gross Income
25,000
., ,
30,000
Figure 4: The Earned Income Tax Credit Under
OBRA 1990 and OBRA 1993, Fully Phased In
Workers with Two or More Children, 1996 Dollars
Credit Amounts
4,000
~I----------------------------------------------------------~
$3,560
OBRA 1993
3,500
OBRA 1990
3 ,000 "-2,500
$2,109
2,000
1 ,500 .--
1,000
500
°a
V
"
5,000
10,000
15,000
20,000
Earned Income or Adjusted Gross Income
25,000
'"
30,000
Figure 5: Average Tax Increase for Taxpayers with Two or More Children
1996 Dollars
1,000
-------------~-------____,
'--1
$886
800
600
$516
400 .-
$305
200
o
Budget Resolution Budget Resolution
as Confirmed
Actual Assumptions
in May
Welfare Reform
Amendment
1996 Law
Welfare Reform
Amendment
2000 Law*
* Estimate reflects effects of deindexation by the year 2000, estimated at 1996 income levels.
Average EITC Tax Increases
1996 Income Levels
---
Budget Resolution
Confirmed
Actual
assumptions
assumptions
in Jv1ay_______ ~ __
---- --------
Welfare Reform Amendment
2000
1996
Law*
Law
---
---------
Total EITC ReciQients
Number of Affected Taxpayers
Average Tax Increase
12 million
14 million
19 million
19 million
$235
$239
$311
$602
8 million
8 million
8 million
8 million
$269
$305
$516
$886
o
2 million
7 million
7 million
$0
$137
$166
$563
4 Million
4 Million
4 Million
4 Million
$173
$173
$173
$173
Taxpayers with Two or More QualifyingJ;hildren
Number of Affected Taxpayers
Average Tax Increase
Taxpayers with OnE3Qualifyinj:]_ Child
Number of Affected Taxpayers
Average Tax Increase
Ia_xp§yers witho_lIt QLJC!lifying~hilcJ
Number of Affected Taxpayers
Average Tax Increase
Department of the Treasury
Office of Tax Analysis
Estimate reflects effects of deindexation by the year 2000, estimated at 1996 income levels.
June7,1995
DEPARTMENT
OF
THE
TREASURY f~fF
\~~l)
TREASURY
NEW S
~~178f9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
................................
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
For Release Upon Delivery
Expected at 11 a.m.
June 8, 1995
STATEMENT OF JOHN D. HAWKE, JR.
NOMINEE FOR
UNDER SECRETARY FOR DOMESTIC FINANCE
DEPARTMENT OF THE TREASURY
BEFORE THE
SENATE FINANCE COMMITTEE
Mr. Chairman, Senator Moynihan, and members of the Committee, I am deeply
honored to appear before the Committee today. I especially want to thank you,
Chairman Packwood, for bringing my nomination up for hearing in such a timely fashion.
The prospect of serving in President Clinton's Administration and participating in
the important work of this distinguished Committee is enormously exciting and
challenging. I am particularly grateful to Secretary Rubin and Deputy Secretary Newman
for their strong support and for the confidence they have reposed in me. They have
assembled a tremendously talented group of people at the Treasury Department, and it
is my earnest hope that I will be able to make a contribution to their efforts.
While I have always considered myself a New Yorker -- having been born,
brought up and educated there -- my professional life has been spent in Washington -- as
a law clerk to a wonderful appellate judge, Judge E. Barrett Prettyman; as counsel to a
House Education Subcommittee; as a practicing lawyer at Arnold & Porter, where I
served as Chairman for eight years; as a teacher of law at Georgetown University; and as
a banking regulator, in the position of General Counsel to the Federal Reserve Board
under the chairmanship of Arthur Burns. Since my time at the Federal Reserve 20 years
ago, it has been my hope that I would be able some day to return to government service,
and I am profoundly grateful to the President for making this hope come true.
RR-359
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
I am especially pleased to have the opportunity to serve at the Department of the
Treasury. Treasury is at the epicenter of some of the most critical issues our country
confronts, and the Under Secretary for Domestic Finance will have important
responsibilities with respect to many of these issues -- particularly those dealing with the
health, efficiency and competitiveness of our system of financial institutions. We have
before us not only the challenge of energizing the financial services system of the 21st
Century, but also the imposing responsibility of assuring that American taxpayers will never
again be called upon to shoulder the burden of losses suffered by that system.
While I have had the good fortune to be able to learn something of these issues
during my career, I approach the challenge of the Under Secretary's position with great
humility. Even a lifetime of experience cannot prepare one fully to deal with the subtleties
and complexities of the issues on our agenda today.
I can pledge to the Committee, however, that I will devote my full energies to the
task, and I look forward to working with this and other committees of the Congress as we
jointly try to serve the public's interest in finding effective means of dealing with these
Issues.
It has been a privilege for me to appear before you today, and I would be pleased to
respond to any questions the Committee may have.
DEPARTMENT
OF
THE
TREASURY '~j
TREASURY
NEW S
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C .• 20220 - (202) 622-2960
Robert F. Rubin
Secretny of the Treaswy
tesnrmny before the
Senate Cornrittee on Banking, Holtiing, and Urhm Affairs
Financial Services NegOtiatiOflii
June 8, 1995
Introduction
Nfr. Chai.nnan, members of the committee, I am pleased to discuss with you the status
of the financial services negotiations now lU1derway lU1der the General Ab'feernent on Trade in
Services (GATS) of the World Trade Organization (WTO). We are working very hard.
through talks in Geneva as well as high-level meetings arOlmd the world. to win new
opportunities for our firms to compete worldwide. OUf goal is to gain corrnnitments from the
key developed and developing countries that they will open their markets to our financial
services firms, and treat our £inns as well as they treat their own. Specifically, we want these
key cOlUltries to commit through the GATS to granting our firms substantially full access to
their markets, and national treatment in those markets, within some defined time period.
Offers now on the table remain inadequate. In order for the United States to accept an
iv1FN obligation, other cOlUltries must make commitments to maintain our firms' current
access, extend national treatment to US. and other foreign firms, and remove serious
impediments to access.
The IJ-qJortance of Financial Services
Let me explain why we have placed so much emphasis on financial services. There
are two chief reasons: to help the U.S. economy, and to advance the world's interests in the
development of international capital markets.
RR-360
1
For press releases, speeches, public schedules and official biographies, call our 24.hour fax line at (202) 622-2040
First and foremost, financial services are an area of enonnous importance to the
United States economy. Om financial companies accmmted for over 7 percent of GDP in
1993 -- more than $450 billion in revenues. U.S. finns are global leaders in scores of
financial industries with enonnous worldwide potential -- mutual fimd management, asset
securitization, investment banking -- to cite but a few. We have a very strong competitive
advantage in this burgeoning area
. Om cross-border exports of financial services already amounted to some $8.5 billion
in 1994, excluding U.S. affiliates of foreign finns. These exports ha\'e enjoyed average
annual growth of more than 10 percent over the past three years. A market-opening
agreement would set the stage for continued strong growth by American £inTIS. We simply
cannot allow this important United States sector to be excluded from probJfess in the
international trading system
American financial services finns can move rapidly to take ad\'3Jltage of new
opportunities when government-made barriers are removed. By way of example, U.S. finns
began calling Treasury officials within hours after Japan agreed to create a new asset-backed
securities market last February, asking for infonnation about how they could move ahead with
specific transactions. 1bat is how quickly U.S. finns can seize new opportunities, when
inhibiting foreign regulations are cleared away.
There is another reason why we have devoted so much effort to financial services.
The development of global financial markets has a significance which goes far beyond their
importance to specific finns, or even to the United States alone. More than ever before, wellfimctioning capital markets are essential to the health of the world economy. Capital needs in
emerging markets are outstripping the capacity of traditional financial systerTIS. State of the
art banking and broad, deep securities markets are needed to mobilize ftmds for electrical
power, telecommunications, and other infrastructure.
Allowing in foreign finns with high levels of expertise is one of the surest ways to
help deepen a nation's capital markets. That opens up broad new avenues for economic
progress worldwide. American finns can lead the way.
Post-Uruguay Rmm Negotiation;
The talks in which we are now engaged are an extension of the Uruguay Rouno GATS
negotiations completed in December, 1993. As you know, we entered the Uruguay Round
seeking to level the financial services playing field. We wanted to win commitments from
other countries that they would grant our finns substantially full market access and national
treatment -- the same kind of access and treatment which it has been our practice to grant to
foreign finns. That was the condition upon which we insisted, if we were to bind our own
market-opening practices under the GATS, by committing ourselves to. granting most favored
nation (MFN) status to all wro member countries.
A few parties to' the negotiations made offers that would have provided what we were
2
seeking. However, many offers did not provi.de acceptable market access and national
treatment corrnnitments. COlmtries sought to maintain a range 0f restrictions -- from
pro~bitions on new licenses for ~orei.gn finns to discriminatory regulatory and legal
reqwrements -- that could not be JustIfied, except as a way of keeping foreign £inns out.
Some also held back from committing themselves to allowing U.S. £inns now in their markets
to continue operations on ClllTent terms. In the end., we could not commit ourselves to
granting essentially full market access and national treatment to £inns from other colIDtries
that would not open their markets to our £inns and commit to keeping them Open.l
Rather than locking ourselves into a flawed pact, we reached an interim agreement.
The United States and some others took a broad exemption to the GATS most favored nation
obligation However, we agreed to suspend the exemption for the first six months of the
World Trade Organization's existence, while we negotiated fiuther.
The deadline for these extended negotiations is JlUle 30.
Progress Since Decermer 1993
Treasury and USTR officials have held several rowlds of negotiations with wro
members over the past 16 months. In addition, top-level officials from Treasury have met
with many of their foreign COlIDterparts to stress our concerns about the need for stronger
commitments, if a GATS agreement is to be reached. It has been a fi'equent theme in my
meetings with other colIDtries' finance ministers.
To fi.nther the negotiations, the United States has taken a new approach since
December 1993. Realizing that financial market liberalization takes time in developing
colIDtries, we have told our negotiating partners that they may offer to implement market
opening corrnnitments over a transitional phase. We will agree to such a phase-in so long as
it is limited, provides substantially full national treatment, and ends with substantially full
market access for our own and other foreign finns.
We have made some headway. The bilateral financial services agreements with Japan
on banking and securities negotiated by Treasury and on insurance negotiated by USTR
earlier this year removed one significant hurdle in the way of progress in GAIS. The
Administration has already briefed the Congress on the scope of these important agreements.
To smmnarize, the Japanese assented to the most comprehensive set of market-opening
measures in a decade, inel uding access to the $1. 5 trillion fimd management market,
liberalization of an array of securities instruments, and extensive deregulation of capital
controls which disadvantaged foreign finns.
For a description of specific offers made by other GATS
members at the close of the Uruguay Round, see Report on Status
of Financial Services Negotiations Under the General Agreement on
Trade in Services, April 30, 1995, p.5-7.
3
Japan has pledged to bind the benefits we received in our agreements in its GATS
schedule, as appropriate. It is important for Japan to do so and thereby subject its
connnitments to wro discipline.
With Japan having moved, the stage is set for other nations to come forward with
good offers in the GATS.
Negotiations with other wro members have intensified since we reached our
agreements with Japan. Bilateral and multilateral talks were held in Geneva over the week of
l\1arch 27. On my mid-April trip to India and other Asian states I met with several finance
ministry colleagues; I stressed how important it is for them to improve their offers. Comtries
submitted new offers in mid-May, and another romd of talks was held over the week of May
15. Our negotiators are in Geneva at this very moment, hannnering away to attain our
objectives.
We have made some progress with other wro members. Argentina, the then 12
member European Union, New Zealand and Switzerland all offered substantially full market
access and national treatment in banking and securities in their December 1993 offers. Since
then, Norway and South Afiica have come fOIWard with similar, high-quality commitments.
Moreover, Austria, Finland and Sweden have joined the EU and would be covered by the
.
Union's very good schedule.
A number of other comtries' offers have improved somewhat since December 1993,
although problems remain with them One Latin American comUy has pledged to eliminate
minimum capital requirements that discriminate between foreign and domestic institutions.
An important Asian comtry has proposed connnitting itself to binding already-implemented
regulatory changes within the GATS framework. Other comtries have offered small increases
in market access or improvements in the range of services that foreign firms can provide.
Unforttmately, the improvements offered by these and other comtries to date remain
inadequate. Let me cite just a few of the barriers we are up against. Some very important
markets want to continue limiting the number of licenses granted to foreign firms. Others
want to reserve the right to restrict entry by foreign firms entirely, or limit the ways foreign
firms C<m enter -- whether through branches or subsidiaries. Some comtries want to retain
the right to discriminate against foreigners with regulations that have no prudential
justification, such as discriminatory capital~asset ratio requirements. Still others want to apply
rules ~ for all practical purposes, would keep out foreign asset managers and investment
advisors.
Some offers stop short of even protecting the current rights of firms already
established in a market.
The Fmal Opportunity
4
· ~. ~ our officials are clllTently in Geneva, where the final stage of
negOtIatIOns, IS ~d~ay. ~ I.have said, presen~ offers remain inadequate. I strongly hope
that other cOlmtnes offers WIll unprove to the pomt where we can wholeheartedly enter into
an agreement, and accept an rvtFN obligation.
To be sure, the decision to accept or refuse an ivIFN obligation is a tough one. The
benefits of accepting an tv1FN obligation could be substantial. COlll1tries which have made
attractive market-opening connnitments would bind those cormrutrnents through the GATS.
US. £inns would be assured of important new opportunities to compete in exciting new
markets. As important, for the first time key markets such as those of the European Union
and Japan would bind their open-market practices within the GATS. 111e World Trade
Organization would give us a ready means for enforcing those cormrutments. Our financial
firms would face a more certain and predictable international environment. knowing that the
clock could never be set back.
But there would be a serious downside to our irrevocably accepting an rvtFN
obligation, assuming that connnercially significant countries continued to retain restrictions
against foreign finns. GATS most-favored nation rules would not allow lIS to treat countries
which do not open their markets to us any differently from those that do. All WTO member
countries' £inns would be entitled to full market access and national treatment in the United
States. In other words, the few closed markets would be able to free-ride on the agreement
we reach with other market-opening \VTO members, such as the European Union. We would
lose the leverage we now have to open markets by taking other countries' practices into
accOlmt when their finns apply to do business over here.
It could be similarly detrimental to accept an irrevocable MFN obligation while there
are key markets which refuse to commit themselves to protecting the rights of US. firms
already established. If these countries decide to backtrack and slap restrictions on established
foreign finns, we could find ourselves without any means to respond.
We will await the last set of offers made by wro member countries. Then, we will
carefully consider the extent to which countries have pledged to open their markets to our
finns. If they have dealt with the serious restrictions on market access and national treatment
that are out there, we will accept an rv1FN obligation. If they have not, we will retain our
exemption from 1v1FN. We will consult both with the Congress and 'With U.S. industry in
making our decision, as we have all along the way.
Conclusion
tvIr. Cha.irrnan, let me conclude by assuring you that Treasury will do all it can over
the next few weeks to try to win a satisfactory agreement for our financial services
Financial services is one of the key sectors of tomorrow Our firms are superb compeTItors,
and should have the right to compete worldwide. That is our goal. We will settle for nothing
less. Thank you.
£ITn:i.
5
[4830-01-u]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[INTL-0024-94]
RIN
1545-AS83
Taxpayer Identifying Numbers (TIN)
AGENCY:
Internal Revenue Service (IRS), Treasury.
ACTION:
Withdrawal of notice of proposed rulemakingi Notice of
proposed rulemaking and notice of public hearing.
SUMMARY:
This document withdraws the notice of proposed
rulemaking relating to taxpayer identifying numbers published in
the Federal Register on September 27, 1990, at 55 FR 39486.
This
document also contains proposed amendments to the regulations
relating to requirements for furnishing a taxpayer identifying
number on returns, statements, or other documents.
These
amendments set forth procedures for requesting a taxpayer
identifying number for certain alien individuals for whom a
social security number is not available.
These numbers would be
called "IRS individual taxpayer identification numbers."
These
amendments also require certain foreign persons to furnish a
taxpayer identifying number on their tax ret.urns.
This document
also provides notice of a public hearing on these proposed
regulations.
- 2 -
DATES:
written comments and outlines of the oral comments to be
presented at the public hearing scheduled for 10 a.m. on August
11, 1995, must be received by July 21, 1995.
ADDRESSES:
Send submissions to:
CC:DOM:CORP:T:R
(INT~-0024-94),
room 5228, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044.
In the alternative, submissions
may be hand delivered between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:T:R (INTL-0024-94), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue NW., Washington, DC.
The
public hearing will be held in the Internal Revenue Service
Auditorium, 7400 corridor, 1111 Constitution Avenue, NW.,
Washington, DC.
FOR FURTHER INFORMATION CONTACT:
Concerning the regulations,
Lilo A. Hester (202) 874-1490; concerning submissions and the
hearing, Christina Vasquez (202) 622-7180 (not a toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of
proposed rulemaking has been submitted to the Office of
Management and Budget for review in accordance with the Paperwork
Reduction Act (44 U.S.C. 3504(h».
Comments on the collection of
information should be sent to the Office of Management and
Budget, Attn:
Desk Officer for the Department of the Treasury,
Office of Information and Regulatory Affairs, Washington, DC
20503, with copies to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, PC:FP, Washington, DC 20224.
-
3 -
The collection of information from certain resident alien
individuals and foreign persons required to furnish taxpayer
identifying numbers under section 6109 of the Internal Revenue
Code (Code) is found in §301.6109-1.
This information will be
used by the IRS for tax administration purposes.
The likely
respondents and recordkeepers are certain resident alien
individuals and foreign persons such as nonresident alien
individuals and foreign corporations who make a return of tax.
The burden for the collection of information contained in
§301.6109-1(d) is reflected in the burden of Form W-7.
Background
This document withdraws the notice of proposed rulemaking
under section 6109 published in the Federal Register on September
27, 1990 at 55 FR 39486.
This document also contains proposed
amendments to 26 CFR part 301 to provide rules under section 6109
of the Internal Revenue Code relating to a new type of taxpayer
identifying number.
Explanation of Provisions
In General
section 6109(a) of the Code provides that, when required by
regulations, a person must furnish a taxpayer identifying number
(TIN) for securing proper identification of that person on any
return, statement, or other document made under the Code.
The
assignment of a unique and permanent number to each taxpayer is
important for the effective operation of the IRS automatic data
processing system.
The numbering system improves the IRS'
ability to identify and access database records; to match
- 4 information provided on tax and information returns, statements,
and other documents with the proper taxpayers; and to provide
better customer service to taxpayers.
The Treasury Department and the IRS are concerned about
individuals who are filing tax returns but who are unable to
obtain a social security number.
In order to insure that all
taxpayers required to provide a TIN for tax purposes are able to
obtain one, the IRS is developing a separate numbering system
that will make unique and permanent numbers available to those
individuals.
The proposed regulations explain how alien
individuals, whether resident or nonresident, can obtain an IRS
individual taxpayer identification number from the IRS.
The regulations require any foreign person who makes a
return to provide a TIN on the return.
This TIN may be an
employer identification number, a social security number, or a
new IRS individual taxpayer identification number in the case of
an alien individual who does not have a social security number
and cannot obtain one.
The Treasury Department and the IRS are also considering
changes to the procedures that apply to withholding tax on
payments to foreign persons in order to encourage compliance and
reduce paperwork burden.
The Treasury Department and the IRS are
aware that significant changes in this area will impact some
aspects of transactions subject to withholding.
Accordingly, the
Treasury Department and the IRS intend to move very cautiously,
particularly by considering the possible effect of changes in
these procedures on investment decisions by foreign persons and
-
5 -
by considering the adequacy of existing procedures for those
taxpayers who wish to continue to comply with current rules.
Generally, no new procedures will be adopted without adequate
opportunity for public comment and appropriate transition periods
before taking effect.
This will not,
howeve~,
preclude the
Treasury Department and the IRS from adopting new procedures to
replace the current address rule for dividends.
Specific Changes
The most significant changes proposed by these regulations
are described below.
The first change is the introduction of a
new IRS-issued TIN for use by alien individuals who currently do
not have, and are not eligible to obtain, social security
numbers.
The number is called an IRS individual taxpayer
identification number (ITIN).
This number is intended to be
issued to alien individuals, whether resident or nonresident, who
are currently required to furnish a number for tax purposes but
who are not entitled to obtain social security numbers.
Therefore, these amendments are designed to help taxpayers
maintain compliance with TIN requirements under the Code and
regulations.
The Social Security Administration limits its
assignment of social security numbers to individuals who are U.S.
citizens and alien individuals legally admitted to the United
states for permanent residence or under other immigration
categories which authorize U.S. employment.
Therefore, IRS-
-
6 -
issued numbers are necessary for those individuals who need a TIN
but cannot qualify for a social security number.
The second change is to modify the existing rule set forth
in §301.6109-1(g) that currently excludes from the
g~neral
requirement of providing a TIN, foreign persons that do not have
either (1) income effectively connected with the conduct of a
u.s.
trade or business or (2) a U.S. office or place of business
or a
u.s.
fiscal or paying agent.
Under the proposed
regulations, the exclusion is modified to require that any
foreign person who makes a return of tax furnish its TIN on thatreturn.
This change is intended solely to address the IRS' and
Treasury's concern that, without TINs, taxpayers cannot be
identified and tax returns cannot be processed effectively.
The Treasury Department and the IRS are giving added thought
to applying the TIN requirement to facilitate
chang~s
to the
procedures that apply to withholding taxes on payments to foreign
persons.
Decisions with respect to the withholding tax system
have yet to be made, and when made, will be proposed in
subsequent regulations.
The Treasury Department and the IRS will
proceed cautiously in expanding the scope of the TIN requirement
and will consider the adequacy of existing procedures for those
taxpayers who wish to continue to comply with current rules.
The IRS individual taxpayer identification numbers issued
under this regulation will differ from, and replace, the
"temporary" TINs the IRS currently issues under the authority of
section 6109(c).
For example, after declaring in Rev. Rul. 84-
158, 1984-2 C.B. 262, that a partnership must request the social securi
- 7 -
numbers of its individual partners (including a nonresident alien
limited partner), the IRS announced in Rev. Rul. 85-61, 1985-1
C.B. 355, that it would issue temporary numbers to nonresident
alien limited partners who do not have, and cannot obtain, social
security numbers.
All of these temporary numbers, however, will
be retired upon subsequent revocation of these revenue rulings.
IRS individual taxpayer identification numbers are intended
for tax use only.
For example, the numbers will create no
inference regarding the immigration status of a foreign person or
the right of that person to be legally employed in the united
States.
The IRS individual taxpayer identification numbers and
the information obtained by the IRS as a result of issuing
numbers constitute confidential taxpayer information.
section
6103 strictly prohibits the disclosure of this information to
other government agencies, private entities, or citizens.
Disclosure in violation of the restrictions under section 6103
may lead to civil or criminal penalties.
Section-By-Section Analysis
Proposed §301.6109-1(a) (1) (i) provides a general description
of the types of TINs, including the new IRS individual taxpayer
identification number.
The IRS individual taxpayer
identification number will begin with a specific number
designated by the IRS and will otherwise resemble a social
security number.
Proposed §301.6109-1(a) (1) (ii) provides general
rules for use of the different TINs, including the rule for an
estate to obtain and furnish its employer identification number
when required, such as in its capacity as a payor or payee of
- 8 -
royalties.
This rule for estates was announced previously in the
proposed regulations under section 6109 published in the Federal
Register at 55 FR 39486 oh September 27, 1990.
The requirement for foreign persons to provide a TIN if they
have income effectively connected with the coriduct of a u.s.
trade or business, if they have a u.S. office or place of
business, or a u.S. fiscal or paying agent during the taxable
year, or if they are treated as resident alien individuals under
section 6013(g) or (h), is restated without change in proposed
§§301.6109-1(b) (2) and (c).
However, proposed §301.6109-
l(b) (2) (iv) modifies the exclusion currently provided in
§301.6109-1(g) with respect to other foreign persons by providing
that a foreign person filing a return of tax is subject to the
TIN requirements under section 6109.
For this purpose, a return
of tax includes income, estate, and gift tax returns but excludes
information returns, statements or other documents.
This
requirement is proposed to be effective for foreign persons who
file returns of tax after December 31, 1995.
The provisions of §301.6109-1(d) (2) dealing with obtaining
an employer identification number are unchanged except to specify
that a Form SS-4 will be available from U.S. consular offices
abroad.
This change is intended to accommodate those foreign
persons that are required to provide an employer identification
number.
The procedures governing the new IRS individual taxpayer
identification number, including procedures for obtaining such a
number, are set forth in proposed §301.6109-1(d) (3).
An IRS
-
9 -
individual taxpayer identification number is applied for on Form
W-7, Application for IRS Individual Taxpayer Identification
Number.
Under normal procedures, the application is submitted to
the IRS for processing together with required documentation
designed to sUbstantiate foreign status, as well as true
identity.
Further guidance will be issued to specify the types
of acceptable documentation.
Because the IRS intends to rely as
much as possible on the identifying documents that are
customarily used in a foreign jurisdiction to identify a resident
in that jurisdiction, the documentation requirements are likely
to vary from country to country.
Comments and suggestions are
solicited regarding the type of documents that could be used
reliably to establish the identity of taxpayers and their foreign
status.
The IRS is planning a wide distribution of application forms
in the united States and abroad and will insure that the form is
easily available to the public.
Further, in order to facilitate
the application process and to expedite the issuance of the TINs,
the regulations propose to authorize agreements that would permit
certain persons to act as an applicant's agent.
called acceptance agents.
These agents are
Generally, an acceptance agent may
include financial institutions or educational institutions, i.e.,
institutions that are likely to come in contact with a large
number of foreign taxpayers earning U.S. source income and that
can establish to the IRS that they have the resources and
procedures necessary to undertake the duties expected from an
acceptance agent.
- 10 Under an agreement with the IRS, an acceptance agent would
assume responsibility for providing the necessary information to
the IRS for the issuance of a number, together with a
certification that the applicant is a foreign
person~
The
certification would be issued on the basis of prescribed
documentation obtained from the applicant.
Under this procedure,
no documentation generally would be required to be furnished to
the IRS, except as part of a verification process by which the
IRS may periodically verify the agent's compliance with the
agreement.
In order to streamline the process and facilitate the
agent's due diligence under the agreement, the agreement would
specify the type of documentation that must be obtained to verify
foreign status and true identity of an applicant.
Proposed §301.6109-1(d) (4) provides rules for the
coordination of the different TINs.
A person entitled to a
social security number will not be issued an IRS individual
taxpayer identification number.
Once a person has a social
security number, that number must be used for all tax purposes,
even though the person is a nonresident alien.
A nonresident
alien who is issued an IRS individual taxpayer identification
number and later becomes entitled to a social security number
(e.g., becomes a U.S. resident under an immigration visa) must
apply for a social security number and must stop using the IRS
number.
IRS matching systems will help the IRS detect taxpayers
who are incorrectly using an IRS individual taxpayer
identification number.
The IRS will contact those individuals
and request that they obtain a social security number.
- 11 Section 301.6109-1(f) is modified to cross reference the new
penalty provisions under sections 6721 through 6724.
Proposed §301.6109-1(g) (1) provides the general rule that,
in the IRS records, a person with a social security number or an
employer identification number will normally be identified as a
u.s.
~t
person.
Regulations to be issued at a later time may make
important for a person to be identified correctly in the IRS
records as a U.S. or a foreign person.
Accordingly, these
proposed regulations provide that the foreign person with a
social security number or an employer identification number may
establish foreign status with the IRS.
Any foreign person that
holds an employer identification number issued prior to the
effective date of this proposed regulation may continue to use
its employer identification number for tax purposes.
However,
when requested by the IRS, such persons must apply for a new
employer identification number that is exclusively dedicated to
foreign persons.
Proposed §301.6109-1(g) (1) also provides that
an IRS individual taxpayer identification number is considered by
the IRS to belong to a nonresident alien individual if the
foreign status of the individual is established upon initial
application for the number.
If foreign status is not
established, the IRS will generally require the individual to
apply for a social security number.
In rare cases when a
resident alien individual is not eligible for a social security
number, the taxpayer will be entitled to use an IRS individual
taxpayer identification number,
ana the IRS will note in its
records that the number belongs to a U.S. person.
- 12 -
No re-filings are required in order to maintain foreign
status described in proposed §301.6109-1(g) (1).
However,
proposed S301.6109-1(g) (2) provides that if circumstances change
(for example, a taxpayer becomes a
u.s.
resident), then the
taxpayer must notify the IRS to record the change of status.
The IRS will issue guidance on procedures for notifying the IRS
of a person's status or changes thereof.
Proposed §301.6109-1(g) (3) concerns disclosure provisions.
In order to make the acceptance agent's procedures possible, it
is necessary that taxpayers requesting a TIN through an
acceptance agent authorize the disclosure of taxpayer information
to the extent necessary to allow communications between the IRS
and the acceptance agent in the course of the issuance and
administration of the number.
Accordingly, the application form
will include a waiver of the prohibition against disclosure of
taxpayer information in order to permit the IRS to communicate
with an acceptance agent regarding matters related to the
assignment of a TIN.
Proposed Effective Date
These regulations would apply to returns, statements, or
documents filed after December 31, 1995, except the provision
relating to the requirement for an estate to obtain an employer
identification number applies on and after January 1, 1984.
Thus, these regulations would apply to foreign persons described
in proposed §301.6109-1(b) (2) (iv) who file a return of tax after
December 31, 1995.
- 13 Special Analyses
It has been determined that this notice of proposed
rulemaking is not a significant regulatory action as defined in
EO 12866.
Therefore, a regulatory assessment is not required.
It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) and the
Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility
Analysis is not required.
Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final
regulations, consideration will be given to any written comments
that are submitted timely (preferably a signed original and eight
(8) copies) to the IRS.
All comments will be available for
public inspection and copying.
A public hearing has been scheduled for 10 a.m. on August
11, 1995.
Because of access restrictions, visitors will not be
admitted beyond the Internal Revenue Building lobby more than 15
minutes before the hearing starts.
The rules of 26 CFR 601.60l(a) (3) apply to the hearing.
Persons that wish to present oral comments at the hearing
must submit written comments and an outline of the topics to be
discussed and the time to be devoted to each topic by"July 21,
1995.
- 14 A period of 10 minutes will be allotted to each person for
making comments.
An agenda showing the scheduling of the speakers will be
prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the
hearing.
Drafting Information
The principal author of these proposed regulations is
Lilo A. Hester of the Office of Associate Chief Counsel
(International), within the Office of Chief Counsel, IRS.
However, other personnel from the IRS and Treasury Department
participated in their development.
Withdrawal of Proposed Regulations
The previously proposed regulations under §301.6109-1, as
published in the Federal Register on September 27, 1990, at 55 FR
39486, are hereby withdrawn.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes,
Income taxes, Penalties, Reporting and recordkeeping
requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as
follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1.
The authority citation for part 301 is amended
by adding an entry in numerical order to read in part as follows:
Authority:
26 U.S.C. 7805
* * *
-
15 -
section 301.6109-1 also issued under 26 U.S.C. 6109(a),
(c),
* * *
and (d).
Par. 2.
Section §301.6109-1 is amended as follows:
1.
Paragraphs (a) (1),
(b),
(c), and (d) (2) are revised.
2.
Paragraphs (d) (3) and (4) are added.
3.
Paragraphs (f),
(g), and (h) are revised.
The revisions and additions read as follows:
§301.6109-1
(a)
Types.
Identifying numbers.
In general--(1)
Taxpayer identifying numbers--(i)
There are generally three types of taxpayer identifying
numbers: social security numbers, Internal Revenue Service (IRS)
individual taxpayer identification numbers, and employer
identification numbers.
Social security numbers take the form
000-00-0000, IRS individual taxpayer identification numbers take
the form 000-00-0000 but begin with a specific number designated
by the IRS, and employer identification numbers take the form 000000000.
Both social security numbers and IRS individual
taxpayer identification numbers identify individual persons.
For
the definition of social security number and employer
identification number, see §§301.7701-11 and 301.7701-12,
respectively.
For the definition of IRS individual taxpayer
identification number, see paragraph (d) (3) of this section.
(ii)
Uses.
Except as otherwise provided in appLicable
regulations under this title or on a return, statement, or other
document, and related instructions, taxpayer identifying numbers
must be used as follows:
- 16 -
(A)
Except as otherwise provided in paragraphs
(a) (1) (ii) (B) and (D) of this section, an individual required to
furnish a taxpayer identifying number must use a social security
number.
(B)
Except as otherwise provided in paragraph (a) (1) (ii) (D)
of this section, an individual required to furnish a taxpayer
identifying number but who is not eligible to obtain a social
security number, must use an IRS individual taxpayer
identification number.
(e)
Any person other than an individual (such as
corporations, partnerships, nonprofit associations, trusts,
estates, and similar nonindividual persons) that is required to
furnish a taxpayer identifying number must use an employer
identification number.
(D)
An individual, whether U.S. or foreign, who is an
employer or who is engaged in trade or business as a sole
proprietor should use an employer identification number as
required by returns, statements, or other documents and their
related instructions.
* * * * *
(b)
persons.
Requirement to furnish one's own number--(l)
U.S.
Every U.S. person who makes under this title a return,
statement, or other document must furnish its own taxpayer
identifying number as required by the forms and the accompanying
instructions.
A U.S. person whose number must be included on a
document filed by another person must give the taxpayer
identifying number so required to the other person on request.
- 17 For penalties for failure to supply taxpayer identifying numbers,
see sections 6721 through 6724.
For provisions dealing
specifically with the duty of employees with respect to their
social security numbers, see §31.6011(b)-2 (a) and (b) of this
chapter (Employment Tax Regulations).
For provisions dealing
specifically with the duty of employers with respect to employer
identification numbers, see §31.6011(b)-1 of this chapter
(Employment Tax Regulations) .
(2)
Foreign persons.
The provisions of paragraph (b) (1) of
this section regarding the furnishing of one's own number shall
-
apply to the following foreign persons-(i)
A foreign person that has income effectively connected
with the conduct of a
u.s.
trade or business at any time during
the taxable year;
(ii)
A foreign person that has a
business or a
u.s.
u.s.
office or place of
fiscal or paying agent at any time during the
taxable year;
(iii)
A nonresident alien treated as a resident under
section 6013(g) or (h); and
(iv)
Any other foreign person who makes a return of tax
under this title (including income, estate, and gift tax returns)
but excluding information returns, statements, or documents.
(c)
Requirement to furnish another's number.
Every person
required under this title to make a return, statement, or other
document must furnish such taxpayer identifying numbers of other
u.s.
persons and foreign persons that are described in paragraph
(b) (2) (i),
(ii), or (iii) of this section as required by the
- 18 -
forms and the accompanying instructions.
If the person making
the return, statement, or other document does not know the
taxpayer identifying number of the other person, such person must
request the other person's number.
A request should state that
the identifying number is required to be furnished under
authority of law.
When the person making the return, statement,
or other document does not know the number of the other person,
and has complied with the request provision of this paragraph,
such person must sign an affidavit on the transmittal document
forwarding such returns, statements, or other documents to the
Internal Revenue Service, so stating.
A person required to file
a taxpayer identifying number shall correct any errors in such
filing when such person's attention has been drawn to them.
(d)
* * *
(2)
Employer identification number.
Any person required to
furnish an employer identification number must apply for one, if
not done so previously, on Form SS-4.
A Form SS-4 may be
obtained from any office of the Internal Revenue Service, u.S.
consular office abroad, or from an acceptance agent described in
paragraph (d) (3) (iv) of this section.
The person must make such
application in advance of the first required use of the employer
identification number to permit issuance of the number ·in time
for compliance with such requirement.
The form, together with
any supplementary statement, must be prepared and filed in
accordance with the form, accompanying instructions, and relevant
regulations, and must set forth fully and clearly the requested
data.
- 19 -
(3)
(i)
IRS individual taxpayer identification number--
Definition.
The term IRS individual taxpayer identification
number means a taxpayer identifying number issued to an alien
individual by the Internal Revenue Service, upon application, for
use in connection with filing requirements under this title.
The
term IRS individual taxpayer identification number does not refer
to a social security number or an account number for use in
employment for wages.
For purposes of this section, the term
alien individual means an individual who is not a citizen or
national of the United States.
(ii)
General rule for obtaining number.
Any individual
who is not eligible to obtain a social security number and is
required to furnish a taxpayer identifying number must apply for
an IRS individual taxpayer identification number on Form W-7,
Application for IRS Individual Taxpayer Identification Number, or
such other form as may be prescribed by the Internal Revenue
Service.
Form W-7 may be obtained from any office of the
Internal Revenue Service, U.S. consular office abroad, or any
acceptance agent described in paragraph (d) (3) (iv) of this
section.
The individual shall furnish the information required
by the form and accompanying instructions, including the
individual's name, address, foreign tax identification.number (if
any), and specific reason for obtaining an IRS individual
taxpayer identification number.
The individual must make such
application in advance of the first required use of the IRS
individual taxpayer identification number to permit issuance of
the number in time for compliance with such requirement.
The
-
20 -
application form, together with any supplementary statement and
documentation, must be prepared and filed in accordance with the
form, accompanying instructions, and relevant regulations, and
must set forth fully and clearly the requested data.
(iii)
General rule for assigning number.
Under procedures
issued by the Internal Revenue Service, an IRS individual
taxpayer identification number will be assigned to an individual
upon the basis of information reported on Form W-7 (or such other
form as may be prescribed by the Internal Revenue Service) and
any such accompanying documentation that may be required by the
Internal Revenue Service.
An applicant for an IRS individual
taxpayer identification number must submit such documentary
evidence as the Internal Revenue Service may prescribe in order
to establish alien status and identity.
Examples of acceptable
documentary evidence for this purpose may include items such as
an original (or a certified copy of the original) passport,
driver's license, birth certificate, identity card, or U.S. visa.
(iv)
agents.
Acceptance agents--(A)
Agreements with acceptance
A person described in paragraph (d) (3) (iv) (B) of this
section will be accepted by the Internal Revenue Service to act
as an acceptance agent for purposes of the regulations under this
section upon entering into an agreement with the Internal Revenue
Service, under which the acceptance agent will be authorized to
act on behalf of taxpayers seeking to obtain a taxpayer
identifying number from the Internal Revenue Service.
The
agreement must contain such terms and conditions as are necessary
- 21 -
to insure proper administration of the process by which the
Internal Revenue Service issues taxpayer identifying numbers to
foreign persons, including proof of their identity and foreign
status.
(~)
In particular, the agreement may contain-Procedures for providing Form SS-4 and Form W-7, or
such other necessary form to applicants for obtaining a taxpayer
identifying number;
(~)
Procedures for providing assistance to applicants in
completing the application form or completing it for them;
(d)
Procedures for collecting, reviewing, and maintaining,
in the normal course of business, a record of the required
documentation for assignment of a taxpayer identifying number;
(~)
Procedures for submitting the application form and
required documentation to the Internal Revenue Service, or if
permitted under the agreement, submitting the application form
together with a certification that the acceptance agent has
reviewed the required documentation and that it has no actual
knowledge or reason to know that the documentation is not
complete or accurate;
(2)
Procedures for assisting taxpayers with notification
procedures described in paragraph (g) (2) of this section in the
event of change of foreign status;
(6)
Procedures for making all documentation or other
records furnished by persons applying for a taxpayer identifying
number promptly available for review by the Internal Revenue
Service, upon request; and
- 22 (7)
Provisions that the agreement may be terminated in the
event of a material failure to comply with the agreement,
including failure to exercise due diligence under the agreement.
(B)
Persons who may be acceptance agents.
An qcceptance
agen~ may include any financial institution as defined in section
265(b) (5) or §1.165-12(c) (1) (v) of this chapter, any college or
university that is an educational organization as defined in
§1.501(c) (3)-1(d) (3) (i) of this chapter, any federal agency as
defined in section 6402(f) or any other person or categories of
persons that may be authorized by regulations or Internal Revenue
Service procedures.
A person described in this paragraph
(d) (3) (iv) (B) that seeks to qualify as an acceptance agent must
have an employer identification number for use in any
communication with the Internal Revenue Service.
In addition, it
must establish to the satisfaction of the Internal Revenue
Service that it has adequate resources and procedures in place to
comply with the terms of the agreement described in paragraph
(d) (3) (iv) (A) of this section.
(4)
Coordination of taxpayer identifying numbers--(i)
Social security number.
Any individual who is duly assigned a
social security number or who is entitled to a social security
number will not be issued an IRS individual taxpayer
identification number.
The individual can use the social
security number for all tax purposes under this title, even
though the individual is, or later becomes, a nonresident alien
individual.
Further, any individual who has an application
- 23 -
pending with the Social Security Administration will be issued an
IRS individual taxpayer identification number only after the
Social Security Administration has notified the individual that a
social security number cannot be issued.
Any alien individual
duly issued an IRS individual taxpayer identification
numbe~
who
later becomes a U.S. citizen, or an alien lawfully permitted to
enter the united States either for permanent residence or under
authority of law permitting u.S. employment, will be required to
obtain a social security number.
Any individual who has an IRS
individual taxpayer identification number and a social security
number, due to the circumstances described in the preceding
sentence, must notify the Internal Revenue Service of the
acquisition of the social security number and must use the newlyissued social security number as the taxpayer identifying number
on all future returns, statements, or other documents filed under
this title.
(ii)
Employer identification number.
Any individual with
both a social security number (or an IRS individual taxpayer
identification number) and an employer identification number may
use the social security number (or the IRS individual taxpayer
identification number) for individual taxes, and the employer
identification number for business taxes as required by returns,
statements, and other documents and their related instructions.
Any alien individual duly assigned an IRS individual taxpayer
identification number who also is required to obtain an employer
identification number must furnish the previously-assigned IRS
- 24 individual taxpayer identification number to the Internal Revenue
Service on Form SS-4 at the time of application for the employer
identification number.
Similarly, where an alien individual has
an employer tax identification number and is require~ to obtain
an IRS individual taxpayer identification number, the individual
must furnish the previously-assigned employer identification
number to the Internal Revenue Service on Form W-7, or such other
form as may be prescribed by the Internal Revenue Service, at the
time of application for the IRS individual taxpayer
identification number.
* * * * *
(f)
Penalty.
For penalties for failure to supply taxpayer
identifying numbers, see sections 6721 through 6724.
(g)
Special rules for taxpayer identifying numbers issued
to foreign persons--(l)
number.
General rule--{i)
Social security
A social security number is generally identified in the
records and database of the Internal Revenue Service as a number
belonging to a u.S. citizen or resident alien individual.
A
person may establish a different status for the number by
providing proof of foreign status with the Internal Revenue
Service under such procedures as the Internal Revenue Service
shall prescribe, including the use of a form as the Internal
Revenue Service may specify.
Upon accepting an individual as a
- 25 -
nonresident alien individual, the Internal Revenue Service will
assign this status to the individual's social security number.
(ii)
Employer identification number.
An employer
identification number is generally identified in the records and
database of the Internal Revenue Service as
a
u.s.
person.
~
number belonging to
However, the Internal Revenue Service may
establish a separate class of employer identification numbers
solely dedicated to foreign persons which will be identified as
such in the records and database of the Internal Revenue Service.
A person may establish a different status for the number either .
at the time of application or subsequently by providing proof of
u.S. or foreign status with the Internal Revenue Service under
such procedures as the Internal Revenue·Service shall prescribe,
including the use of a form as the Internal Revenue Service may
specify.
The Internal Revenue Service may require a person to
apply for the type of employer identification number that
reflects the status of that person as a u.S. or foreign person.
(iii)
IRS individual taxpayer identification number.
An
IRS individual taxpayer identification number is generally
identified in the records and database of the Internal Revenue
Service as a number belonging to a nonresident alien individual.
If the Internal Revenue Service determines at the time .of
application or subsequently, that an individual is not a
nonresident alien individual, the Internal Revenue Service may
- 26 -
require that the individual apply for a social security number.
If a social security number is not available, the Internal
Revenue Service may accept that the individual use an IRS
individual taxpayer identification number, which the ,Internal
Revenue Service will identify as a number bel6nging to a u.s.
resident alien.
(2)
Change of foreign status.
Once a taxpayer identifying
number is identified in the records and database of the Internal
Revenue Service as a number belonging to a u.S. or foreign
person, the status of the number is permanent until the
circumstances of the taxpayer change.
A taxpayer whose status
changes (for example, a nonresident alien individual with a
social security number becomes a U.S. resident alien) must notify
the Internal Revenue Service of the change of status under such
procedures as the Internal Revenue Service shall prescribe,
including the use of a form as the Internal Revenue Service may
specify.
(3)
Waiver of prohibition to disclose taxpayer information
when acceptance agent acts.
As part of its request for an IRS
individual taxpayer identification number or submission of proof
of foreign status with respect to any taxpayer identifying
number, where the foreign person acts through an acceptance
agent, the foreign person will agree to waive the limitations in
section 6103 regarding the disclosure of certain taxpayer
- 27 -
information.
However, the waiver will apply only for purposes of
permitting the Internal Revenue Service and the acceptance agent
to communicate with each other regarding matters related to the
assignment of a taxpayer identifying number and change of foreign
status.
- 27 (h)
Effective date.
The provisions of this section
generally are effective for any return, statement, or other
document to be filed after December 31, 1995.
However, the
provision of paragraph (a)(I)(ii) of this section
th~t
requires
an estate to obtain an employer identification number applies on
and after January 1, 1984.
VYV\Q",o,~uA); ~fI~J/fJ-"- ev\L~Y'_
co~lssioner of Internal Revenue
Margaret Milner Richardson
DEPARTMENT
OF
THE
TREASURY ~'_)
TREASURY
NEW S
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 8, 1995
Contact: Chris Peacock
(202) 622-2960
TREASURY ANNOUNCES ALTERNATE STANDARD THAT PROTECTS FUNDS
The Treasury Department will include the Digital Signature Standard (DSS) on its
Qualified Products List beginning July 1995.
The DSS is a new electronic standard that provides companies and individuals with a
secure means of transferring electronic funds on the internet. It will conform to the federal
government's current standard for information systems.
Treasury's Qualified Products List is made up of qualified signature products for
electronically transferring funds. There are currently five signature products on the list.
Commercial vendors who would like to qualify for the list need to develop products
that conform with the DSS for the list beginning July 1995. Vendors' products in accordance
with the DSS require approval by Treasury's Office of Security.
For technical assistance, call Assistant Director for Systems Security Martin Ferris at
(202) 622-1110.
-30-
RR-361
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY ("ft~)
x~~J
~~/78~9~
.......................................
TREASURY
NEWS
~~~~
..........................
. .. .
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENL'E, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 8, 1995
STATEMENT BY TREASURY SECRETARY ROBERT RUBIN
"U.S participation in the multilateral development banks (MOBs) is a critical element
of United States foreign and economic policy. We are therefore seriously concerned about
actions being taken in Congress to drastically reduce U.S. funding for these institutions. This
will harm American standards of living, reduce our export opportunities, cost American jobs,
and undermine our national security interests. These proposed reductions are short-sighted.
As I have stated in numerous speeches and in many formal and informal conversations
with Congress, the MDBs are the most cost effective instruments we have to promote
economic growth and policy reform in developing countries, Eastern Europe and the former
Soviet Union and they have a long history of strong bipartisan support. Particularly alarming
is the severe proposed reduction for the International Development Association (IDA), the
key institution for integrating the very poorest countries into the global economy. In
addition, it is important that the Congress fully fund U.S. commitments on debt reduction for
these countries as well as the IMF's Enhanced Structural Adjustment Facility.
The Administration is fully committed to supporting IDA and other MDBs and we
will work closely with the Congress in the months ahead to maintain support for these key
institutions, which are vital to this country's economic and national security interests."
-30-
RR-362
For press releases. speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
~I78~~. . . . . . . . . . . . . . . . . . . . . ..
........................
OmCE 01' PUBUC AFFAIRS .1.500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20%20. (202) 622.2960
FOR IMMEDIATE RELEASE
Remarks as prepared for delivery
June 9, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
GOVERNMENT REINVENTION EVENT
Mr. President, Mr. Vice President, special guests, ladies and gentlemen: Welcome
to the Treasury Department, and thank you, Mr. President and Mr. Vice President, on
behalf of our employees anu families, for the support you have given us, especially our
law enforcement people since the tragedy in Oklahoma City.
Let me tell our first-time guests a little something of the history of this building.
Trealiiury has been locateu on this site since 1ROO, and has a proud history. The British
burned the Treasury building in lR14. It was rebuilt, and I was told the employees
burned the building in lR33. The current building bas been in use since the Civil War.
This room we arc in, the Cash Room, is where the government used to transact its
financial husiness.
I was in the private sector for 26 years and very familiar with Treasury's
reputation for excellence. Mr. President, Mr. Vice President: I want you to know that in
the five months I have been here I have been proud to work with a truly remarkable,
capable and dedicated group of people .. the people of Treasury. They exemplify what
the government service should be all ahout. Moreover, at Treasury, reinvention and
customer service are becoming internalized and an integral part of Our culture through
the ranks. You can see that kind of commitment to customer service and change in the
new IRS program which allows taxpayers to file their 1040 EZ Form information on a
touch tone telephone. It's simple, it's easy, and the refund shows up more 4uickly. It's
up and running in 12 states already, and next year we're taking it nationwide.
Customer service is a major element of reinvention, and every Treasury bureau
now has published customer service plans. We're .reducing regulations -- by 22 percent
so far. We're streamlining, and Treasury has come down by a net of nearly 4,700
positions in two years. We've reformed our procurement process, made use of purchase
cards and expanded the use of electronic commerce. We earned one of the Vice
President's Hammer Awards for our procurement program. At Treasury, we promised
better government and we are delivering.
RR-363
(MORE)
For press rewascs, speeches, public schedules and vffi.t";al biographies, caU our 24-hour fax line at (202) 622-2040
R~ -3 b3
Today we're taking the next step. We have seven major initiatives in the second
phase of Treasury reinvention -- each aimed at providing better service to our customer~
and making it easier for individuals and small businesses to deal with the government on
Treasury-related i~sues.
The President will talk in detail about the initiatives we're highlighting today -the Simplified Tax and Wage Reporting System. and the Federal/State Tax Partnership.
r want to mention the others because over time they too will make an important
difference -- saving taxpayers and small businesses time, trouble and money. improving
revenue collections, reducing the size of government and offering better service to tax
filers. Those five initiatives are streamlining our field services; better coordinating our
operations with other agencies that operate at our borders, improving debt collection.
working on cards that provide electronic access to government benefits, and relentlessly
looking for ways to operate more efficiently and so reduce our budget.
For years, in large measure, presidents saiu they would reform government. but
produced only reports. This President is producing results.
A key reason is the commitment of the Vice President to translate reinvention
from plans to action, as we at Treasury are doing today He is in very large measure
respansihlc for the new way we do business, not just in Treasury but throughout
government. I'm pleast:d now to introduce Vice President N Gore.
-30-
SmaU Business and the Simplified Tn and Wage Reportine System
Vilion
o
The two-fold goal is: reduce employers time and expense in filing returns and paying taxes while saving
Federal and state operations costs.
o
o
This is a voluntary system that:
•
Simplifies laws, definitions, and procedures rela.ted to tax and wage reporting (worker
classification. wage components, data definitions, employer identification numbers. filing
procedures and periods, forms and formats)
•
Through one-stop electronic filing. Federal and state governments will speak the same language,
and businesses will spend less time filling out forms and more time creating jobs for Americans.
•
The Simplified Tax and Wage Reporting System will reduce red tape and costs to employers especially small business - when they provide "W-2" tax and wage information.
When fully implemented, it can save employers up to almost $1 billion annually in tax and wage reporting
costs. Of the approximately 6.2 million employers in the United States, 60 percent have fewer than five
employees; therefore, small businesses, in particular, will benefit noticeably from reduced burdens.
Guiding Principles
o
Employers, States and Federal Agencies agree to:
•
•
•
•
•
Maintain the separation between Federal and state governments
Build on existing systems/programs (emphasize compatibility)
Protect employee benefit programs
Not impose additional cost
Protect privacy of participants.
Initial Progress - "Paper W-2 Project"
o
Under current practices, large employers (over 250 employees) submit magnetic tape containing all
employers W-2 data to the Social Security Administration (SSA) and to the states. Small employers
submit paper W -2 forms.
o
Under the "Paper W·2 Project" begun in 1994, small employers send paper W-2's to SSA SSA scans the
paper, turns the data over to IRS which, in tum, sends tapes to 29 panicipating states, compiling the
employer data for each state. The states are evaluating the usefulness of this approach to determine
whether it will satisfy their needs for wage information. Illinois no longer requires employers to submit
separate paper W-2 data; other states can do this if they choose to.
Scope
This will simplify reporting of:
•
•
•
•
Federal and state tax and wage information
State Unemployment Insurance (UI) tax and wage information
UI tax payments
Employer registration
Other Benefits
o
Some of the benefits of the project are:
•
•
•
•
•
•
simpler wage and tax reporting requirements for the business community;
reduced number of contacts employers have with governmental entities;
reduction in employers' reporting costs;
improved accuracy and timeliness of data received -- allowing Federal and state agencies to better
administer programs;
reduced duplication of effort at Federal and state levels; and
more efficient and state-of-the-art system (reducing Federal and state operating costs) .
. What CaD Be Accomplished In The Short Run?
Under the Treasury Department's leadership:
o
In 1995, the "Paper W-2 Project," was available nationwide and was expanded to 29 states from 12 states
in 1994; it will be continued in 1996.
o
In 1995, a prototype will be developed and by the end of 1996, employers will be able to submit all major
reports (941 W·2 and state UI reports) electronically or on magnetic media. Small employers in
participating states will be able to begin taking advantage of existing networks to file electronically.
t
o
In 1995, Department of the Treasury and the Department of Labor will complete a detailed analysis of the
state and Federal Unemployment Insurance programs to simplify them and determine required legislation.
FedState Partnerships Make Taxation Less Taxing
Vision
The IRS and state taxing authorities are working together to reduce taxpayer burden.
improve taxpayer service, and minimize tax administration costs. The goal is to
eliminate duplicative tax requirements and to take advantage of economies of scale
in tax administration wherever possible.
Successes
• Joint Electronic FiUng -
Through a FedState joint electronic filing program,
taxpayers can satisfy both their federal and state flling requirements with a single
electronic transmission. 29 states participated in joint electronic filing in 1995, with
more than 1.5 million returns fIled. The program will expand LO 32 states in 1996.
•
Filing Assistance - The IRS and state tax agencies have worked together to jointly
distribute tax fonns and provide taxpayer ftling assistance.
•
Joint Outreach Programs provide:
The IRS is working with mallV states to jointly
tax counseling for the elderly,
education for new businesses,
education for other targeted taxpayer groups,
tax practitioners' workshops, and
educational publications.
Barriers
•
Further growth in FedState partnership programs is hampered because the IRS is
currently barred from using appropriated funds to provide services to state agencies,
even if the cost is reimbursed.
•
Because of present disc1osw"e laws. a joint electronic filer must file in duplicate any
tax data that is required by both the IRS and the state; the IRS then must transmit
the second set of data to the state.
Removing Barriers
•
To enhance the growth of FedState partnerships, we are working on a legislative
proposal that would allow the IRS to use appropriated funds for FedState
reimbursable projects and eliminate restrictions on the use of data that is corrunon
to both Federal and state tax returns.
•
The legislation would serve as a model for states that need legislative changes to
remove their barriers to growth in FedState partnerships. These proposals have been
endorsed by the Federation of Tax Administrators representing all 50 states.
The Future
•
Once the legal barriers are removed, the IRS and the states will be able to engage
in countless new cooperative efforts that would make taxation less taxing by:
eliminating the requirement that taxpayers provide the same information to
both the IRS and the state taxing authorities;
allowing taxpayers who make errors in their electronic returns to correct those
errors by working with a single contact point for both Federal and state
pwposes;
offering "one-stop service" where taxpayers could call one location and
receive answers to federal, state, and local tax questions;
allowing taxpayers to satisfy their tax obligations by entering into coordinated
installment agreements with the IRS and state taxing agencies; and
paving the way for the development of a single federal/state income tax form.
•
The cost of government will be greatly reduced through eliminating duplicative tax
administration efforts and taking full advantage of available economies of scale.
Increased Revenue and Burden Reduction
•
Preliminary Treasury estimates, assuming participation by 20 percent of the states.
show a cumulative benefit by FY 2000 of:
--$1.5 billion reduction in taxpayer burden, and
--$315 million increase in revenues.
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
Remarks as prepared for delivery
June 9, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
GOVERNMENT REINVENTION EVENT
Mr. President, Mr. Vice President, special guests, ladies and gentlemen: Welcome
to the Treasury Department, and thank you, Mr. President and Mr. Vice President, on
behalf of our employees and families, for the support you have given us, especially our
law enforcement people since the tragedy in Oklahuma City.
Let me tell our first-time guests a little something of the history of this building.
Treasury has been located on this site since 1800, and has a proud history. The British
burned the Treasury building in 1814. It was rebuilt, and I was told the employees
burned the building in 1833. The current building has been in use since the Civil War.
This room we are in, the Cash Room, is where the government used to transact its
financial business.
I was in the private sector for 26 years and very familiar with Treasury's
reputation for excellence. Mr. President, Mr. Vice President: I want you to know that in
the five months I have been here I have been proud to work with a truly remarkable,
capable and dedicated group of people -- the people of Treasury. They exemplify what
the government service should be all about. Moreover, at Treasury, reinvention and
customer service are becoming internalized and an integral part uf our culture through
the ranks. You can see that kind of commitment to customer service and change in the
new IRS program which allows taxpayers to file their 1040 EZ Form information on a
touch tone telephone. It's simple, it's easy, and the refund shows up more quickly. It's
up and running in 12 states already, and next year we're taking it nationwide.
Customer service is a major element of reinvention, and every Treasury bureau
now has published customer service plans. We're reducing regulations -- by 22 percent
so far. We're streamlining, and Treasury has come down by a net of nearly 4,700
positions in two years. We've reformed our procurement process, made use of purchase
cards and expanded the use of electronic commerce. We earned one of the Vice
President's Hammer Awards for our procurement program. At Treasury, we promised
better government and we are delivering.
RR-363
(MORE)
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Today we're taking the next step. We have seven major initiatives in the second
phase of Treasury reinvention -- each aimed at providing better service to our customers
and making it easier for individuals and small businesses to deal with the government on
Treasury-related issues.
The President will talk in detail about the initiatives we're highlighting today -the Simplified Tax and Wage Reporting System, and the Federal/State Tax Partnership.
I want to mention the others because over time they too will make an important
difference -- saving taxpayers and small businesses time, trouble and money, improving
revenue collections, reducing the size of government and offering better service to tax
filers. Those five initiatives are streamlining our field services; better coordinating our
operations with other agencies that operate at our borders, improving debt collection,
working on cards that provide electronic access to government benefits, and relentlessly
looking for ways to operate more efficiently and so reduce our budget.
For years, in large measure, presidents said they would reform government, but
produced only reports. This President is producing results.
A key reason is the commitment of the Vice President to translate reinvention
from plans to action, as we at Treasury are doing today He is in very large measure
respDnsible for the new way we do business, not just in Treasury hut throughout
government. I'm pleased now to introduce Vice President AI Gore.
-30-
Highlights o/the President's Plan
To Restructure Cabinet
Departments and Major Agencies;
With Five Year Budget Savings
"Agency Reinvention"
Department of Energy ( $14.10 billion in savings)
•
•
•
Terminate the clean coal program, after completion of projects now underway.
Privatize the Naval Petroleum Reserves in Elk Hills, CA.
Sell uranium no longer needed for national defense purposes after rendering it
suitable for commercial power reactors.
•
Significantly reduce costs in DOE's applied research programs through requiring
more cost-sharing and through cuts in lower priority programs.
Federal Emergency Management Agency ($100 million in savings)
•
•
•
•
Integrate grant programs and consolidate funding streams, in order to enable states to
better target FEMA funds for their particular needs.
Encourage and provide incentives for states to establish State Disaster Trust Funds to
enhance their own emergency management capabilities.
Devolve Federal pre- and post-disaster mitigation responsibilities to state and local
jurisdictions, while increasing state and local flexibility.
Use Americorps and other national organizations' volunteers as outreach workers to
supplement disaster assistance employees during presidentially-declared disasters.
General Services Administration ( $1.4 billion in savings)
•
•
•
•
•
Consider various forms of privatization, including the sale of
business units and related assets to employees (ESOPs) or to private firms.
Transfer virtually all other service functions and associated employees to the
agenCIes.
Encourage agencies to franchise activities to avoid duplication.
Give the agencies expanded authority to acquire services and assets.
Involve employee unions in designing and implementing details of this reinvention.
Department of Health and Human Services ( $453 million in savings)
•
•
Combine the Office of the Secretary and the Office of the Assistant Secretary for
Health to eliminate an entire organizational layer of management.
Consolidate 107 Public Health Service (PHS) activities into Performance
Partnerships and consolidate grants to give states and local communities more
flexibilitv.
•
Merge two PHS agencies: the Agency for Toxic Substances and Disease Registry and
the Centers for Disease Control and Prevention.
Department of Housing and Urban Development ( $800 million in savings)
•
It will consolidate some 60 programs into four:
Housing Certificates for Families and Individuals
Consolidates HUD's subsidized rental assistance programs (e.g. Section 8
Assistance and Vouchers) and support for public housing.
Community Opportunity Fund
Consolidates HUD's CDBG and other economic programs.
Affordable Housing Fund
Consolidates H011E (Housing for the Elderly and Disabled), Housing Counseling,
National Homeownership Fund, Homeless programs, Housing for People with
AIDS, and other housing production assistance programs.
A New Entrepreneurial FHA
The FHA will work with private enterprises and non-profits to expand
homeownership opportunities to low and moderate income Americans, and
provide decent, affordable housing to low-income renters.
Department of the Interior ( $3.8 billion in savings)
•
Eliminate the Office of Territorial and International Mfairs.
•
Transfer responsibilities for a significant number of Bureau of Reclamation facilities
and terminate small reclamation programs.
•
Eliminate the Minerals Management Service and transfer savings back to states.
•
Allow offshore oil and gas royalty buyouts and forego complicated administrative
processes.
National Aeronautics and Space Administration ( $8 billion in savings)
•
Restructure to eliminate duplication and overlapping capabilities.
•
Privatize and commercialize (use private sector capabilities whenever possible).
•
Return NASA to the role of a research and development agency.
Office of Personnel Management ( $30 million in savings)
•
•
Transform into an agency that supports a private-sector model for
training, investigations, and staffing services to agencies.
.\.gencies may perform these functions on their own. procure them from the private
sector or from privatized OPM business units.
Small Business Administration ( $1.2 billion in savings)
•
Shift the financial burden of loan guaranty programs from the taxpayers to the
beneficiaries by eliminating the government's current cost of 2.74 percent and
imposing fees on the lenders and borrowers.
•
Streamline field office structure by locating its 10 regional offices with the local
district offices and consolidating district and satellite offices.
Consolidate loan processing in several centers around the country and continue to
centralize loan servicing.
•
Social Security Administration ($850 million savings)
•
•
•
•
Stagger monthly payment dates, starting with new beneficiaries, throughout the
month to eliminate workload spikes and allow SSA to provide better customer
service without adding staff.
Increase the number of recipients who are paid by direct deposit in three phases over
next four years. By increasing this number, SSA would save $.35 per check, or $70
million per year and reduce the number of checks reported as lost each month.
Stop collecting fees for attorneys or non-attorney representatives who appeal Social
Security judgments. SSA currently withholds a part of past due benefits for the
attorney.
Require all employers, except those who employ only household workers, to file W-2
wage reports with SSA on magnetic media or by electronic transmission. This will
eliminate the time and effort now spent in processing and checking paper.
Department of Transportation ( $6.7 billion in savings)
•
Transfer Federal Aviation Administration (FAA) air traffic control services to an
"'Air Traffic Corporation" to speed modernization and improve operating efficiency.
•
Reorganize DOT's safety programs into a new Transportation Safety Administration.
•
Consolidate 30 separate grants into a single transportation infrastructure grant ( of
more than $11 billion a year) for which highway, transit, passenger rail, and airport
capital projects would be eligible, and allocate funds by formula to states and local
jurisdictions.
Department of Veteran Affairs ($209 million savings)
•
•
•
~
Reform the VA's medical care eligibility requirements, allowing V A to expand the
range of outpatient services and replace unnecessary and more expensive inpatient
hospital care, with more appropriate and less expensive ambulatory care.
Replace the annual interview involving 93 questions, and another interview each time
the veteran seeks care at a different VA facility with a simple check of IRS records to
determine whether a veteran's reported taxable income qualifies him or her for free
medical care.
Integrate, consolidate, and privatize some of these ancillary support service like food
Dreparation. housekeeping, engineenng and maintenance. etc
Phase in the consolidation of the vA"s l\VO tieid ot'Ilces lor insurance operations.
Highlights of the President's Plan
To Reinvent Regulatory Systems
Environmental Protection Agency (Regulatory)
•
•
•
Reduce the overall reporting and record keeping burden of EP A rules with a 25%
decrease of paperwork.
Provide incentives for self-disclosure and correction.
Allow state, tribal, and local recipients of EPA grants to combine over $600 million
in air, water and waste grants. That flexibility will give them the ability to find
cleaner and cheaper means of achieving their local environmental goals.
Food and Drug Administration (Regulatory)
•
•
•
Allow manufacturing changes without FDA pre-approval.
Eliminate some special drug requirements on insulin and antibiotics.
Exempt up to 138 categories of low-risk medical devices from pre-market review
(i.e. syringes or oxygen masks).
•
Eliminate virtually all environmental assessments for human drugs and biologics and
animal drugs.
•
Harmonize international standards for the review of drugs and medical devices.
General Reform: small business ( Regulatory)
•
Waive tines for small businesses that have acted properly but violated the rules. In
this way, business owners can put their energies into correcting problems, not
fighting with regulators.
Occupational Safety and Health Agency (Regulatory)
•
•
•
Nationalize the "\1aine 200" program. which creates a partnership between
companies and OSHA regulators to dramatically improve worker health and safety.
Adopt "Quick Fix" incentives for fixing hazards quickly Using this modeL
compliance officers reduce penalties for violations that are abated during the
inspection. encouraging employers to increase employee protection immediately
while reducing follo\v-up work.
Begm "focused inspections" for employers \vith strong and effective safetv and
health programs. OSHA \vill conduct an inspection limited to the top four- hazards
that kill workers in the construction industrv
THE EFFECT OF REGULATIONS
ON THE SMALL ENTREPRENEUR
According to Small Business Administration surveys, the smallest of the small
firms are nearly unanimous in their animosity toward the burden of tax
compliance paperwork and payroll recordkeeping.
Companies with under 10 employees represent the vast majority of the American
economy - almost 80%.
•
Micro-small businesses, firms with 1-4 employees, spend as much as $32,000 per
employee to comply with regulations.
•
In comparison, larger companies experience an average cost of $17,000 per
employee.
•
Firms with under 10 employees indicate that about 47% of their total regulatory
burden is tax-related with about 32% being payroll-related.
•
Contrast this with large firms (over 500 employees) where only 26% of the burden
is tax-related and 22% is payroll related.
•
Small entrepreneurs surveyed believe that a reduced regulatory burden (simplified
reporting requirements) could result in a 21 to 35% change in the amount of time
and effort they spend complying.
MEMORANDUM OF UNDERSTANDING
AMONG THE
INTERNAL REVENUE SERVICE ,
SOCIAL SECURITY ADMINISTRATION
AND
U.S. DEPARTMENT OF LABOR
BACKGROUND
The Internal Revenue Service (IRS) in the Department of the Treasury, the Social Security
Administration (SSA) and the Department of Labor are each participating in a project to
identify and pursue ways to improve the nation's wage and tax reporting system. The project
is known as the Simplified Tax and Wage Reporting System (STAWRS).
The objective of each agency's participation in STA WRS is to reduce the tax and wage
reporting burden on employers while improving the efficiency and effectiveness of each
agency's operations. This objective is being pursued by: 1) exploring the feasibility of, and
making available, a variety of tax and wage reporting services to employers and participating
tax entities, as appropriate, and 2) developing a harmonized wage code which will bring into
agreement the Federal and State definitions of wages and other terms, due dates, forms and
reporting formats relating to wage and tax reporting (to the extent practical), and the
employer identification numbering system.
Vice President Gore's National Performance Review (NPR) recommended pursuing this
initiative in the September 7, 1993 Report, "From Red Tape to Results, Creating a
Government that Works Better & Costs Less." The NPR included STA WRS in two
recommendations: TRE05, "Simplify Employer Wage Reporting," and IT05, "Provide
Intergovernmental Tax Filing, Reporting, and Payments Processing."
In another Memorandum of Understanding (MOU), the Secretary of the Treasury, the
Commissioner of Social Security, and the Secretary of Labor acknowledged the importance
to each a~ency of reducing the tax: and wage reporting burden and agreed to pursue the
STA WRS objectives in a coordinated fashion. That MOU also established an Executive
Steering Committee, comprised of senior representatives from the Internal Revenue Service,
the Social Security Administration, and the Department of Labor.
PURPOSE
The purpose of this MOU is to implement the objectives of the MOU referenced above by
establishing a STA WRS Project Office. The Internal Revenue Service will establish the
STA WRS Project Office. Agency liaison representatives from SSA and the Department of
Labor will coordinate the efforts of their respective agencies through the ST AWRS Project
Office. STA WRS Project Office staff and SSA and Department of Labor liaison
representatives will work closely with each other and with their respective associated
stakeholders to achieve the Project's objectives. The STA WRS Project Office will establish
a facility appropriate for the extensive collaboration efforts contemplated by the three
agencies and for the broad-based stakeholder consultation envisioned under these MOU's.
ESTABLISHMENT OF STA WRS PROJECT OFFICE
1.
An Executive-In-Charge, designated by the Assistant Secretary for Management in the
Department of the Treasury, will lead the ST AWRS Project Office.
2.
The Commissioner of the IRS will provide a minimum of two full-time equivalents to
serve in the STA WRS Project Office. The Commissioner of Social Security and the
Deputy Secretary of Labor will each provide a minimum of two full-time equivalents to
serve as agency liaison representatives to the STA WRS Project. All commitments of
staff are subject to the availability of funds and are for the initial 36 months following
the signing of this MOU, or less, if the project is terminated earlier. SSA and the
2
Department of Labor will, subject to the availability of funds, assume the costs
associated with the participation of their respective liaison representatives.
3.
STA WRS Project Office staff and SSA and DOL agency liaison representatives to the
STAWRS Project may work at their official duty stations, or the STAWRS Project
Office when direct collaboration is necessary to carry out their duties.
4.
The responsibilities of the STAWRS Project Office include: identifying, implementing,
and evaluating proof-of-concept pilot and demonstration projects; establishing and
operating a stakeholder relations and education program; drafting proposed legislation,
regulations, orders, agreements, procedures, and related documents; developing and
analyzing alternatives for STA WRS management organizations; drafting a model
harmonized wage code; developing, evaluating, and recommending privacy, disclosure,
and data sharing policies; drafting simplified forms and filing procedures; developing
proposed operational policies and procedures; and performing other related duties.
Agency liaison activities will include having agency employees develop positions on
STA WRS Project issues related to their respective agency's mission. Each agency's
representatives will ensure that proposed positions are communicated to and coordinated
with the affected agencies.
5.
The STA WRS Project Office will actively seck advice and recommendations from
individual stakeholders, including representatives from States, State and Federal
Government organizations, employers, employer organizations, labor organizations,
employees, privacy advocates, and from the public, as necessary.
6.
In addition to the staff provided in paragraph 2, the IRS will provide, subject to the
availability of funds, reasonably appropriate office facilities, conference rooms,
equipment, supplies, and related support services and clerical staff for the day-to-day
operation of the ST AWRS Project Office.
3
7.
The IRS will provide, subject to the availability of funds, reasonably necessary
communications facilities. These may include an 800 number and a PC-based bulletin
board to ensure full project participation by all stakeholders including Federal agencies,
State Governments, employers, employer representatives, employee organizations, and
privacy advocates.
AUTH ORITIES
(I)
Title 42 of the United States Code (U.S.c.) Under Title XI of the Social Security
Act, the Secretary of the Treasury and the Secretary of Labor make the necessary rules
and regulations for the efficient administration of the functions with which each agency
is charged under the Social Security Act (42 U.S.C. 1302). Under Titles II and VII of
the Social Security Act, the Commissioner of Social Security is authorized to prescribe
such rules and regulations as the Commissioner determines necessary or appropriate to
carry out SSA's functions and may establish such procedures as the Commissioner
determines necessary and appropriate to carry out the provisions of Title II
(42 U. S. C. 405(a) and 902(a}(5}).
Title II of the Social Security Act authorizes the Secretary of the Treasury and the
Commissioner of Social Security to enter into an agreement to process tax information
under a Combined Annual Wage Reporting System (42 U.S.C. 432). The law
authorizes the Secretary of the Treasury and the Commissioner of Social Security to
modify or change the manner of such processing by mutual agreement.
The Commissioner of Social Security also must establish and maintain records of the
amounts of each individual's earnings from employment and self-employment and the
periods in which such amounts were earned (42 U. S. C. 405(c)(2)(A)).
(2)
Title 31 of the U.S. C. The Secretary of the Treasury has responsibility for preparing
plans for improving and managing receipts of the United States Government
4
(31 U.S.C. 321).
(3)
Title 29 of the U.S.C. The Secretary of Labor has the responsibility to foster,
promote, and develop the welfare of the wage earners of the United States, to improve
their working conditions, and to advance their opportunities for profitable employment
(29 U.S.c. 551).
(4)
Title 26 of the U.S.C. The Commissioner of the IRS has been given authority for
administration and enforcement of the Internal Revenue laws by the Secretary of the
Treasury in the Department of the Treasury Order No. 150-10. This includes
authority over employment taxes (Subtitle C and F, 26 U.S. C.).
PARTIES TO THE AGREEMENT
The parties to this MOU are the Internal Revenue Service, the Social Security
Administration, and the Department of Labor. This agreement shall continue to apply to any
entity of the United States Government which is a successor in interest to any Executive
Agency which is a party to this agreement.
EFFECT OF AGREEMENT ON OTHER PERSONS AND OTHER AGREEMENTS
This document is an internal Government agreement and is not intended to confer any right
or benefit on any private person or party.
Nothing in this agreement shall be interpreted as limiting, superseding, or otherwise affecting
an agency's normal operations or decisions in carrying out its regulatory or legal duties.
This MOU is not intended to replace, limit, supersede, or otherwise affect other agreements
among or between the agencies except to the extent necessary for proper implementation of
this agreement.
5
EFFECTIVE DATE AND AMENDMENT
This MOU shall become effective upon the date of final signature and may be amended by
mutual agreement of the undersigned. It shall remain in effect for the three year period that
the MOU among the Secretary of the Treasury, the Commissioner of Social Security, and the
Secretary of Labor (referenced in the "Background" section above) remains in effect, unless
the undersigned agree in writing otherwise.
We, the undersigned, do hereby agree with the foregoing provisions of this agreement.
Deputy Secretary
Date
Department of Labor
Date
Commissioner
Internal Revenue Service
Date
Commissioner
Social Security Administration
6
Witnessed by:
Small Business Owner
Date
MEMORANDUM OF UNDERSTANDING
AMONG THE
INTERNAL REVENUE SERVICE,
SOCIAL SECURITY ADMINISTRATION
AND
U.S. DEPARTMENT OF LABOR
BACKGROUND
The Internal Revenue Service (IRS) in the Department of the Treasury, the Social Security
Administration (SSA) and the Department of Labor are each participating in a project to
identify and pursue ways to improve the nation's wage and tax reporting system. The project
is known as the Simplified Tax and Wage Reporting System (STAWRS).
The objective of each agency's participation in STA WRS is to reduce the tax and wage
reporting burden on employers while improving the efficiency and effectiveness of each
agency's operations. This objective is being pursued by: 1) exploring the feasibility of, and
making available, a variety of tax and wage reporting services to employers and participating
tax entities, as appropriate, and 2) developing a harmonized wage code which will bring into
agreement the Federal and State definitions of wages and other terms, due dates, forms and
reporting formats relating to wage and tax reporting (to the extent practical), and the
employer identification numbering system.
Vice President Gore's National Performance Review (NPR) recommended pursuing this
initiative in the September 7, 1993 Report, "From Red Tape to Results, Creating a
Government that Works Better & Costs Less." The NPR included STA WRS in two
recommendations: TRE05, "Simplify Employer Wage Reporting," and IT05, "Provide
Intergovernmental Tax Filing, Reporting, and Payments Processing."
In another Memorandum of Understanding (MOV), the
Secr~tary
of the Treasury, the
Commissioner of Social Security, and the Secretary of Labor acknowledged the importance
to each agency of reducing the tax and wage reporting burden and agreed to pursue the
ST A WRS objectives in a coordinated fashion. That MOV also established an Executive
Steering Committee, comprised of senior representatives from the Internal Revenue Service,
the Social Security Administration, and the Department of Labor.
PURPOSE
The purpose of this MOU is to implement the objectives of the MOU referenced above by
establishing a ST AWRS Project Office. The Internal Revenue Service will establish the
ST AWRS Project Office. Agency liaison representatives from SSA and the Department of
Labor will coordinate the efforts of their respective agencies through the STAWRS Project
Office. STA WRS Project Office staff and SSA and Department of Labor liaison
representatives will work closely with each other and with their respective associated
stakeholders to achieve the Project's objectives. The STAWRS Project Office will establish
a facility appropriate for the extensive collaboration efforts contemplated by the three
agencies and for the broad-based stakeholder consultation envisioned under these MOU's.
EST ABLISHMENT OF STA WRS PROJECT OFFICE
1.
An Executive-In-Charge, designated by the Assistant Secretary for Management in the
Department of the Treasury, will lead the ST AWRS Project Office.
2.
The Commissioner of the IRS will provide a minimum of two full-time equivalents to
serve in the STA WRS Project Office. The Commissioner of Social Security and the
Deputy Secretary of Labor will each provide a minimum of two full-time equivalents to
serve as agency liaison representatives to the STA WRS Project. All commitments of
staff are subject to the availability of funds and are for the initial 36 months following
the signing of this MOU, or less, if the project is terminated earlier. SSA and the
2
Department of Labor will, subject to the availability of funds, assume the costs
associated with the participation of their respective liaison representatives.
3.
STAWRS Project Office staff and SSA and DOL agency liaison representatives to the
ST AWRS Project may work at their official duty stations, or the STA WRS Project
Office when direct collaboration is necessary to carry out their duties.
4.
The responsibilities of the STA WRS Project Office include: identifying, implementing,
and evaluating proof-of-concept pilot and demonstration projects; establishing and
operating a stakeholder relations and education program; drafting proposed legislation,
regulations, orders, agreements, procedures, and related documents; developing and
analyzing alternatives for STA WRS management organizations; drafting a model
harmonized wage code; developing, evaluating, and recommending privacy, disclosure,
and data sharing policies; drafting simplified forms and filing procedures; developing
proposed operational policies and procedures; and performing other related duties.
Agency liaison activities will include having agency employees develop positions on
STAWRS Project issues related to their respective agency's mission. Each agency's
representatives will ensure that proposed positions are communicated to and coordinated
with the affected agencies.
5.
The STAWRS Project Office will actively seek advice and recommendations from
individual stakeholders, including representatives from States, State and Federal
Government organizations, employers, employer organizations, labor organizations,
employees, privacy advocates, and from the public, as necessary.
6.
In addition to the staff provided in paragraph 2, the IRS will provide, subject to the
availability of funds, reasonably appropriate office facilities, conference rooms,
equipment, supplies, and related support services and clerical staff for the day-to-day
operation of the STAWRS Project Office.
3
7.
The IRS will provide, subject to the availability of funds, reasonably necessary
communications facilities. These may include an 800 number and a PC-based bulletin
board to ensure full project participation by all stakeholders including Federal agencies,
State Governments, employers, employer representatives, employee organizations, and
privacy advocates.
AUTHORITIES
(1)
Title 42 of the United States Code (U.S.C.) Under Title XI of the Social Security
Act, the Secretary of the Treasury and the Secretary of Labor make the necessary rules
and regulations for the efficient administration of the functions with which each agency
is charged under the Social Security Act (42 U.S.c. 1302). Under Titles II and VII of
the Social Security Act, the Commissioner of Social Security is authorized to prescribe
such rules and regulations as the Commissioner determines necessary or appropriate to
carry out SSA' s functions and may establish such procedures as the Commissioner
determines necessary and appropriate to carry out the provisions of Title II
(42
u.
S. C. 405(a) and 902(a)(5».
Title II of the Social Security Act authorizes the Secretary of the Treasury and the
Commissioner of Social Security to enter into an agreement to process tax information
under a Combined Annual Wage Reporting System (42 U.S.C. 432). The law
authorizes the Secretary of the Treasury and the Commissioner of Social Security to
modify or change the manner of such processing by mutual agreement.
The Commissioner of Social Security also must establish and maintain records of the
amounts of each individual's earnings from employment and self-employment and the
periods in which such amounts were earned (42 U. S. C. 405(c)(2)(A».
(2)
Title 31 of the U.S.c. The Secretary of the Treasury has responsibility for preparing
plans for improving and managing receipts of the United States Government
4
(31 U.S.C. 321).
(3)
Title 29 of the U.S.c. The Secretary of Labor has the responsibility to foster,
promote, and develop the welfare of the wage earners of the United States, to improve
their working conditions, and to advance their opportunities for profitable employment
(29
(4)
u.s.c.
551).
Title 26 of the U.S.C. The Commissioner of the IRS has been given authority for
administration and enforcement of the Internal Revenue laws by the Secretary of the
Treasury in the Department of the Treasury Order No. 150-10. This includes
authority over employment taxes (Subtitle C and F, 26 U.S.c.).
PARTIES TO THE AGREEMENT
The parties to this MOU are the Internal Revenue Service, the Social Security
Administration, and the Department of Labor. This agreement shall continue to apply to any
entity of the United States Government which is a successor in interest to any Executive
Agency which is a party to this agreement.
EFFECT OF AGREEMENT ON OTHER PERSONS AND OTHER AGREEMENTS
This document is an internal Government agreement and is not intended to confer any right
or benefit on any private person or party.
Nothing in this agreement shall be interpreted as limiting, superseding, or otherwise affecting
an agency's normal operations or decisions in carrying out its regulatory or legal duties.
This MOU is not intended to replace, limit, supersede, or otherwise affect other agreements
among or between the agencies except to the extent necessary for proper implementation of
this agreement.
5
EFFECTIVE DATE AND AMENDMENT
This MOU shall become effective upon the date of final signature and may be amended by
mutual agreement of the undersigned. It shaH remain in effect for the three year period that
the MOU among the Secretary of the Treasury, the Commissioner of Social Security, and the
Secretary of Labor (referenced in the "Background" section above) remai ns in effect, unless
the undersigned agree in writing otherwise.
We, the undersigned, do hereby agree with the foregoing provisions of this agreement.
Date
Deputy Secretary
Department of Labor
Date
Commissioner
Internal Reven ue Service
Date
Com missioner
Social Security Administration
6
Witnessed by:
Small Business Owner
Date
Paul Condit
Profile
Seminolc Texas
f
Paul Condit and his wife, Patsy, have three sons, John, Jim and Jeff. All three sons are
college graduates.
Paul Condit was bom in Foster, Oklahoma. He is a graduate of Oklahoma A&M
College.
Mr. Condit has farmed in Gaines County, Texas for 29 years. During that time he owned
and operated a chemical company and a farm implement dealership. He has served as
ASeS committee chairman. director of the Seminole Chamber of Commerce, and as
president of the Seminole Hospital Board.
Mr. Condit is currendy serving on the Seminole Hospital Board and a.s Chairman of the
Gaines County Democratic Party
He is the General Manager and President of Texas Equipment Company, the second
largest John Deere Dealership in the state of Texas. Texas Equipment Company has 58
employees in three locations and total sale! of over $20 million.
THE WHITE HOUSE
OFFICE OF THE PRESS SECRETARY
FOR IMMEDIATE RELEASE
FRIDAY, June 9,1995
CONTACT: 202-456-7035
PRESIDENT CLINTON REDUCES BURDEN ON SMALL BUSINESS, INDIVIDUALS
Announces Single Filings To Streamline Reporting Requirements of Employen, Taxpayen
WASHINGTON -- With the goal of reducing government's burden on small business
owners and individuals, President Clinton and Vice President Gore today (6/9) announced
initiatives that will significantly streamline wage and income reporting requirements and
eventually lead to a system of single electronic filing with federal and state governments ..
"For years, small and big businesses, and concerned citizens across this country, have
been telling Washington to 'get real' about the absurd, frustrating, and costly paperwork
burdens that have been placed on them. The system that's set up now is very convenient for
the government. Now it's the government's tum to be convenient for business owners and
taxpayers," the President said.
The Vice President said, "We are getting rid of management practices and structures
that were right for the industrial age, and bringing things up-to-date with the information age.
Weare taking quality lessons from America's best run businesses."
Joined by Department of Treasury Secretary Robert Rubin, Department of Labor
Deputy Secretary Thomas Glynn, Social Security Administration Commissioner Shirley
Chater, and Internal Revenue Service Commissioner Margaret Richardson, as well as
delegates from the White House Conference on Small Business, the President outlined two
proposals aimed at reducing the burden on small business owners and individuals when
reporting wages and income to the federal and state governments:
The Small Business and Simplified Tax and Wage Reporting System (STAWRS) will
simplify tax compliance and payroll recordkeeping regulations, judged the most burdensome
concern of businesses with 10 or fewer employees -- or about 79 percent of American
businesses. The initiative will eventually enable employers to file W-2 data through single
returns electronically with both the federal and state governments, and simplifies the laws,
definitions and procedures related to tax and wage reporting.
(MORE)
Treasury Secretary Rubin, Deputy Labor Secretary Glynn, SSA Commissioner Chater,
and IRS Commissioner Richardson signed a Memorandum of Understanding to implement
this initiative, which, when fully implemented, is expected to save employers about $1 billion
annually in tax and wage reporting costs.
FedState Partnership programs will further eliminate duplicative tax requirements and
eventually allow taxpayers to satisfy both their federal and state filing obligations with a
single electronic transmission. The initiative also calls for the Internal Revenue Service (IRS)
and state tax agencies to work together to provide taxpayers filing assistance and enhance
outreach educational programs for the elderly, new business owners and other groups.
Twenty-nine states participated in joint electronic filing in 1995, and the program will
expand to 32 states in 1996. The President announced he will send legislation to Congress to
allow further growth in the FedState Partnership programs, which is now hampered by current
disclosure and appropriation laws between the federal government and the states. The
initiative is estimated to reduce the burden to taxpayers by $1.5 billion.
Secretary Rubin said, "For years, prior Presidents said they would reform government,
but they produced only reports. President Clinton is producing results."
Today's announcement is part of the second phase of the National Performance Review
(NPR) , which already has saved more than $63 billion of NPR's $108 billion in proposed
savings, and resulted in the reduction of more than 102,000 FTEs of 272,000 FTEs targeted
over five years.
##
Making it E-Z-er For the Taxpayer
People and businesses have been spending too much time and money answering the same tax
and wage questions asked by different government agencies. President Clinton launched a
plan today that will help stop that duplication.
REliEVING DUPLICATE FILING BURDEN ON EMPLOYERS
President Clinton presided over the signing of an agreement among the heads of the Treasury
Department, the Internal Revenue Service, the Department of Labor and the Social Security
Administration that commits those agencies to work together with State agencies to eliminate
duplicate tax data filing requirements on businesses and taxpayers.
For example, under current practices, large employers submit magnetic tape containing all
employers W-2 data to the Social Security Administration and the same information to the
states in which they do business. Small employers file similar duplicate information but in
paper W -2 forms. This duplicate Federal and State filing can be eliminated if the federal and
state agencies do what the President is asking be done in partnership. Small employers who
file a paper W-2 fonn can have the Social Security Administration scan the paper and turn
the data over to the IRS which, in turn, sends tape of the data to states participating in this
new partnership. The state and federal agencies will maintain their separate taxing
jurisdiction, but will be able to cut costs and provide better service to the taxpayer by sharing
data that is duplicative, and by providing the taxpayer with one stop customer service. Some
of the benefits of this Simplified Wage and Tax Reporting System are:
1)
simpler wage and tax reporting requirements for the business community;
2)
reduced number of contacts employers have with government entities;
3)
reduction in employers' reporting costs;
4)
improved accuracy and timelines of data received -- allowing Federal and state
agencies to better administer programs;
5)
reduced duplication of effort at Federal and state levels; and
6)
more efficient and state-of-the-art system (reducing Federal and state operating costs).
Pursuant to the Agreement among the Federal agencies, a prototype will be developed and by
the end of 1996, employer~ will be able to submit all major reports (Forms 941, W-2 and
State Unemployment Insurance Reports) electronically or on magnetic media.
RELIEVING THE BURDEN ON AU TAXPAYERS
President Clinton further announced that he will be sending legislation to Congress shortly to
pave the way for joint projects between Federal and State agencies that will make taxation
less taxing by:
eliminating the requirements that taxpayers provide the same infonnation to both the
IRS and the state taxing authorities;
allowing taxpayers who make errors in their electronic returns to correct those errors
by working with a single contact point for both Federal and state purposes;
offering "one-stop service" where taxpayers could call one location and receive
answers to federal, state, and local tax questions;
allowing taxpayers to satisfy their tax obligations by entering into coordinated
installment agreements with the IRS and state taxing agencies; and
paving the way for the development of a single federal/state income tax fonn.
The cost of government will be greatly reduced through eliminating duplicative tax
administration efforts and taking full advantage of available economies of scale.
Preliminary Treasury estimates, assuming participation by 20 percent of the states -- which is
expected to be much greater -- show a cumulative benefit by FY 2000 of $1.5 billion
reduction in taxpayer burden.
MORE REINVENTION
Treasury Secretary Robert Rubin listed other Treasury commitments to improve how
Treasury does its business:
1.
2.
3.
4.
5.
Streamlining Treasury Field Offices;
Improving enforcement of border operations;
Consolidating administrative services that yield savings and produce better service.
Improving collection of delinquent debt owned to the Federal government.
Assisting in the use of Smart Cards
Preliminary estimates show that all of these initiatives of the National Perfonnance Review
(phase II) have potential in the next five years for:
$1-3 billion additional revenue;
$500 million cost savings;
$3 billion reduced taxpayer burden;
streamlining workforce by 4000;
and better service for tax filers and travellers.
- end -
Small Business and the Simplified Tax and Wage Reporting System
Vision
o
The two-fold goal is: reduce employers time and expense in filing returns and paying taxes while saving
Federal and state operations costs.
o
This is a voluntary system that:
o
•
Simplifies laws, definitions, and procedures related to tax and wage reporting (worker
classification, wage components, data definitions, employer identification numbers, filing
procedures and periods, forms and formats)
•
Through one-stop electronic filing, Federal and state governments will speak the same language,
and businesses will spend less time filling out forms and more time creating jobs for Americans.
•
The Simplified Tax and Wage Reporting System will reduce red tape and costs to employers especially small business - when they provide "W-2" tax and wage information.
When fully implemented, it can save employers up to almost $1 billion annually in tax and wage reporting
costs. Of the approximately 6.2 million employers in the United States, 60 percent have fewer than five
employees; therefore, small businesses, in particular, will benefit noticeably from reduced burdens.
Guiding Principles
o
Employers, States and Federal Agencies agree to:
•
•
•
•
•
Maintain the separation between Federal and state governments
Build on existing systems/programs (emphasize compatibility)
Protect employee benefit programs
Not impose additional cost
Protect privacy of participants.
Initial Progress - "Paper W-2 Project"
o
Under current practices, large employers (over 250 employees) submit magnetic tape containing all
employers W-2 data to the Social Security Administration (SSA) and to the states. Small employers
submit paper W -2 forms.
o
Under the "Paper W-2 Project" begun in 1994, small employers send paper W-2's to SSA. SSA scans the
paper, turns the data over to IRS which, in turn, sends tapes to 29 participating states, compiling the
employer data for each state. The states are evaluating the usefulness of this approach to determine
whether it will satisfY their needs for wage information. Illinois no longer requires employers to submit
separate paper W-2 data; other states can do this if they choose to,
Scope
This will simplifY reporting of:
•
•
•
•
Federal and state tax and wage information
State Unemployment Insurance (UI) tax and wage information
VI tax payments
Employer registration
Other Benefits
o
Some of the benefits of the project are:
•
•
•
•
•
•
simpler wage and tax reporting requirements for the business community;
reduced number of contacts employers have with governmental entities;
reduction in employers' reporting costs;
improved accuracy and timeliness of data received -- allowing Federal and state agencies to better
administer programs;
reduced duplication of effort at Federal and state levels; and
more efficient and state-of-the-art system (reducing Federal and state operating costs),
, What Can Be Accomplished In The Short Run?
Under the Treasury Department's leadership:
o
In 1995, the "Paper W-2 Project," was available nationwide and was expanded to 29 states from 12 states
in 1994; it will be continued in 1996,
o
In 1995, a prototype will be developed and by the end of 1996, employers will be able to submit all major
reports (941, W-2 and state VI reports) electronically or on magnetic media, Small employers in
participating states will be able to begin taking advantage of existing networks to file electronically.
o
In 1995, Department of the Treasury and the Department of Labor will complete a detailed analysis of the
state and Federal Unemployment Insurance programs to simplifY them and determine required legislation.
FedState Partnerships Make Taxation Less Taxing
Vision
The IRS and state taxing authorities are working together to reduce taxpayer burden,
improve taxpayer service, and minimize tax administration costs. The goal is to
eliminate duplicative tax requirements and to take advantage of economies of scale
in tax administration wherever possible.
Successes
•
Joint Electronic Filing - Through a FedState joint electronic filing program,
taxpayers can satisfy both their federal and state filing requirements with a single
electronic transmission. 29 states participated in joint electronic filing in 1995, with
more than 1.5 million returns fIled. The program will expand to 32 states in 1996.
•
Filing Assismnce - The IRS and state tax agencies have worked together to jointly
distribute tax forms and provide taxpayer fIling assistance.
•
Joint Outreach Programs provide:
The IRS is working with many states to jointly
tax counseling for the elderly,
education for new businesses,
education for other targeted taxpayer groups,
tax practitioners' workshops, and
educational publications.
Barriers
•
Further growth in FedState partnership programs is hampered because the IRS is
currently barred from using appropriated funds to provide services to state agencies,
even if the cost is reimbursed.
•
Because of present disclosure laws, a joint electronic fIler must file in duplicate any
tax data that is required by both the IRS and the state; the IRS then must transmit
the second set of data to the state.
Removing Barriers
•
To enhance the growth of FedState partnerships, we are working on a legislative
proposal that would allow the IRS to use appropriated funds for FedState
reimbursable projects and eliminate restrictions on the use of data that is common
to both Federal and state tax returns.
•
The legislation would serve as a model for states that need legislative changes to
remove their barriers to growth in FedState partnerships. These proposals have been
endorsed by the Federation of Tax Administrators representing alISO states.
The Future
•
Once the legal barriers are removed, the IRS and the states will be able to engage
in countless new cooperative efforts that would make taxation less taxing by:
eliminating the requirement that taxpayers provide the same information to
both the IRS and the state taxing authorities;
allowing taxpayers who make errors in their electronic returns to correct those
errors by working with a single contact point for both Federal and state
purposes;
offering "one-stop service" where taxpayers could call one location and
receive answers to federal, state, and local tax questions;
allowing taxpayers to satisfy their tax obligations by entering into coordinated
installment agreements with the IRS and state taxing agencies; and
paving the way for the development of a single federal/state income tax form.
•
The cost of government will be greatly reduced through eliminating duplicative tax
administration efforts and taking full advantage of available economies of scale.
Increased Revenue and Burden Reduction
•
Preliminary Treasury estimates, assuming participation by 20 percent of the states,
show a cumulative benefit by FY 2000 of:
--$1.5 billion reduction in taxpayer burden, and
--$315 million increase in revenues.
UBLIC DEBT NEWS
Department of the Treasury • BJr~ ..n~f;l?er~~~!i.( p~~t • Washington, DC 20239
• I
(j
JU1I2 fJ:;5 0 U' / QC30~TACT;
FOR IMMEDIATE RELEASE
June 12, 1995
RESULTS OF
,)).~
'- v
'-'
TRE~.tJRYr': S J~UCTION
~,
'" ':~ [i';~ <-i,.\
1 r" ') 'I Y
",
Office of Financing
202-219-3350
OF 13 - WEEK BILLS
Tenders for $14,308 million of 13-week bills to be issued
June 15, 1995 and to mature September 14, 1995 were
accepted today (CUSIP; 912794U85).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.55%
5.57%
5.57%
Investment
Rate
5.72%
5.74%
5.74%
Price
98.597
98.592
98.592
Tenders at the high discount rate were allotted 36%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.56--98.595
RR-364
Received
$50,764,576
Accegted
$14,307,790
$45,277,602
1,384,594
$46,662,196
$8,820,816
1,384,594
$10,205,410
3,308,380
3,308,380
794,000
$50,764,576
794,000
$14,307,790
UBLIC DEBT NEWS
FOR IMMEDIATE RELEASE
June 12, 1995
JWI t." u JJ 0 '
Ut.. 33qJNTACT:
[;~prl-.
TREAStM~~-'7S?'::AUC~ON
RESULTS OF
Office of Financing
202-219-3350
OF 26-WEEK BILLS
Tenders for $14,275 million of 26-week bills to be issued
June 15, 1995 and to mature December 14, 1995 were
accepted today (CUSIP: 912794T61).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.55%
5.56%
5.56%
Investment
Rate
5.81%
5.82%
5.82%
Price
97.194
97.189
97.189
Tenders at the high discount rate were allotted 89%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-365
Received
$45,822,918
Acce:Qted
$14,275,166
$39,174,770
1,228,348
$40,403,118
$7,627,018
1,228,348
$8,855,366
3,350,000
3,350,000
2,069,800
$45,822,918
2,069,800
$14,275,166
DEPARTMENT
lREASURY"
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE UPON DELIVERY
Expected at 10:00 a.m. EDT
June 13, 1995
STATEMENT OF
DEPARTMENT OF THE TREASURY
LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
BEFORE THE
COMKITTEE ON ~OREZGN RELATZONS
UNITED STATES SENATE
Mr. Chairman and members of the committee, I am pleased today
to recommend, on behalf of the Administration, favorable action on
seven bilateral tax treaties and protocols that the President has
transmitted to the Senate and that are the subject of this hearing.
My colleague, Mr. Joseph H. Guttentag, will discuss one of these
agreements, the Protocol to the Income Tax Convention. with Mexico.
These agreements each would provide significant benefits to the
United States, and the Treasury hopes that the Senate will take
prompt and favorable action on all of these agreements.
The treaties and protocols before the Committee today
represent a cross-section of the United States tax treaty program.
There are agreements with two of our largest trading partners -Canada and France.
Two are with smaller, but nevertheless
significant partners -- Sweden and Portugal.
There also are two
treaties with countries that are likely to become signif icant
trading partners in the future -- Kazakhstan and Ukraine.
Each
agreement will generate substantial benefits for U.S. taxpayers and
tax authorities, and will serve to increase desirable international
economic activity.
To help frame our discussions, I would like to describe in
general terms the U.S. tax treaty program. The United States has
a network of 47 bilateral income tax treaties, the first of which
was negotiated in 1939.
We have trE!aties with most of our
significant trading partners. With the exceptions of Portugal and
Turkey, we have treaties in force with all 24 of our fellow members
of the organization for Economic Cooperation and Development
(OECD) .
The Treasury Department receives regular and numerous requests
to enter tax treaty negotiations.
As a result it has been
necessary for us to establish priorities. These priorities are not
new: they are reflected in the treaties that the Senate approved in
1993 as well as the treaties that you are considering today.
In response to prior direction from the Senate as well as the
Treasury's own policies, the Treasury's first priority for treaty
RR-366
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- 2 -
negotiations is to renegotiate outdated treaties that lack
effective anti-abuse clauses and that do not reflect recent changes
in U. S. tax legislation.
Examples in this category are the
agreements with Canada, France and Sweden. Other treaties in this
category that are currently being renegotiated include Austria,
Luxembourg and switzerland.
We have made it clear to our treaty
partners that we will not tolerate continuation of treaty
relationships that fail to reflect important U.S. treaty policies.
A second priority is to conclude treaties that are likely to
provide the greatest benefits to U. S. taxpayers.
As discussed
below, these benefits are important to the competitive posture of
U.S. taxpayers that enter a treaty partner's marketplace.
Such
treaties could include treaties with expanding economies with which
we lack a treaty, or revised treaties with existing treaty partners
but that contain substantially improved provisions.
Examples in
this category include the treaty with Portugal, as well as the
agreements with Canada and France.
A third priority is to conclude treaties with countries with
which we lack a treaty, but that have the potential to be
significant trading partners.
The list of such countries has
always been a long one, and it has become even longer since the
late 1980's and the opening of the Iron Curtain. Therefore it has
become necessary to consider additional factors in setting
priorities among this category.
One such factor is the
international economic and foreign policy of the United states.
Treasury· tries to focus its efforts in this category on those
countries with which strong political and economic relations are a
high priority.
The existence of a tax treaty can help remove
impediments to trade and investment in such countries and thereby
help establish economic ties that may contribute to the country's
stability and independence.
Consideration of this factor is not
new.
In 1993 the Senate considered and approved treaties with
three countries that fit this description: the Russian Federation,
the Czech Republic, and Slovakia.
The treaties before you today
contain two examples from this category: Ukraine and Kazakhstan.
Benefits Provided by Income Tax Treaties
Irrespective of the category in which a particular country may
fall, we seek to achieve the same two basic objectives through the
treaty.
First,
it reduces income tax-related barriers to
international trade and investment. An active treaty program is a
significant element in the overall international economic policy of
the united States. A tax treaty has a SUbstantial positive impact
on the competitive position of U.S. businesses that enter a treaty
partner's marketplace.
A second general objective of our tax treaty program is to
combat tax avoidance and evasion.
A treaty provides the tax
-
3 -
administrations of both treaty partners with certain tools with
which to combat tax evasion.
While the domestic tax legislation of the united states and
many other countries in many ways is intended to further the same
general objectives as our treaty progra~, a treat~ net~ork.goes
beyond what domestic legislation can ach~~ve. ~eg:sla~~on ~s by
its nature unilateral and cannot eas~ly d~st~ngu~sh among
countries. It cannot take into account other countries' rules for
the taxation of particular classes of income, and how those rules
interact with u.s. statutory rules.
Legislation also cannot
reflect variations in the united states' bilateral relations with
our treaty partners. A treaty, on the other hand, can make usef~l
distinctions, and alter, in an appropriate manner, domest~c
statutory law as it applies to income flowing between the treaty
partners.
Benefits to Taxpayers
An income tax treaty removes impediments to international
trade and investment in three ways.
First, it reduces the
withholding taxes on flows of investment income that the Uni~ed
states and most other countries impose.
Second, it establishes
rules that assign to one country or the other the primary right of
taxation with respect to an item of income, helping to prevent
"double taxation," which occurs when both countries impose tax on
the same income. Third, the treaty provides a dispute resolution
mechanism to prevent double taxation that sometimes can arise in
spite of the treaty. These and other benefits provided by a tax
treaty help to minimize the effects of tax considerations on
investment location decisions, facilitating the cross-border flows
of trade, services and technology. I would like to briefly discuss
each of these aspects of an income tax treaty.
High withholding taxes are an impediment to international
investment. Under United States domestic law, all payments to nonu.s. persons of dividends and royalties and certain payments of
interest are subject to withholding tax equal to 30 percent of the
gross amount paid.
Since this tax is imposed on a gross rather
than net amount, it imposes a high cost on investors receiving such
payments.
Indeed, in many cases the cost of such taxes can be
prohibitive. Most of our trading partners impose similar levels of
withholding tax on these types of income.
Tax treaties remove this burden by reducing the levels of
withholding tax that the treaty partners may impose on these types
of income.
In general, U. s. policy is to reduce the rate of
taxation on interest and royalties to zero. Dividends normally are
subject to tax at one of two rates, depending on the amount of
stock that the recipient owns in the company distributing the
dividend. If the recipient is a corporation owning a significant
percentage of shares in the distributing company -- usually 10
- 4 -
percent
the rate of tax is usually limited to 5 percent.
all other cases the tax is generally limited to 15 percent.
In
The extent to which this policy is realized depends on a
number of factors. Although generalizations often are difficult to
make in the context of complex negotiations, it is fair to say that
we are more successful in reducing these rates with countries that
are relatively developed and where there are sUbstantial reciprocal
flows.
We also achieve lesser, but still very significant
reductions
with
countries
where
the
flows
tend
to
be
disproportionately in favor of the united states.
In the latter
case, the treaty partner may perceive that it is making a
concession in favor of the United states without receiving a
corresponding benefit. For this reason and others the withholding
rates tend to vary somewhat from treaty to treaty. All treaties,
however, achieve sUbstantial reductions in withholding taxes.
Eliminating double taxation is another paramount objective of
any income tax treaty. One of the principal ways this is achieved
is through assignment of primary taxing jurisdiction in particular
factual settings to one treaty partner or the other.
In the
absence of a treaty, a U.s. company operating a branch or division
or providing services in another country might be subject to income
tax in both countries on the income generated by such operations.
The resulting double taxation can impose an oppressive financial
burden on the operation and might well make it economically
unfeasible.
The tax treaty lays out ground rules providing that one
country or the other, but not both, will have primary taxing
jurisdiction over branch operations and individuals performing
services. In general terms, the treaty provides that if the branch
operations have sufficient substance and continuity, the country
where the activities occur will have primary jurisdiction to tax.
In other cases, where the operations are relatively minor, the home
country retains the primary jurisdiction to tax. These provisions
are especially important in treaties with less-developed countries,
which in the absence of a treaty frequently will tax a branch
operation even if the level of activity conducted in the country is
negligible. Under these favorable treaty rules, U. s. manufacturers
may establish a significant foreign presence through which products
are sold without subjecting themselves to foreign tax. Similarly,
U.s. residents generally may live and work abroad for short periods
without
becoming
subj ect
to
the
other
country's
taxing
jurisdiction.
These rules are general guidelines that do not address every
conceivable situation. Consequently, there will be cases in which
double taxation occurs in spite of the treaty. In such cases, the
treaty provides mechanisms enabling the tax authorities of the two
governments -- known as the "competent authorities" in tax treaty
par lance -to consult and reach an agreement under which the
- 5 -
taxpayer' s income is, allocated between ~he two taxing jurisd~ctions
on a consistent basls, thereby preventlng the double taxatlon.
In a world in which most major economic powers have extensive
tax treaty networks, the absence of aU. s. tax treaty with a
particular country can be a distinct disadvantage ~o, u.s.
businesses competing in that foreign market, and to the ablllty of
the united states to attract foreign investments from that country.
securing a more level playing field for u.s. companies is
particularly important given the substantial and increasing volume
of cross-border investment by our major trading partners. In 1980
the level of u.s. direct investment abroad was about the same as
that of the European Community and Japan together.
However, by
1990, the level of direct investment abroad from the European
Community and Japan had risen to about double that of the united
states.
Prevention of Tax Evasion
All the aspects of tax treaties that I have been discussing
involve benefits that the treaties provide to taxpayers, especially
multinational companies, but also to individual citizens. While
providing these benefits certainly is a major purpose of any tax
treaty, it is not the only purpose. The second major objective of
our income tax treaty program is to prevent tax evasion and abuse
of the treaties. Tax treaties achieve this objective in at least
two major ways. First, they provide for exchange of information
between the tax authorities.
Second, they contain provisions
designed to ensure that residents of the treaty partner generally
may enjoy the benefits of the treaty only if they have a
substantial nexus with their country of residence.
Under the tax treaties, the competent authorities are
authorized
to
exchange
information,
including
otherwise
confidential taxpayer information, as may be necessary for the
proper administration of the countries' tax laws. This aspect of
our tax treaty program is one of the most important features of a
tax treaty from the standpoint of the United states.
The
information that is exchanged may be used for a variety of
purposes. For instance, the information may be used to identify
unreported income or to investigate a transfer pricing case.
In
recent years information exchange has become a priority for the
United states in its tax treaty program.
To highlight the importance of this aspect of the tax treaty
program, the Oepartment of Justice has written a letter expressing
its support for these treaties, a copy of which is appended to this
testimony for the Committee's information.
A second major objective is to obtain comprehensive provisions
designed to prevent abuse of the treaty by persons who are not bona
fide residents of the treaty partner.
This practice, which is
- 6 -
known as "treaty shopping," can take a number of ,forms, but its
general characteristic is that a resident of a third state that has
either no treaty with the United states or a relatively unfavorable
one establishes an entity in a treaty partner that has a relatively
favorable treaty with the United states.
This entity is used to
hold title to the person's U.s. investments, which could run the
gamut from portfolio stock investments to a major operating
company, or otherwise engage in treaty-favored activity in the
United states.
By placing the investment in the treaty partner,
the person is able to withdraw the returns from the U.s. investment
subject only to the favorable rates provided in the tax treaty,
rather than the higher rates that would be imposed if the person
had invested directly in the United states.
In the past this committee has expressed strong concerns about
treaty shopping, and the Treasury Department shares those concerns.
If treaty shopping is allowed to occur, then there is less
incentive for the third country with which the united states has no
treaty to negotiate a treaty with the united states.
wi th no
treaty, the country maintains its barriers to U. s. investors.
There may be good reasons why the united states has not concluded
a treaty with a particular country. For instance, we generally do
not conclude tax treaties with jurisdictions that do not impose
significant taxes, because there is little danger of double
taxation of income in such a case and it would be inappropriate to
reduce U.s. taxation on inbound investment returns if the other
country cannot offer a corresponding benefit in exchange for
favorable U.s. treatment.
If investors from such countries were
able to enjoy the benefits of a treaty between the united states
and another country, and at the same time enjoy the benefits of a
tax haven regime in their home country, this policy would be
undermined.
In recognition of these concerns, the Treasury Department has
included in all its recent tax treaties comprehensive "limitation
on benefits" provisions that limit the benefits of the treaty to
bona fide residents of the treaty partner.
These provisions are
not uniform, as each country has its own characteristics that make
it more or less inviting to treaty shopping in particular ways.
Consequently, each provision must to some extent be tailored to fit
the facts and circumstances of the treaty partners's internal laws
and practices.
Transfer pricing
Several of the aspects of income tax treaties that I have been
describing are highly relevant to an issue that has been a
contentious one in recent years and that is of very serious concern
to the Administration. That issue is transfer pricing.
Transfer pricing relates to the division of the taxable income
of a multinational enterprise among the jurisdictions where it does
- 7 -
business.
If a multinational manipulates the prices charged in
transactions between its affiliates in different countries, the
income reported for tax purposes in one country may be artificially
depressed, and the tax administration in that country will collect
less tax from the enterprise than it should. Accordingly, transfer
pricing is an important subject not only in this country but in
most other industrialized countries as well.
In analyzing the prices charged in any transaction between
affiliated parties, it is necessary to have a benchmark by which to
evaluate the prices charged. The benchmark adopted by the united
states and all our major trading partners is the arm's length
standard.
Under the arm's length standard, the price charged
should be the same as it would have been had the parties to the
transaction been unrelated to one another -- in other words, the
same as if they had bargained at "arm's length."
One of the principal advantages of this approach is its
neutrality: it does not ask the multinational to report a result
different from that which would have been achieved by unrelated
parties. This neutrality means that multinational enterprises are
treated neither more nor less favorably than unrelated parties.
consistent with the domestic practice of all major trading
nations, all of our comprehensive income tax treaties adopt the
arm's length standard as the agreed benchmark to be used in
addressing a transfer pricing case. Adoption of a common approach
to these cases is another benefit provided by tax treaties.
A
common approach guarantees the possibility of achieving a
consistent allocation of income between the treaty partners.
without such an assurance, it is possible that the two tax
authorities would determine inconsistent allocations of income to
their respective jurisdictions, resulting in either double or'under
taxation.
Double taxation would occur when part of the
mul tinational 's income is claimed by both jurisdictions.
Under
taxation would occur when part of the multinational's income is
claimed by neither jurisdiction.
By adopting a common standard, the risks of double and under
taxation are minimized.
Furthermore, when double taxation does
occur, the competent authorities of the two countries are empowered
to consult and agree on an equitable division of income based upon
this common reference point. Without this common reference point,
reaching mutual agreement would be difficult.
One of the principal criticisms of the arm's length standard
is that it requires jUdgements to be made about the price unrelated
parties would have agreed to under similar circumstances.
Generally this sort of judgment requires one to refer to
transactions between unrelated parties.
In some cases this
information can be difficult to obtain. This difficulty has been
cited in support of replacing or supplementing the arm's length
- 8 -
standard
states.
not be
approach
by an alternative approach similar to that employed by the
Further, it has been suggested that these treaties should
approved unless they permit a standardized formulary
in addition to or in place of the arm's length standard.
Obviously, this hearing on seven income tax treaties and
protocols is not the time or place to debate this issue.
I will
say, however, that the paramount consideration in selecting an
approach for the analysis of transfer pricing issues is that there
be broad international consensus in favor of its use and a
commitment to administer the approach in a similar way.
Without
that consensus, widespread double and even under taxation will
inevi tably occur.
Therefore, a unilateral move, or even an
announcement that a country is considering a move to a different
approach, can be expected to lead to more problems than it solves.
The United states and its trading partners have made a
concerted effort in the last two years to address the shortcomings
of the arm's length standard. We believe that these efforts will
maintain the arm's length standard as a viable approach. However,
if the united states and its partners decide one day that the arm's
length standard should be abandoned in favor .of some other
approach, I can assure this Committee that our tax treaties will
not stand in our way.
In such a case, we will agree on a new
approach and will develop guidelines for uniform application of
that approach. The tax treaties would inevitably give way in the
face of this new consensus.
Basis for Negotiations
Each of these treaties reflects current U.s. treaty policy, as
developed jointly by the Treasury Department and the Congress in
recent years.
The provisions in each treaty borrow heavily from
recent treaties approved by the Senate, particularly the treaties
with the Czech Republic, Germany, Mexico, the Netherlands and
Spain. Many aspects of these treaties in turn are derived from the
1992 OECD Model Income Tax Convention and its predecessor, the 1977
OECD Model.
The united states is an active participant in the
development of the OECD Model, and we 'are generally able to use
most of its provisions as a basis for negotiations. This ability
greatly facilitates the process, as most of our treaty partners
also are relatively comfortable with the OECD Model.
These treaties are not based on aU. S. Model Income Tax
Convention. The United States has published model treaties in the
past, most recently in 1981.
In 1992 that treaty was withdrawn
because it did not reflect recent legislative and other policy
changes in the united States and because certain of its provisions,
most notably the limitation on benefits provision, were found
deficient. Accordingly, in evaluating these treaties, it generally
is not useful to make comparisons to the former U.S. model treaty,
-
9 -
as the former model did not serve as the basis for,concluding the
seven agreements you have been asked to consider.
The fact that the 1981 Model was withdrawn three years ago
does not mean that we believe that there is no useful role for a
u.s. model. It is true that most countries use the OECD Model, or
a model treaty developed by the united Nations, as the basis for
their negotiations. However, at least two aspects of United states
tax policy make it desirable for this country to have its own model
treaty. First, our legislation is uniquely complex. Any treaty
must accommodate the provisions of our internal law to an extent
not found in other countries. Examples include the treatment of
foreign-owned real property, the branch profits tax, the treatment
of real estate mortgage conduits, and taxation of u.s. citizens on
their worldwide income regardless of their residence. Second, our
treaty policy demands certain additional provisions not directly
reflected in internal legislation. Our insistence that every u.s.
tax treaty contain a comprehensive limitation on benefits provision
is one example. Only a united states model in~ome tax convention
can fully accommodate these prerequisites. Therefore, we have been
developing a new u.s. model treaty in recent months, and we intend
to complete that project and publish a new model treaty as soon as
time and resources permit.
A model treaty is not a panacea, however. Even after the U.S.
publishes a new model treaty, no treaty will ever be an exact
duplicate of a model, nor should it be. While any two treaties
will usually have a number of provisions that are virtually
identical, certain aspects of each treaty must be tailored to the
individual facts and circumstances of the two treaty partners.
Numerous features of the treaty partner's legislation and its
interaction with u.s. legislation must be considered in negotiating
an appropriate treaty.
Examples include the treatment of
partnerships and other transparent entities, whether the country
eliminates double taxation through an exemption or credit system,
whether the country has bank secrecy legislation that needs to be
modified by treaty, and whether and' to what extent the country
imposes withholding taxes on outbound flows of investment income.
Consequently, a negotiated treaty needs to take into account all of
these and other aspects of the treaty partner's tax system in order
to arrive at an acceptable treaty from the perspective of the
United states. Accordingly, a simple side-by-side comparison of
two actual treaties, or between a proposed treaty and a model
treaty, will not enable one to draw meaningful conclusions as to
whether a proposed treaty is appropriate and should be ratified.
Finding the answer to that important question is a more complicated
exercise, and one that the Treasury goes through before any treaty
or protocol is signed.
- 10 -
Evaluation of Individual Treaties
In addition to keeping in mind that each treaty must be
adapted to the individual facts and circumstances of each treaty
partner, it also is important to remember that each treaty is the
result of a negotiated bargain between two countries that often
have conflicting objectives. Each country has certain issues that
it considers non-negotiable. The united States, which insists on
effective anti-abuse and exchange of information provisions, and
which must accommodate its uniquely complex internal laws, probably
has more non-negotiable issues than most countries. Obtaining the
agreement of our treaty partners on these critical issues sometimes
requires concessions on our part.
similarly, other countries
sometimes must make concessions to obtain our agreement on issues
that are critical to them. The give and take that is inherent in
the negotiating process leading to a treaty is not unlike the
process that results in legislation in this body. Therefore, no
two treaties are exactly the same, and no treaty is entirely ideal
from the point of view of either treaty partner.
An example of the result of the negotiation process is
provided by the treatment of income from container leasing. For
many years the Treasury Department's policy has been that container
leasing income should be treated as shipping income taxable only in
the country of residence of the recipient.
The basis for this
position is that container leasing is more like shipping income
than royalty income or equipment leasing income.
Therefore we try
to include this treatment in all treaties.
It also will be
included in the new model treaty.
We often succeed in obtaining the desired treatment. However,
as part of the give and take of the negotiating process we are
sometimes not able to obtain full shipping income treatment. In
such cases, we strive to obtain incidental shipping income
treatment and business profits treatment for container leasing
income not incidental to a shipping business.
Business profits
treatment gives the same result as shipping income treatment when
the lessor does not have a permanent establishment in the source
state.
Developing countries, however, often treat container
leasing income as royalty income subject to withholding at source.
We have consistently objected to this treatment and will continue
to do so. In some cases we have agreed to royalty treatment, but
with a zero rate of withholding, which gives the same result as
business profits treatment.
It is our continuing policy and
intention to include full shipping income treatment for container
leasing income, with business profits treatment as the fall-back
alternative. The treaties with all seven of the countries we are
dealing with today reflect our success in achieving this objective.
In evaluating the benefits provided to taxpayers and the tax
authorities by any treaty, it would be a mistake to focus solely on
the provisions that differ from other treaties. It is important to
-
11 -
bear in mind that most of the provisions in any two treaties are
very similar and in some cases identical. Perhaps because of their
similarity, many of these provisions are routine and noncontroversial,
and they attract little attention.
Their
importance, however, should not be underestimated.
These
provisions are responsible for many of the benefits that a tax
treaty provides to taxpayers and tax authorities. Therefore, when
evaluating the overall benefits provided by an income tax treaty,
it is important to consider not only the benefits of lowered
withholding rates and other non-standard provisions, but also the
benefits provided by these more standard provisions. Many of these
rules provide taxpayers with more favorable treatment than
otherwise would be available, as well as the benefits of certainty
and transparency.
Others improve the ability of the tax
authorities to administer the tax laws.
For example, each proposed treaty establishes relatively
uniform rules for taxing income other than investment income,
including business profits, capital gains, and personal services.
Social security benefits under each proposed treaty will be subject
to tax in the country making the payment.
Each treaty reflects standard u.S. policy for the taxation of
dividends paid by regulated investment companies (RIes) and real
estate investment trusts (REITs). Special rules are provided to
prevent the use of these entities to transform what should be relatively high-taxed income into income taxed at much lower rates.
Each treaty allows the u.S. to impose the branch profits tax at the
treaty's direct dividend rate.
In addition, in conformity with
what has become standard U.S. treaty policy, excess inclusions with
respect to residual interests in real estate mortgage investment
conduits are subject to the U.S. statutory withholding rate of 30
percent.
The proposed treaties also contain provisions designed to
improve tax administration, including rules concerning exchange of
information, mutual assistance, and nondiscrimination.
They
contain rules necessary for the administration of the treaty,
including rules for the resolution of disputes and the exchange of
information. Each treaty permits the General Accounting Office and
the Tax Writing committees of Congress to obtain access to certain
tax information exchanged under treaty for use in their oversight
of the administration of U.S. tax laws and treaties.
Each treaty also contains a comprehensive limitation on
benefits provision designed to ensure that residents of each State
may enjoy treaty benefits only if they have a substantial nexus
with that State, or otherwise can establish a SUbstantial nontreaty shopping motive for establishing themselves in their State
of residence.
- 12 -
Finally, the treaties with France, Portugal and Sweden, and
the protocol with Canada contain provisions not found in previous
tax treaties in any country. These provisions reflect the Treasury
Department's policy that tax discrimination disputes between two
nations generally should be resolved within the ambit of the tax
treaty, and not under any other dispute resolution mechanisms,
including the World Trade Organization (WTO).
The General
Agreement on Trade in Services (GATS) already affords some
protection, as it provides that national treatment disputes
involving taxation measures will be resolved under tax treaties
where the measure at issue falls within the scope of a tax treaty.
With respect to treaties existing when the WTO entered into force
(January 1,1995), the GATS also provides that the parties to a tax
treaty are not permitted to bring the issue of whether a measure is
within the scope of a tax treaty to the Council for Trade in
Services unless both parties to the tax treaty agree.
For this
rule to apply to tax treaties that enter into force after January
1, 1995, a specific provision must be included in the treaty. The
provision we have included in these tax treaties sets forth this
rule, providing that if there is a dispute as to whether a taxation
measure falls under the tax treaty, such dispute will be resolved
solely under the tax treaty in accordance with the dispute
resolution mechanisms provided in the tax treaty.
Further, no
national treatment or most-favored nation obligation provided under
another agreement will apply to a taxation measure (with the
exception of the General Agreement on Tariffs and Trade as it
applies to trade in goods).
I hope that the Senate shares the
Treasury·s firm conviction that taxation disputes should be handled
exclusively within the tax treaty and not in the World Trade
Organization or elsewhere.
I would like to add that two of the treaties before you -- the
treaties with Kazakhstan and Ukraine -- do not contain this
prOV1S10n. Although neither of these countries has acceded to the
GATS, we believe that it would be appropriate to have similar
provisions in the treaties so that a protocol or renegotiation
would not be required later.
The state Department therefore
undertook to exchange diplomatic notes with the governments of
these countries.
We have completed an exchange of notes with
Ukraine. These notes reflect the mutual understanding of the two
governments that the treaty will be subject to the same restriction
as the other agreements you are considering. We are continuing to
work with the government of Kazakhstan and believe that similar
notes will be exchanged shortly.
Finally, some treaties will have special provisions not found
in other agreements.
These provisions account for unique or
unusual aspects of the treaty partner's internal laws or
circumstances.
For example, the Canadian Protocol contains
provisions that deal with taxes at death, and the Portuguese treaty
contains a special provision in the limitation on benefits article
to deal with Portugal's offshore sector.
Further, treaties with
- 13 -
countries that are not as economically advanced as some of our
other treaty partners frequently contain different withholding and
other provisions that reflect their transitional economic status.
All of these features should be regarded as a strength rather than
weakness of the tax treaty program, since it is these differences
that enable each treaty to deal with the differing circumstances of
the two treaty partners in a balanced way.
I now would like to discuss the most important aspects of each
agreement that you have been asked to consider. We have submitted
Technical Explanations of each agreement that contain detailed
discussions of each treaty and protocol.
These Technical
Explanations serve as an official guide to each agreement,
reflecting the policies behind each prov1s1on, as well as
understandings reached between the negotiators regarding the
application and interpretation of various provisions.
Canadian Protocol
The Protocol to the Canadian treaty would significantly change
our taxation relationship with Canada. Since Canada is one of our
most important economic partners, these proposed amendments have
attracted considerable positive attention in the business communities of the United states and Canada. The amendments are also
strongly supported by the tax administrations in both countries.
The negotiation of this Protocol initially was motivated by
Canada's desire to alleviate the impact of 1988 U.S. estate tax
legislation on estates of Canadian decedents with U.S. property. It
quickly became clear that other changes should be made to
accomplish several important objectives. The Protocol accordingly
amends a number of provisions of the Convention to reflect better
current tax law and treaty policy in both countries, to resolve
certain technical problems that had been identified in the present
Convention, and to achieve greater consistency with the principles
underlying the North American Free Trade Agreement.
The Protocol was signed on March 17, 1995.
It amends the
existing convention with Canada, which was signed in 1980 and
amended by Protocols in 1983 and 1984. A very similar Protocol was
signed in August, 1994 and submitted to the Senate.
We
subsequently realized that a few minor technical changes were
appropriate. Most of these technical changes relate to the rules
on death taxation. This Protocol incorporates these changes, and
replaces the 1994 Protocol, which has been formally withdrawn from
Senate consideration.
The Protocol reduces the rates of withholding at source on
dividend, interest and royalty income in a manner that will have a
significant positive impact on cross-border flows of capital and
technology between the united states and Canada.
- 14 -
The direct investment dividend rate will be reduced over a
three year phase-in period from 10 to 5 percent, which is the
lowest rate in any current u.s. or Canadian treaty. This reduction
will affect very large amounts of dividends flowing from
subsidiaries in one country to parent corporations in the other,
and will make cross-border investment more attractive.
The Protocol also reduces the rate of withholding on crossborder flows of interest from 15 to 10 percent.
Although higher
than the preferred u.s. pos·ition of exemption at source, this
reduction will provide a sUbstantial benefit to many u.s.
recipients of Canadian-source interest payments.
It will have a
lesser effect on u.s. outflows of interest to Canada, because much
of this flow is already exempt from u.s. tax under the portfolio
interest provisions of the Code.
The Protocol also significantly reduces withholding taxes on
royalties. While Canada has been willing to exempt royalties for
copyrights of most literary and artistic works, it previously had
opposed lowering the rate below 10 percent for software or other
royal ties.
However, in an effort to encourage transfers of
technology between the united states and Canada, Canada agreed in
this Protocol to confirm that software royalties are exempt at
source and to broaden significantly the categories of royalties
subject to exemption at source to include royalties paid in respect
of patents, as well as royalties paid in respect of information
concerning industrial, commercial, or scientific experience ("knowhow").
Canada has agreed to a similar provision with only one
other country; that other provision applies only to transactions
between unrelated persons and is, therefore, significantly more
limited than the provision in the Protocol.
The United states held strongly to the view throughout the
negotiations that the nature of U.S.-Canadian economic relations
demands the lowest possible withholding rates. We negotiated this
Protocol from the same policy perspective that led to the NAFTA; a
desire for open economic borders. Although Canada was not prepared
to reduce withholding rates as much as the United states would have
liked, we agreed to discuss further reductions in withholding rates
wi thin three years of the entry into force of this Protocol.
Canada's agreement to the sUbstantial reductions provided by the
Protocol, coupled with the commitment to hold further discussions
in the near future, represents a significant positive step.
The Protocol does not change the existing Convention's
treatment of income from container leasing as taxable only in the
state of residence of the recipient.
As I indicated, two aspects of our tax treaty program that
have a center-stage position are cooperation in tax compliance and
the prevention of abuse of the treaty. This Protocol contains four
sets of provisions that significantly advance these objectives.
- 15 -
First, the protocol adds a comprehensive limitation on
benefits article. The present treaty has no general anti-treatyshopping rules. The limitation on benefits rules are unilateral,
at Canada's request. Thus, they apply only to limit benefits that
the u.s. otherwise must grant with respect to u.s. source income of
Canadian residents.
The inclusion of specific treaty shopping
rules does not limit either State t s right to invoke applicable
anti-abuse principles to deny benefits where necessary to prevent
abuse of the treaty. Although both the United states and Canada
believe that such principles are inherently applicable under all
their treaties, we agreed to include an explicit statement to that
effect to preclude any argument that the unilateral nature of the
anti-treaty-shopping provisions might prevent Canada from applying
such principles. The statement is drafted reciprocally to clarify
that the united states may apply such principles as well.
Second, the Protocol will broaden the information exchange
provisions to include all national taxes. with respect to Canadian
taxes, the present treaty covers only taxes imposed under the
Income Tax Act, and any national taxes on estates and gifts.
Third, the Protocol adds detailed rules under which each state
will, within appropriate limits, assist the other in the collection
of its taxes. We have collection assistance provisions in several
other income tax treaties, including our recent treaty with the
Netherlands (and both the current and pending treaties with France
and Sweden), and in many of our estate tax treaties. Because of
the close working relationship between U. S. and Canadian tax
authorities and the similarity of u.s. and Canadian law, we believe
that Canada is an appropriate partner for collection assistance.
The collection assistance provisions fully protect taxpayer
rights. For example, collection assistance may be requested only
for finally determined claims. If at any point in the process the
claim loses that status, the request must be withdrawn promptly.
In addition, no assistance is to be provided in respect of an individual who was a citizen of, or an entity that was a resident of,
the requested State at the time to which the claim relates.
Fourth, the Protocol will strengthen the dispute resolution
mechanisms by amending an aspect of the present Convention that
created potential for abuse.
Unlike most treaties, the present
Convention provides that the state making a transfer pricing
adjustment must withdraw it, to the extent necessary to avoid
double taxation, if the adjustment has not been reported to the
other State within six years of the end of the taxable year to
which it relates.
This requirement could permit a taxpayer to
force withdrawal of the initial adjustment by delaying cooperation
with the tax authorities. To eliminate this potential for abuse
the Protocol removes the obligation of a State to withdraw it~
adjustment in such circumstances.
- 16 -
The Protocol also provides that the states.may, by mutual
agreement, implement an arbitration procedure for the resolution of
disputes under the Convention.
However, consistent with this
Committee's 1990 report on the U.S.-Germany income tax treaty, and
with the similar provisions of the income tax treaties with the
Netherlands and Mexico approved by this committee in 1993, the
arbitration procedure provided for in this Protocol will not take
effect automatically. As in the case of the Netherlands and Mexico
treaties, the arbitration procedure can be put into effect only
through an exchange of notes between the U.S. and Canadian
Governments, after we have had experience that such a provision can
operate effectively and efficiently.
The Protocol provides that
the appropriate authorities of the united states and Canada will
consul t, after three years, on whether and when it would be
appropriate to bring the provision into effect.
Another important aspect of this protocol is that it addresses
taxes imposed by reason of death. Canada has replaced its estate
tax regime with an income tax on gains accrued and deemed realized
by the decedent at death. Since the u.S. tax at death is an estate
tax, the two systems could not, absent special treaty rules, be
coordinated in a way that would allow relief from double taxation.
In the absence of treaty relief, the combined u.S. and Canadian
taxes at death can exceed 75 percent. The death tax provisions of
the Protocol are an important example of how treaties can be used
to surmount technical differences between the tax laws of the two
countries and provide appropriate relief from double taxation to
ordinary citizens as well as multinational corporations. Prior to
and during the negotiation of these provisions, we took advantage
of the opportunity to discuss the policy and technical issues
involved with the staffs of this Committee, the tax-writing
committees, and the Joint Committee on Taxation.
The value of
these discussions is manifested in the successful results of our
negotiations, which reflect such discussions.
Finally, the Protocol will broaden the scope of the nondiscrimination article to include all national-level taxes in both
States. Under the present treaty, Canadian coverage is limited to
taxes imposed under the Income Tax Act.
Thus, for example, the
Canadian Goods and Services Tax would be added to the taxes in
respect of which Canada would be obligated to provide non-discrimination protection.
The Protocol will enter into force upon the exchange of
instruments of ratification. For withholding taxes on dividends
interest and royalties, it will have effect for amounts paid o~
credited on or after the first day of the second month of the year
following its entry into force. For other taxes, the Protocol will
have effect on the first day of the year following its entry into
force.
The reduction to 5 percent in the withholding rate on
direct investment dividends will be phased in over a three year
period. The rate will be reduced to 7 percent in 1995, 6 percent
- 17 in 1996, and 5 percent beginning in 1997. The branch tax rate will
be reduced to 6 percent in 1996 and 5 percent thereafter.
Prench Treaty
The,propo~ed treaty with France would replace the existing
treaty sl.gned l.n 1967 and amended by protocols signed in 1970,
1978, 1984, and 1988. The treaty follows the existing one in most
res~e~ts but is updated tO,reflect current tax laws and tax treaty
poll.cl.es of the two countrl.es. It clarifies some important issues
affecting United states investors and business operations in
France, and it introduces a modern limitation on benefits
provision.
The treaty would maintain the existing treaty's rates of tax
on direct and portfolio dividends, which are 5 and 15 percent,
respectively.
For certain portfolio dividends paid by a French
company to a U.S. shareholder, France will allow a tax credit for
all or a portion of the French corporate tax paid on distributed
profits,
which
effectively eliminates the
French dividend
withholding tax. This is a significant benefit to U.s. investors,
including pension funds and other tax-exempt organizations that
invest in France.
The treaty maintains the existing treaty's exemption at source
for interest.
Under the treaty, income from container leasing is treated as
shipping income if the income is incidental to income from the
operation of ships and aircraft in international traffic.
Other
income from container leasing is treated as business profits.
Consequently, such income is taxable at source only to the extent
that it is attributable to a permanent establishment located in the
source country.
The treaty also maintains the existing treaty's exemption at
source for copyright royalties and a tax of not more than 5 percent
on other royalties. The proposed treaty clarifies the scope of the
tax exemption for copyright royalties, which includes royalties
paid to producers and performers (as well as creators), and
royalties for software programs.
This provision makes the rules
clear not only for future years, but also for copyright royalties
paid from 1991 to the present, representing a further significant
benefit to U.s. investors.
Like all recent U.S. treaties, the French treaty incorporates
a comprehensive limitation on benefits provision. The provision is
broadly similar to the corresponding provision in the Netherlands
treaty that was ratified in 1993, although the French version is
substantially less detailed.
- 18 Like the Canadian Protocol, the Protocol to the proposed
treaty also provides that the States may, by future exchange of
notes, implement an arbitration procedure for dispute resolution.
Finally, the proposed treaty covers the u. ~. excise tax
imposed on insurance premiums paid to foreign l.nsurers.
In
accordance with the prior direction of this committee, this
provision was included in the proposed treaty only after prior
consultation with the appropriate committees of Congress, and only
after the Treasury Department was satisfied that the French
taxation of French insurance companies results in a burden that is
sUbstantial in relation to the U. s. taxation of U. s. insurance
companies.
The treaty will enter into force when both governments have
completed their respective constitutional and statutory procedures
and have exchanged instruments of ratification.
The provisions
wi th respect to withholding taxes on dividends, interest and
royalties and the u.s. excise tax on French insurers and reinsurers
generally will take effect for amounts paid or credited on or after
the first day of the second month following entry into force of the
treaty. The provisions relating to the French dividend tax credit
will apply to dividends paid on or after January 1, 1991.
The
provisions for royalties will also apply for royalties paid on or
after January 1, 1991.
The other provisions of the treaty will
take effect for taxable periods beginning, or taxable events
occurring, on or after January 1 of the year following the entry
into force.
Portuguese Treaty
The proposed treaty between the United States and Portugal is
the first tax treaty between our countries. The treaty is based on
the OECD model income tax treaty and is similar in many respects to
the u.s. income tax treaty with Spain. It closes an important gap
in the United states tax treaty network and is expected to provide
a strong boost to our economic relations with Portugal. The treaty
represents something of a hybrid between a treaty with a developing
country and a treaty with a highly developed country, which is
consistent with the fact that Portugal, while a member of the
European Union, is relatively less developed by the standards of
that organization. For example, Portugal's 1993 per capita gross
domestic product of $8,700 is less than half of France's $18,200.
Wi th respect to investment income, the treaty would lower
withholding taxes on cross-border payments of dividends, interest
and royalties.
The tax on dividends is gradually lowered fro~
statutory rates to roughly follow Portugal's gradual adoption of
European Union norms with respect to withholding taxes on
dividends.
Initially the tax on both portfolio and direct
dividends would be limited to 15 percent.
In 1997 the rate on
direct dividends would be lowered to 10 percent, and the rate will
- 19 decline to 5 percent when Portugal fully adopts the· European Union
directive with respect to such dividends.
An unusual feature of this treaty is that it allows Portugal
to continue to impose its 5 percent "substitute inheritance tax" on
most dividends. Portugal imposes this tax on its own residents as
well as on nonresidents, has never agreed to waive it in any
treaty, and would not change its policy in this case. It views the
tax as being more in the nature of an estate tax than an income tax
and, therefore, not properly the subject of an income tax treaty.
portugal did, however, agree for the first time effectively to cap
the tax at the current rate.
This concession, together with
Portugal's agreement to reduce the withholding tax on direct
dividends to 5 percent, will put u.s. companies in a favorable
position to compete in the Portuguese market.
The rate of tax on interest and royalties is generally reduced
to 10 percent. Interest paid by or to the Government of one of the
states or to a wholly-owned government institution is exempt from
tax, as is interest paid on a long-term loan (5 years or more) made
by a bank.
These rates are significantly lower than the rates
Portugal now applies to u.s. investors.
Income from container leasing is treated as royalty income,
although a zero rate of withholding tax is provided in a protocol
to the treaty, which effectively means that such income is subject
to the same treatment as business profits. However, treatment of
income from container leasing as royalty income is unusual, and the
Treasury Department does not view it as a precedent for u.s. policy
in future treaty negotiations.
As in all other recent u. s. income tax treaties, treaty
benefits will be available only to residents of the two countries
who satisfy certain requirements.
The Portuguese treaty also
contains a provision specifically directed at Portugal's offshore
sector. Under this provision a person who would otherwise satisfy
the requirements of the limitation on benefits provision will not
be allowed treaty benefits if it is entitled to tax benefits that
apply to tax-free zones in Madeira and the Azores.
The proposed treaty will enter into force on the date the
instruments of ratification are exchanged, and its provisions will
generally have effect on the following January 1.
Swedisb Treaty
The proposed treaty with Sweden replaces the present income
tax treaty between the two countries.
The present treaty is the
oldest tax treaty in force for both countries; it was signed in
1939, and was amended by a protocol signed in 1963.
Considering
the fact that it is more than half a century old, the present
treaty deals remarkably well with the basic issues of the taxation
-
20 -
of cross-border flows of income and cooperation between the tax
authorities of the two countries. It does not, however, deal with
certain taxes, such as the branch profits tax, that were not in
effect at the time the present treaty was negotiated, or with
certain issues, such as treaty shopping, that were not of concern
at that time.
The proposed treaty limits withholding tax rates at source on
payments of dividends, interest and royalties. The treaty provides
that the tax in the source country on dividends paid to a resident
of the other country may not exceed 15 percent in the case of
portfolio dividends and 5 percent in the case of direct investment
di vidends.
The treaty provides for exemption at source for
interest and royalties. These are the same rates that are provided
for in the present treaty.
The proposed treaty treats income from container leasing as
shipping income taxable only in the state of residence of the
recipient.
The proposed treaty limits the applicability of the Swedish
capital tax with respect to certain U.S. citizens and residents who
are not Swedish residents, or who are only temporarily resident in
Sweden. The treaty also exempts the Swedish Nobel Foundation from
U.S. tax on its U.S.-source investment income. The proposed treaty
also retains the provision on assistance in collection contained in
our present treaty with Sweden.
Like the proposed treaty with France, the proposed treaty
covers the U.S. excise tax imposed on insurance premiums paid to
foreign insurers.
As in the case of the French provision, this
provision was included in the proposed treaty only after prior
consultation with the appropriate Committees of Congress, and only
after the Treasury Department was satisfied that the Swedish
taxation of Swedish insurance companies results in a burden that is
substantial in relation to the U. S. taxation of U. S. insurance
companies.
The proposed Convention is subject to ratification and enters
into force on the exchange of instruments of ratification. with
respect to the United states taxes payable at source, it will have
effect for amounts paid or credited on or after the first day of
January following entry into force, and in the case of other U.S.
taxes, for taxable year beginning on or after that date.
The
treaty will have effect with respect to Swedish income taxes for
any income derived on or after the first day of January following
entry into force, and with respect to Swedish capital taxes for any
taxes ,that are ~ssessed in, or after ~he second calendar year
follow1ng entry 1nto force (~, 1997 1f the treaty enters into
force in 1995).
- 21 -
Kazakhstan Treaty
The proposed treaty with Kazakhstan would replace, with
respect to Kazakhstan, the treaty entered into between the United
States and the former Union of Soviet socialist Republics in 1973.
The proposed treaty is based on the OECD model income tax treaty
and on the current tax laws and income tax treaty policies of the
two countries.
It is an important step in furthering the U.s.
policy of supporting the expansion of free enterprise in the newly
independent states.
.
The proposed treaty would limit withholding tax at source on
dividends, interest and royalties. The rate on portfolio dividends
would be 15 percent and the rate on direct investment dividends
would be 5 percent. The direct investment rate of 5 percent would
also apply for purposes of imposing the branch profits tax on the
dividend equivalent amount.
The rate of tax on interest would
generally be 10 percent.
The tax would be reduced to zero,
however, if the interest were paid by or to the government of the
United states or Kazakhstan, or if the interest were paid on a loan
of more than three years made, guaranteed or insured by an export
credit agency (including the Export Import Bank or the OverSeas
Private Investment Corporation).
The rate on royalties would
generally be 10 percent.
Under the treaty, income from container leasing is treated as
shipping income taxable only in the state of residence of the
recipient.
The treaty confirms that wage and interest expenses are
deductible for purposes of determining the Kazakhstan income tax
liability of U.S.-owned enterprises, helping to ensure that the
Kazakhstan income tax will be creditable for U.S. tax purposes.
Like the Canadian Protocol and the French treaty, the Protocol
to the proposed treaty also provides that the States may, by future
exchange of notes, implement an arbitration procedure for dispute
resolution.
The treaty will generally take effect on January 1 of the year
in which the two countries exchange instruments of ratification.
With respect to taxes withheld at source (on dividends, interest,
and royalties) I the treaty will apply to amounts paid or c,redited
on or after the first day of the second month follow~ng the
exchange of instruments.
Ukrainian Treaty
The proposed
Ukraine the 1973
the fo~er Union
treaty is based on
treaty with Ukraine replaces, ~ith respect to
income tax treaty between the Un~ted States and
of soviet socialist Republics.
The proposed
the OECO model income tax treaty and the current
-
22 -
income tax laws and income tax treaty policies between the two
countries. Like the proposed treaty with Kazakhstan, it confirms
U.S. support for strengthening free enterprise and market forces in
these newly independent countries.
With respect to investment income, the proposed treaty would
limit the withholding tax at source on dividends, interest, and
royalties.
The rate on portfolio dividends would be 15 percent,
the rate on direct investment dividends would be 5 percent, and the
rate on royalties would be 10 percent.
Interest would be exempt
from tax in the source country.
The direct investment rate of 5
percent would also apply for purposes of imposing the branch
profits tax on the dividend equivalent amount.
Under the treaty, income from container leasing is treated as
shipping income taxable only in the state of residence of the
recipient.
The proposed treaty with Ukraine would deem a permanent
establishment to exist with respect to a construction site or
installation or drilling rig if the site lasts more than 6 months.
The Protocol to the treaty confirms that wages and interest
expenses will be deductible for purposes of determining the
Ukrainian income tax liability of U.S.-owned enterprises, helping
to ensure that the Ukrainian income tax will be creditable for U.S.
tax purposes.
The treaty will enter into force on the date instruments of
ratification are exchanged. However, if the provisions of the 1973
convention are more beneficial, then a taxpayer may elect to apply
that convention in full for an additional period (generally one
taxable year) after the proposed treaty would otherwise take
effect.
Conclusion
Let me conclude by urging the Committee to take prompt and
favorable action on all of the Conventions and Protocols before you
today. Such action will send an important message to our trading
partners and our business community.
It will demonstrate our
desire to expand the U.S. treaty network with income tax treaties
formulated to enhance the worldwide competitiveness of U.S.
companies.
It will strengthen and expand our economic relations
with countries that have seen significant economic and political
changes in recent years. It will make clear our intention to deal
bilaterally in a forceful and realistic way with treaty abuse.
Finally, it will improve the ability of the Internal Revenue
Service to enforce our tax laws and to resolVe difficult issues
that arise in international transactions.
U. S. Department of Justice
Office of Legislative Affairs
Office of Ihe AssiIU~ Aaorney Genenl
Washiflgl4f1. D.C. 20530
January 20, 1995
Honorable Jesse Helms
Chairman
Committee on Foreign Relations
United States senate
washington, D.C. 20510
Dear Mr. Chairman:
Seven income tax treaties (or protocols) are pending before
the Foreign Relations Committee, including treaties or protocols
with Canada, France, Kazakhstan, Mexico, Portugal, Sweden and the
Ukraine. The Department of Justice would like to take this
opportunity to urge that the committee and the Senate approve
these·agreements at the earliest date practicable.
The civil and criminal enforcement actions of the Tax
Division of the Justice Department are increasingly dependent on
our ability to obtain foreign evidence (usually in the form of
bank records) or foreign assets. Therefore, it is especially
helpful to us that the treaties forwarded by the President have
exchange of information provisions that will improve the ability
of federal investigators and litigators to obtain evidence J
including bank recqrds and witness testimony, for civil and
criminal tax matters. These provisions will also improve the
ability of federal authorities to obtain evidence in a form
admissible for u.s. court proceedings.
Further, three of these pacts (the proposed protocol with
Canada and the proposed updated treaties with France and Sweden)
contain a particularly useful provision for mutual collection
assistance (MeA) already found in several existing tax
conventions including the recently ratified Netherlands
Convention.
Under the Canadian provlslon, for example, federal tax
authorities would be permitted to reach assets in Canada under
the same circumstances in which COllection can be undertaken for
assets located in the united States following proper assessment
2
procedures. This provision contains features aimed at bringing
international tax collection assistance up to the efficiency
levels of domestic tax collections, while, at the same time,
preserving all the rights due taxpayers and property owners under
the domestic laws of the respective countries. This provision
does not obligate the united states to collect Canadian taxes
owed by U.s. citizens or corporations.
The Department believes that all seven pacts will greatly
enhance the tax enforcement capabilities of the united states
government and lead to a significant increase in the collection
of unpaid taxes properly due the public treasury.
The Office of Management and Budget has advised that there
is no objection to the submission of this report from the
standpoint of the Administration's program.
Sincerely,
~.
Anthony
Assistant Attorney General
DEPARTl\1lENT
OF
THE
TREASURY
NEWS
~~173~9~. . . . . . . . . . . . . . . . . . . . . .. .
........................
OFFICE OF PUBUC AFFAIRS· 1500 PENNSYLVANlAAVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622.2960
FOR RELEASE UPON DELIVERY
Expected at 10:00 a.m. EDT
June 13, 1995
STATEMENT OF
JOSEPH H. GUTTENTAG
INTERNATIONAL TAX COUNSEL
DEPARTMENT OF THE TREASURY
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
Mr. Chairman and members of the Committee, my testimony will
cover a proposed Protocol to the Income Tax Convention with
Mexico.
The proposed protocol· with Mexico would make two changes to
the exchange of information provisions of the income tax treaty
approved by the Senate in 1993.
These provisions are related to one of the major purposes of
any income tax convention:
the prevention of tax evasion.
A
princ~pal means of preventing tax evasion is the exchange of tax
information.
Tax information exchanged under an income tax
convention may be used only for tax purposes and may be disclosed
only to persons involved in tax assessment, collection,
administration, enforcement or prosecution. Under the current
Mexican tax treaty, information is exchanged solely to carry out
the provisions of tax laws imposed at the level of the national
or federal government.
The first change is a purely technical change. The treaty
currently incorporates the obligations to eXChange tax
information provided under the tax information exchange agreement
(ttTlEAfI) of November 9, 1989. The proposed protocol would
incorporate into the tax treaty the Obligations to exchange tax
information provided under any TIEA between the United States and
Mexico.
The TIEA of November 9, 1989, has been amended to apply
tax information exchange to taxes imposed at the state and local
levels and to update certain statutory references.'
The amendments to the TlEA are not before the committee
because the TIEA is an agreement with specific statutory
authorization (under section 927(e) (3) and section 274(h) (6) (C)).
RR-367
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Second, the proposed protocol would apply the exchange of
information provisions of the treaty to taxes imposed at the
state and local levels.
The effect of the two changes will be to permit the u.S.
competent authority to share the tax information it receives from
the Mexican competent authority with state or local tax
authorities where the information is relevant to the enforcement
of a state or local tax.
In addition, the u.S. competent
authority will be permitted to ask the Mexican competent
authority for specific information in connection with state or
local tax compliance efforts.
The protocol is consistent with our treaty policy and is
responsive to concerns raised by Arizona, California, New Mexico
and Texas. These states created the Border States Caucus, which
sought the benefits of tax information sharing with Mexico -- not
only to increase compliance with state and local tax laws, but
also to enhance cross-border trade.
Cooperation in this area has the potential to help business
on both sides of the border.
For example, the border states will
be able to reduce and simplify the requirements for exempting
Mexican merchants from state sales taxes on goods purchased in
the u.S. for export into Mexico. Mexico will be able to adopt a
mechanism that reduces the administrative costs borne by u.S.
merchants in the refund process of Mexico's value-added tax.
I have attached to my testimony a copy of a letter from
Ernest J. Dronenburg, Jr., Vice-Chair of the State of California
Board of Equalization, and Chairman of the Border States Caucus,
describing the importance of this protocol to the Border States
Caucus.
The protocol will enter into force when the Contracting
States have notified each other that their respective statutory
and legal requirements for entry into force have been satisfied.
I urge the Committee to approve this agreement, which will
greatly assist the states bordering on Mexico in the
administration of their tax laws.
110 "'feST C STREET. SUITE 1709
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ERNEST ]. DRONENBURG, JR.
M~MBE:~.
STATE SOARO OF' EOUAL.IZATION
September 2, 1994
Mrs. Cynthia G. Beerbower
Deputy Assistant Secretary
U.S. Dept. of Treasury, Tax Dept.
1500 Pennsylvania Avenue
N.W. Washington, D.C. 20220
*FAX COPY·- Signed originul in today's mail
Dear Ms. Beerbower:
Re: Amending the U.S.lMcxico Tax Treaty: Benefits of the Inclusion of State
Taxes in the Tnfonnation Exchange Provisions
Consideration should be given to amending the U.S.lMexico Tax Treaty and TIEA
to broaden the exchange of tax information between Mexico and the United States to
include state and local taxcs. This recommendation was generated by the Border States
Caucus (BSC), an association representing the states ofCallfomia, Arizona, New Mexico.
Texas, and the United MexicWl States formed in May of 1993 to promote free trade and
reduce adminsitr~tive barriers to trade. The BSC is convinced that the benefits of
information exchange will inure to all four member states.
Although there has been considerable commerce along the U.S. border for a
number of years, the passage of the North American Free Trade Agreement (NAFTA)
this year, it is obvious to all that the flow of commerce across the CalifomiaiMexico
border will increast: significantly in both directions. However, there are key dates and
activities that have occurred already and date~ in the future which will have a significant
impact on this issue. Among these mile posts of increased international activity are:
1.
Congress passed the Intt:nnodal Surface
Transportation Efficiency Act (ISTEA) which became
Mrs. Cynthia G. Beerbower
U.S. Dept. of Treasury, Tax Dept.
Page 2
September 2, 1994
effective December 18, 199] (Section 408 Public Law 102·
240). "Ibis act mandates that all states shall become members
of the International Fuel Tax Agreement (IFTA) by October 1,
1996. Twenty-nine states, including Arizona and three
Canadian provinces. are now members of IFTA. New Mexico
will become an active member on January I, 1995, Texas on
July 1, 1995, and California on January 1, 1996. Mexico and
its states have not decided if they will participate in IFTA.
2.
On May 13, 1993. in Phoenix. Arizona, the
Border States Caucus was formed. The caucus is made up of
the head tax administrators of Arizona, California, New
Mexico, Texas, and the United States of Mexico. The caucus
has since met quarterly with the goal of improving tax
compliance between each other and increase commerce
between all by reducing tax administrative barriers. (Mission
statement attached)
3.
Due to thc passagc of NAFTA in November,
1993, Mexican charter tour buses have had the opportunity to
access the border states since January 1, 1994.
4.
Per NAFTA, by December. 1995, trucks from
California will be permitted to make cross border deliveries
and pickups of cargo in the Mexican border states. Mexican
trucks will be pennittcd into the U. S. border states for the
same purposes. Additionally, trucks will be allowed to pick
up and move cargo within horder states, i.e., Mexican trucks
will be able to move cargo from California to Arizona and
California trucks will be able to move cargo from Sonora to
Baja California.
With the inclusion of state taxes in the information exchange provisions of the
U. SI.M:exico Tax Treaty. the border staU:s WId Mexico will be able to design tax
administration systems that will reduce the amount of paperwork and more resemble the
importance of the substances of the traru;actions. At the same time, they will be able to
Mrs. Cynthia G. Beerbower
U.S. Dept. of Treasury, Tax Dept.
September 2, 1994
Page 3
~stab1is? new procedures el~nating cash flow obstacles that currently cxift in
international commerce. Additionally, more comprehensive tax compliance programs
will develop which target the underground economies on both sides of the border.
As an example of the increase in commerce, let me discuss a future (after states are
allowed to exchange information) resale transaction between a California retailer and a
Mexican wholesaler. The California retailer will call the Mexican wholesaler, discuss a
purchase, a price will be struck, then the California retailer will give the Mexican
wholesaler his California resale permit number. The Mexican wholesaler will then zero
rate the transaction (zero rate meaning no VAT charged). This transaction will allow the
California retailer to purchase more in Mexico since he will not have to be billed the V AT
and then apply for, and hopefully receive, a credit or cash for the VAT paid. This new
system also adds cenajnty to the transaction, i.e., no VAT will be charged, no loss of
money because of a change in the currency exchange rate, and no concern whether the
Mexican wholesaler will remain in business, change locations. or lose paperwork. After·
December, 1995, the California retaiJer will be able to have his own truck driven across
the border to pick up the goods leaving the resale certificate with the Mexican wholesaler.
As an example of the increased compliance benefits from the amendment of the
treaty, let me discuss a concern of both California and Mexico. Because both have tax
systems in which auditors rely on sales markups for verification of total sales reported.,
that is, where purchases are marked up by computed shelf prices to detennine expected
retail sales, it is crucial that a provable purchase number be determinable. Requests for
information about purchases made by California retailers in Mexico and Mexican retailers
in California will be used by both sides to verify the completeness of recorded purchases
of both retailers. The best way the underground economy hw> of evading the sales tax or
VAT is to not record purchases, which results in unreported sales and unreported income.
The State of California routinely audits corporations and in major cases, has been
successful in prosecuting people based on evidence of purchases marked up to expected
sales.
The above examples are the products of discussions and plans of the Border States
Caucus. They are supported by all members and the details for operational requirements
are now being worked out. The Border States Caucus has also completed a draft
Exchange of Information Agreement, and each state is draftjng the needed statutes to
support it.
Mrs. Cynthia G. Beerbower
U.S. Dept. of Treasury, Tax Dept
September 2, 1994
Page 4
Tn conclusion, in order for a resale system to be put in place in Mexico (a system
that currently doesn't exist), Mexico must have access to the information from California
about which companies are in what fields of business. As stated above, it is crucial to
California and Mexico tax audit purposes that all purchases from all sources be known.
Another example of a need for tax infonnation is the fuel tax information that Mexican
truckers will need from California to be in compliance with 1FTA and, conversely, so too
will California truckers. In the future, under NAFTA, with reduced or eliminated duties
and an open border, there will be an increase in tax evasion opportunities in other areas,
such as Cigarette and Alcoholic Beverage tax programs. To stop this future evasion, the
states will need a fast network of information exchange with Mexico.
Most cordially,
~~enbur~
Jr.
Member, State Board of Equalization
Chairman, Border States Caucus
EJD/ed
Enclosure
cc: Fred Dulas
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TREASURY DEPARTMENT
TECHNICAL ExptANA~lQ~ ~'OF" .TJiE ADDITIONAL PROTOCOL
SIGNED AT MEXICO CITY~ ON'JSEPTEMBER 8, 1994 AND
MODIFYING THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED
STATES OF AMERICA AND THE GOVERNMENT OF THE UNITED MEXICAN STATES
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION
OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME
SIGNED AT WASHINGTON, D.C., ON SEPTEMBER 18, 1992
INTRODUCTION
This is a technical explanation of the Additional Protocol,
signed at Mexico City on September 8, 1994 ("the Protocol") that
Modifies the Convention between the United States of America and
the United Mexican States for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on
Income, signed on September 18, 1992 ("the convention").
The Technical Explanation is an official guide to the
Protocol. It reflects the poliCies behind particular Protocol
provisions, as well as understandings reached with respect to the
application and interpretation of the Protocol.
Article I
Article.1 of "the proposed Protocol replaces the text of
Article 27 (Exchange of Information) of the convention. Under
the new text of paragraph 1 of Article 27, the Competent
Authorities are authorized to exchange information with respect
to any tax covered by, and in accordance with, the provisions of
any agreement between the Contracting states for the exchange of
information with respect to taxes. The prior text referred to a
particular agreement -- the Agreement Between the united states
of America and the United Mexican States for the Exchange of
Information with Respect to Taxes signed on November 9~ 1989
(lithe TIEA"). The effect of the new text is to broaden the
reference, authorizing information exchange under the TIEA, under
a revised version of the existing agreement, or under any new
agreement or agreements.
The broadening of the authorization under paragraph 1 of
Article 27 will have an immediate effect as follows. Under a
protocol to the TIEA, which is attached as Appendix I,
information exchange under the TIEA will apply to taxes imposed
by a state, municipality, or other political subdivision or local
autho~ity of a Contracting State.
However, this agreement shall
not apply to taxes imposed by a possession of a Contracting
State.
This change to the TIEA will mean that information
exchange with Mexico can be used to administer and enforce these
sub-federal taxes. The Treasury Technical Explanation to the
-2-
TIEA protocol is attached as Appendix II.
Under the new text of paragraph 2 of Article 27, information
will be exchanged under the provisions of that paragraph i~ the
event there is no agreement in effect between the Contract1ng
states for the exchange of information with respect to taxes.
Thus, if the TIEA is terminated and replaced by another
information exchange agreement, information will be exchanged
under the provisions of that other agreement rather than under
the provisions of paragraph 2.
Under the new text of paragraph 3 of Article 27, information
exchange under Article 27 will apply to all taxes imposed by a
Contracting state, including taxes imposed by a state,
municipality, or other political subdivision or local authority
thereof. As the possessions are not covered by the Convention,
this change will not involve taxes imposed by possessions. Under
the prior text of paragraph 3, information exchange was limited
to all federal taxes.
The proposed Protocol does not contain a provision
concerning the relationship of the Convention to other
international agreements, including the General Agreement on
Trade in services (GATS). Such a provision is not necessary.
Article XXII(3) of GATS provides that a Member of the World
Trade Organization may not invoke the obligation of national
treatment under Article XVII of GATS with respect to a measure of
another Member that falls within the scope of an international
agreement-between them relating to the avoidance of double
taxation. In the case of a dispute between Members as to whether
a measure falls within the scope of such an agreement between
them, Article XXII(3), footnote 11, of GATS provides that, with
respect to agreements on the avoidance of double taxation which
exist on the date of entry into force of the WTO Agreement, the
dispute may be brought before the Council for Trade in Services
only with the consent of both parties to the agreement- on double
taxation.
Both Parties agree that a protocol to a convention that is
grandfathered under Article XXII(3), footnote 11, of the GATS is
also grandfathered. Further, without regard to the grandfather
provision, it is clear under the GATS and its.interpretative
documents that neither national treatment nor most-favored-nation
obligations of GATS extend to mutual administrative or judicial
assistance.
ARTICLE II
Article II provides the requirements for entry into force of
the proposed Protocol, which are that the Contracting States will
notify each other when their respective statutory and legal
-3-
requirements for the entry into force of this protocol have been
satisfied. The protocol will enter into force when the later of
the two notifications is received.
ARTICLE III
Article III provides that the proposed Protocol shall remain
in force as long as the Convention and Protocol of September 18,
1992, remain in force.
PROTOCOL
APPENDJX I
PROTOCOL THAT MODIFIES THE AGREEMENT BETWEEN THE UNITED
STATES OF AMERICA AND THE UNITED MEXICAN STATES FOR THE
EXCHANGE OF INFORMATION WITH RESPECT TO TAXES, SIGNED AT
WASHINGTON, D.C., ON NOVEMBER 9, 19B9
The united states of America and the United Mexican
States, desiring to amend the Agreement for the Exchange of
Information with Respect to Taxes, signed on November 9,
1989, have
1.
~greed
as follows:
To amend paragraph 4 of Article 2 (Taxes Covered) to
read as follows:
"4.
This Agreement shall also apply to taxes
imposed by a state, municipality, or other political
subdivision or local authority of a Contracting state.
However, this agreement shall not apply to taxes
imposed by a possession of a contracting state."
2.
To amend paragraph 4 b) of Article 4 (Exchange of
Information) to read as follows:
lib)
If the United States is requested to obtain
the types of information covered by section 3402 of the
Right of Financial Privacy Act of 1978 (12 USCA 3402)
as in effect at the time of signing this agreement, it
shall obtain the requested information pursuant to that
provision or any other similar or equivalent provision
that may be added to or substituted for the abovementioned provision.
If Mexico is requested to obtain
the types of information covered by Article 117 of the
- 2 -
Credit Institutions Law as in effect at the time of
signing this Agreement, it shall obtain the requested
information pursuant to that provision or any other
similar or equivalent provision that may be added to or
substituted for the above-mentioned provision.
l"aws or
practices of the requested state do not prevent or
otherwise affect the authority of the competent
authority of the requested State to obtain and provide
the types of information covered by the above-cited
provisions pursuant to the Agreement."
This Protocol shall enter into force upon an exchange
of notes by the duly authorized representatives of the
Contracting States confirming their mutual agreement that
both sides have met all constitutional and statutory
requirements necessary to effectuate this Protocol.
This
Protocol shall" remain in force as long as the Agreement
being amended remains in force.
---------
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-_ .. _ _------------------•..
-
3 -
IN WITNESS WHEREOF, the undersigned, being duly authorized
thereto by their respective Governments, have signed this
protocol.
DONE at Mexico City, on the
day of
,
,
199~,
in duplicate, in the English and Spanish languages, both
ERNMENT OF THE
TATES OF AMERICA:
"'--_______ -..... ____ ._.. _... __ ..... -..-...
~.
FOR THE GOVERNMENT OF THE
UNITED MEXICAN STATES:
------------------_~...L
APPENDIX II
May 16, 1995
TREASURY DEPARTMENT
TECHNICAL EXPLANATION OF THE PROTOCOL.
SIGNED AT MEXICO CITY ON SEPTEMBER 8, 1994
AMENDING THE AGREEMENT BETWEEN THE UNITED STATES OF AMERICA
AND THE UNITED MEXICAN STATES
FOR THE EXCHANGE OF INFORMATION WITH RESPECT TO TAXES
INTRODUCTION
This is a technical explanation ot the Protocol to the
Agreement between the United states and the united Mexican states
for the Exchange of Information with Respect to Taxes signed on
November 9, 1.989 ("the Protocol tl ) . References are made to the
Agreement (tithe TIEAtt) and to the convention between the united
States of America and the United Mexican states for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income, signed on September 18, 1992 (lithe
Convention tl ) .
The Technical Explanation is an official guide to the
Protocol. It reflects the policies behind particular Protocol
provisions, as well as understandings reached with respect to the
application and interpretation of the Protocol.
Paragraph 1
Paragraph 1 of the proposed Protocol amends the text of
paragraph 4 of Article 2 (Taxes Covered) of the TlEA. Under the
amended text of paragraph 1, the TIEA applies to taxes imposed by
a state, municipality, or other political subdivision or local
authority of a Contracting State, but not to taxes imposed by a
possession of a Contracting state. The prior text provided that
the TIEA shall not apply to taxes imposed by states,
municipalities or other political subdivisions, or possessions of
a Contracting state.
It is contemplated that information exchange under the TIEA
as amended also will be the basis for exchange of information
under the Convention. Article 27 (Exchange of Information) of
the Convention currently requires exchange of information to take
place in accordance with the TlEA unless the TlEA has been
terminated. A protocol to the Convention is proposed to
eliminate the cross-reference in Article 27 to the TlEA and
replace it with a reference to exchange of information under any
agreement between the Contracting States for exchange of
information with respect to taxes. The prior text of the
Convention authorized the exchange of information under a
particular agreement -- the Agreement Between the United states
of America and the United Mexican States for the Exchange of
-2-
Information with Respect to Taxes signed on November 9, 1989
("the TIEA"). The effect of the proposed protocol to ~he
Convention is to broaden the authorization for exchang1ng
information under the terms of an agreement between the
Contracting states, extending it beyond the TIEA in its current
form to an amended version of the TIEA or to any new agreement or
agreements.
The competent authorities under the TIEA will develop
procedures and understandings to ensure the effective and
efficient administration of the exchange of information for subfederal tax purposes. Such competent authorities will also meet
periodically to review the administration of the exchange of
information under this proposed Protocol, as they currently do in
the administration of the TIEA.
Paragraph 2
Paragraph 2 of the proposed Protocol amends paragraph 4(b)
of Article 4 (Exchange of Information) of the TIEA.. Paragraph
4(b) of Article 4 of the TIEA prescribes the statutory provisions
of a state that are to be utilized by one State in obtaining
certain financial information at the request of the other State.
The current text of paragraph 4(b) provides that, if the
united states is requested to obtain the types of information
covered by section 3402 of the Right of Financial Privacy Act of
1978 (12 USCA 3402) as in effect at the time of signing of this
agreement, it shall obtain the requested information pursuant to
that provision. In the case of the united States, 12 USC
S3413(c) of the Bank Secrecy Act permits the disclosure of
information pursuant to procedures authorized by Title 26
(Internal Revenue Code).
The current text of paragraph 4(b) also provides that, if
Mexico is requested to obtain the types of information covered by
Article 93 of the Regulatory Law of Banking and Credit'Public
Service as in effect at the time of signing this agreement, it
shall obtain the requested information pursuant to that
provision.
Paragraph 4(b) also provides that laws
requested State do not prevent or otherwise
of the competent authority of the requested
provide the types of information covered by
provisions pursuant to the Agreement.
or practices of the
affect the authority
State to obtain and
the above-cited
~he proposed Protocol replaces the reference in paragraph
4(b) to the banking regulations of Mexico. Whereas the TIEA
refe:s to ~ticle ~3 of the Regulato:y Law of Banking and Credit
Publ1c SerV1ce as 1n effect at the t1me of Signing the TIEA the
proposed protocol refers to Article 117 of the Credit
'
-3-
Institutions Law as in effect at the time of signing the
protocol. The sole effect of this amendment is to replace an
outdated statutory reference with the current one.
In addition, the proposed Protocol would allow certain
financial information that is obtained pursuant to a provision of
u.s. or Mexican law identified in the TlEA to be obtained under
any similar or equivalent provision that may be added to or
substituted for the provision cited in the TIEA. This change
will eliminate the need to amend the TIEA if the relevant banking
law is subsequently renumbered or revised.
The proposed Protocol shall enter into force upon an
exchange of notes by the duly authorized representatives of the
Contracting states confirming their mutual agreement that both
sides have met all constitutional and statutory requirements
necessary to effectuate this Protocol. The Protocol will remain
in force as long as the TIEA remains in force.
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TREASURY DEPARTMENT TECHNICAL EXPLANATION OF THE
CONVENTION AND PROTOCOL BETWEEN THE
GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF
THE REPUBLIC OF KAZAKHSTAN
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO
TAXES ON INCOME AND CAPITAL SIGNED AT ALMATY ON
OCTOBER 24, 1993
INTRODUCTION
This is a technical explanation of the Convention and
Protocol between the United States and the Republic of Kazakhstan
signed on October 24, 1993 ("the Convention"). The Convention
replaces the Convention Between the United States of America and
the Union of Soviet Socialist Republics for the Avoidance of
Double 'Taxation of Income, the Prevention of Fiscal Evasion with
Respect to Taxes on Income, and the Elimination of Obstacles to
International Trade and Investment, signed on June 20, 1973 ("the
1973 Convention"), as it applied to the United states and
Kazakhstan.
The Convention is based on the Model Double Taxation
Convention on Income and Capital, published by the OECD in 1977
and periodically updated and amended since that time ("the OECD
Model"), the 1973 Convention, and other more recent u.S. income
tax conventions. The u.S. Treasury Department has withdrawn its
draft Model Income Tax Convention, published on June 16, 1981,
and is currently developing a new model. The Convention reflects
certain principles of the withdrawn u.s. Model that were relevant
at the time the Convention was negotiated.
The Technical Explanation is an official guide to the
Convention.
It reflects the policies behind particular
Convention provisions, as well as understandings reached with
respect to the application and interpretation of the Convention.
The explanations of each article include explanations of any
Protocol provision relating to that article.
The explanations
also take into account the mutual interpretations of certain
provisions of the Convention reflected in the Memorandum of
-2-
Understanding, which was attached to a note dated August 15, 1994
from Mr. William courtney, United states Ambassador to
Kazakhstan, to Mr. Yerkishbay Derbisov, Minister of Finance,
Republic of Kazakhstan, and which was referred to in the reply
note from Mr. Yerkishbay to Mr Courtney dated September 13, 1994.
-3-
Article 1.
GENERAL SCOPE
Paragraph 1 provides that the Convention applies to
residents of the United states or Kazakhstan and, in some cases,
may also apply to residents of third states. Article 4 defines a
resident of the United states or Kazakhstan for the purposes of
the Convention. Examples of cases where the Convention may
affect residents of third states include the articles on nondiscrimination (Article 24) and the exchange of information
(Article 26).
Subparagraph 2 a) provides that the Convention may not
increase the tax burden of residents of either Contracting state
compared to what it would be under the State's respective
domestic law provisions. Under subparagraph 2 b), the Convention
also may not restrict a tax benefit conferred by any other
agreement between the Contracting states.
Under this paragraph, a right to tax given by the Convention
cannot be exercised unless domestic law also provides for such a
tax. This does not mean, however, that a taxpayer may pick and
choose among Internal Revenue Code ("Code") and Convention
provisions in an inconsistent manner in order to minimize tax.
For example, assume a resident of Kazakhstan has three separate
businesses in the United states. One is a profitable permanent
establishment and the other two are trades or businesses that
would earn income taxable in the United States under the Code but
do not meet the permanent establishment threshold tests of the
Convention. Of the other two trades or businesses, one is
profitable, and the other incurs a loss. Under the Convention
the income of the permanent establishment is taxable, but the
profit or loss of the other two businesses is ignored. Under the
Code, all three businesses would be taxable. The loss in the one
would be offset against the profits of the other two ventures.
The taxpayer may not invoke the Convention to exclude the profits
of the profitable trade or business and invoke the Code to claim
the loss of the loss trade or business against the profit of the
permanent establishment.
(See Rev. Rul. 84-17, 1984-1 C.B. 10.)
If the taxpayer invokes the Code for the taxation of all three
ventures, he would not be precluded from invoking the Convention
with respect, for example, to any dividend income he may receive
from the United states that is not effectively connected with any
of his business activities in the United states.
Paragraph 3 of Article 1 contains the traditional "saving"
clause, which provides that each country may tax its own
residents, citizens, and former citizens, in accordance with its
domestic law, without regard to the Convention. Thus, the United
States may tax its citizens, wherever resident, notwithstanding
any provision of the Convention (unless the provision is
specifically excepte~ from the s~ving cl~use). The ~n~ted States
also may tax its res~dents, notw~thstand~ng any provls~on of the
-4convention (except a provision specifically excepted from the
saving clause). A person's "residence," for the purpose of the
saving clause, is determined under Article 4 (Residence).
Thus,
the tie-breaker rules of paragraph 2 of Article 4 will determine
the residence, including for saving clause purposes, of an
individual (not a u.s. citizen) who is a resident of the united
states under the Code, ~, a "green card" holder, and also a
resident of Kazakhstan under Kazakh law.
If the individual is
determined to be a resident of Kazkahstan under these tie-breaker
rules, he or she will be entitled to u.s. benefits under the
Convention.
Paragraph 3 also permits the taxation of certain former
citizens.
In the case of the United States, citizens whose loss
of citizenship had as one of its principal purposes the avoidance
of u.s. tax may be taxed in accordance with section 877 of the
Code. There is not a comparable provision in Kazakh law dealing
with former citizens. (Kazakhstan taxes on the basis of residence
and also taxes non-residents who are employed overseas with the
Kazakh government.)
As a consequence of the saving clause, each article of the
Convention should be read as not providing benefits with respect
to the u.s. taxation of u.s. citizens (wherever resident) or u.s.
residents (as defined in Article 4) or with respect to
Kazakhstan's taxation of Kazakh citizens or residents.
However,
paragraph 4 provides certain exceptions to the saving clause.
Under subparagraph a), for example, u.s. residents and citizens
are entitled to certain u.s. benefits provided under the
Convention. Those benefits are:
the correlative adjustments
authorized by paragraph 2 of Article 7, the exemption of social
security payments and other public pensions paid by Kazakhstan
under paragraph 1 b) of Article 18, the exemption of child
support paid by residents of Kazakhstan as provided in paragraph
5 of Article 18, the guarantee of a foreign tax credit provided
in Article 23, the non-discrimination protection of Article 24,
and the competent authority procedures of Article 25.
Kazakh
residents are entitled to the benefits provided by Kazakhstan
under the same articles (and Kazakh citizens or former citizens
would be entitled to the same benefits, if relevant).
Under subparagraph b) certain additional benefits are
available to u.s. residents who are neither u.s. citizens nor
"green card" holders; these are the benefits extended to
employees of the Kazakh Government under Article 17, to visiting
students, trainees and researchers under Article 19, and to
members of diplomatic and consular missions under Article 27.
This paragraph also applies reciprocally.
Article 2.
TAXES COVERED.
-5-
This Article identifies the U.S. and Kazakh taxes to which
the Convention applies.
In the case of the United states, the Convention applies to
the Federal income taxes imposed by the Internal Revenue Code,
but not including the accumulated earnings tax or personal
holding company tax (which are considered penalty taxes) or
social security taxes.
In the case of Kazakhstan, the Convention
applies to the taxes on profits and income provided by the laws
"On Taxation of Enterprises, Associations and Organizations" and
"On the Income Tax on Citizens of the Kazakh SSR, Foreign
Citizens and Stateless Persons."
The non-discrimination
provisions of Article 24 apply to all taxes imposed at all levels
of government. This is the only article that applies to state
and local taxes. The exchange of information provisions of
Article 26 apply to all national level taxes (including estate
and gift and excise taxes), to the extent that the information
exchanged is relevant to enforcement of the Convention or of any
covered tax as long as such tax is applied in a manner that is
not inconsistent with the Convention.
Under paragraph 2, the Convention will apply to any taxes
that are substantially similar to those enumerated in paragraph 1
and that are imposed in addition to, or in place of, the existing
taxes after October 24, 1993 (the date of signature of the
Convention).
In recognition of the fact that the Kazakh tax
system is evolving, the paragraph adds that a tax imposed by one
State subsequent to the signing of the Convention that is
substantially similar to an existing tax of the other state
covered by paragraph 1 will also be covered.
For the same
reason, paragraph 3 also includes in the Convention's coverage
any national level tax on capital subsequently imposed by either
contracting State.
On April 24, 1995, Kazakhstan enacted a new tax law by
presidential decree.' As part of the implementation of the new
law, the presidential decree orders that all existing laws be
repealed or revised as necessary to bring them into conformity
with the new law. The new law is generally consistent with u.s.
and OECD tax policies.
Its application to U.S. residents who
qualify for treaty benefits will be limited by the terms of the
Convention.
paragraph 2 also provides that the u.s. and Kazakh competent
authorities will notify each other of significant changes in
their taxation laws that are relevant to the operation of the
The Decree of the President of the Republic of
Kazakhstan, Having the Force of a Law, "On Taxes and Other
Obligatory payments to the Budget" (Almaty, April 24, 1995).
1
-6-
Convention and of official published materials that concern the
application of the Convention.
Article 3.
GENERAL DEFINITIONS
Paragraph 1 defines a number of basic terms used in the
Convention.
Certain others are defined in other articles of the
Convention.
For example, the term "resident of a Contracting
State" is defined in Article 4 (Residence). The term "permanent
establishment" is defined in Article 5 (Permanent Establishment).
The terms "dividends," "interest," and "royalties" are defined in
Articles 10, 11 and 12, respectively, which deal with the
taxation of those classes of income.
The term "Contracting State" means the united states or the
Republic of Kazakhstan, depending on the context in which the
term is used.
The terms "United States" and "Kazakhstan" are defined in
subparagraphs b) and c), respectively. The term "united states"
is defined to mean the United States of America.
The term does
not include Puerto Rico, the Virgin Islands, Guam or any other
U.S. possession or territory. When used geographically, the
"united States" includes the territorial sea, the continental
shelf and the economic zone of the United States, provided that
any taxation therein is in accordance with international law and
U.S. tax law.
Currently, U.S. tax law applies on the continental
shelf only with respect to the exploration for and exploitation
of mineral resources (Code section 638). The term "Kazakhstan"
means the Republic of Kazakhstan and, when used geographically,
includes the territorial sea, the continental shelf, and the
economic zone, provided that any taxation therein is in
accordance with international law and Kazakh tax law.
Subparagraph d) defines the term "person" to include an
individual, an estate, a trust, a partnership, a company and any
other body of persons. Any such person may be a "resident" of a
Contracting State for purposes of Article 4 and thus entitled to
the benefits of the Convention.
The term "company" is defined in subparagraph e) as any
entity treated as a body corporate for tax purposes. The Kazakh
entities described in the second sentence of subparagraph e) are
treated as companies, provided their profits are taxed at the
entity level in Kazakhstan.
In Kazakhstan, all legal entities
(including a joint stock company, a limited liability company,
and a joint venture), except simple partnerships and consortiums,
are subject to tax on profits at the entity level.
In the United
States, the rules of Reg. S 301.7701-2 generally will be applied
to determine whether an entity is taxed as a body corporate.
-7The Convention is drafted to refer to "residents" rather
than "enterprises." The Kazakh delegation observed that existing
models do not provide an adequate definition of an "enterprise of
a Contracting state." Thus, it was decided to use instead the
term "resident," for example, in Article 5 (Permanent
Establishment) and Article 6 (Business Profits), obviating the
need to define "enterprise."
Subparagraph f) defines the term "international traffic."
The term means any transport by a ship or aircraft except when
such transport is solely between places within the other (i.e.,
non-resident) state.
(The operative provisions of Article 8
(Shipping and Air Transport) provide for exclusive residence
State taxation of income from international shipping and air
transport and are drafted such that, when the term "international
traffic" is used, the "other" state always means the nonresident, source State.) The provisions of Article 8, together
with the definition of "international traffic" in this Article,
result in source-state exemption of income from shipping or air
transport unless the transport is solely between points within
the non-resident State. Thus, for example, the transport of
goods or passengers by a Kazakh carrier solely between New York
and Chicago (if that were permitted) would not be treated as
transport in international traffic, and the resulting income
would not be exempt from U.S. tax under Article 8.
It would,
however, be treated as business profits under Article 6 and
would, therefore, be taxable in the United States only if
attributable to a U.S. permanent establishment, and then only on
a net basis.
If, however, goods or passengers are carried by a
Kazakh plane from Almaty to New York and then to Chicago, the
trip would be in international traffic with respect to the
carriage for those who continued to Chicago as well as for those
who disembarked in New York.
Subparagraph g) defines the term "capital." The definition
is relevant for purposes of Article 22 (Capital), which limits
either Contracting State's ability to impose any capital taxes,
including any capital taxes that may be enacted in the future.
The "competent authority" is the Government official charged
with administering the provisions of the Convention and with
attempting to resolve any doubts or difficulties which may arise
in interpreting its provisions. The U.S. competent authority is
the Secretary of the Treasury or his authorized representative.
The Secretary of the Treasury has delegated the competent
authority function to the Commissioner of Internal Revenue, who
has, in turn, delegated the authority to the Assistant
commissioner (International). with respect to interpretive
issues, the Assistant Commissioner acts with the concurrence of
the Associate Chief Counsel (International) of the Internal
Revenue Service. In Kazakhstan, the competent authority is the
Minister of Finance or his authorized representative.
In general
-8-
that function is assigned to the Deputy Minister of Finance or
the Chief of the Department of Tax Reform.
Paragraph 2 provides that, in the application of the
Convention, any term used but not defined in the Convention will
have the meaning which it has under the law of the Contracting
State whose tax is being applied, unless the context requires a
different interpretation or the competent authorities agree to a
common meaning.
Article 4.
RESIDENCE
This Article sets forth rules for determining whether a
person is a resident of a Contracting State for purposes of the
Convention.
Determination of residence is important because, as
noted in the explanation to Article 1 (General Scope), as a
general matter only residents of the Contracting States may,
subject to Article 21 (Limitation on Benefits), claim the
benefits of the Convention. The treaty definition of residence
is used for all purposes of the Convention, including the saving
clause of paragraph 3 of Article 1 (General Scope), but it is to
be used only for purposes of the Convention.
The determination of residence for purposes of the
Convention looks first to a person's liability to tax as a
resident under the respective taxation laws of the Contracting
States.
For this purpose, "liability to tax" is interpreted as
"subject to the taxation laws;" thus, a non-profit, tax-exempt
entity may be a resident of a Contracting State. A person who,
under those laws, is a resident of one contracting State and not
of the other need look no further.
For purposes of the
Convention, that person is a resident of the State in which he is
resident under internal law.
In accordance with u.S. treaty and domestic tax policy, this
Convention includes citizenship as one of the criteria of
residence. Thus, a u.S. citizen resident in a third country is
entitled to the benefits of this Convention on the same basis as
an individual residing in the United States.
If, however, a U.S.
citizen or resident (~ a "green card" holder) is also a
resident of Kazakhstan under its taxation law, the individual
must look to the tie-breaker rules of paragraph 2, which assign
one State of residence to such a person for purposes of the
Convention.
The u.S. citizen who is determined to be a resident
of Kazakhstan under this paragraph would continue to be subject
to u.S. taxation under the saving clause of paragraph 3 of
Article 1 (General Scope), but a green card holder determined
under paragraph 2 to be a resident of Kazakhstan would not be
subject to the saving clause.
-9-
It is understood that the two Contracting states and their
political .subdivisions are to be treated as residents of those
states for purposes of Convention benefits.
A person that is liable to tax in a contracting state only
in respect of income from sources within that state will not be
treated as a resident of that Contracting state for purposes of
the Convention. Thus, for example, a Kazakh consular official in
the United states who is subject to U.S. tax on U.S. source
investment income, but not on non-U.S. income, would not be
considered a resident of the United States for purposes of the
Convention.
(In most cases such an individual also would not be
a U.S. resident under the Code.)
A partnership, estate or trust will be treated as a resident
of a Contracting state in accordance with the residence of the
person liable to tax with respect to the income derived by the
partnership, estate, or trust, i.e. to the extent that the income
is taxed as the income of a resident, whether in the hands of the
person deriving the income or in the hands of its partners or
beneficiaries. This rule is applied to determine the extent to
which the partnership, estate or trust is entitled to benefits
with respect to income derived from the other Contracting state.
Under Kazakh law, a "simple" partnership or a "consortium" is
taxed on a flow-through basis, and trusts and estates generally
are not used.
Similarly, under U.s. law, an entity organized
under a state law general or limited partnership statute
generally is not, and an estate or trust often is not, a taxable
entity.
(Certain publicly traded partnerships and partnerships
that are reclassified as associations under Reg. § 301.7701-2
will be taxable as corporations.)
In addition, certain other
forms of organization, such as limited liability companies, may
be classified as partnerships for U.S. tax purposes.
Thus, for
purposes of the Convention, income received by an entity
classified as a partnership for U.S. tax purposes will generally
be treated as received by a U.S. resident to the extent included
in the distributive share of partners or members who are
themselves U.S. residents (looking through any partnerships which
are themselves partners or members).
Similarly, the treatment
under the Convention of income received by a U.S. trust or estate
will be determined by the residence for taxation purposes of the
person subject to tax on such income, which may be the grantor,
the beneficiaries, or the estate or trust itself, depending on
the particular circumstances.
If, under the laws of the two Contracting states, and, thus,
under paragraph 1, an individual is deemed to be a resident of
both contracting States, a series of tie-breaker rules is
provided in paragraph 2 to determine a single state of residence
for that individual.
These rules come from the OECD Model. The
first test is where the individual has a permanent home.
If that
test is inconclusive because the individual has a permanent home
-10-
available to him in both states, he will be considered to be a
resident of the Contracting State where his personal and economic
relations are closest, i.e., the location of his "center of vital
interests." If that test is also inconclusive, or if he does not
have a permanent home available to him in either State, he will
be treated as a resident of the Contracting state where he
maintains an habitual abode.
If he has an habitual abode in both
States or in neither of them, he will be treated as a resident of
his Contracting State of citizenship.
If he is a citizen of both
states or of neither, the competent authorities are instructed to
resolve his residence by mutual agreement. This could be the
case, for example, where the individual is not a citizen of
either Contracting state.
The tie-breaker rules of paragraph 2 apply only to
individuals.
Paragraph 3 seeks to settle dual residence issues
for companies (defined in Article 3 as entities treated as a body
corporate for tax purposes). Under U.s. law, a corporation that
is created or organized under the laws of the United States or a
state or the District of Columbia is liable to U.s. tax by reason
of that incorporation and therefore is a resident of the United
states under paragraph 1. A company that has its place of
registration in Kazakhstan is liable to Kazakh tax by reason of
that registration and therefore is a resident of Kazakhstan under
paragraph 1. In most cases it is expected that the place of
incorporation and registration will be the same. However, in the
event that a company is incorporated in the united states but
registered in Kazakhstan, it would be a resident of both
countries under their respective domestic laws.
Paragraph 3
provides that, in that event, the competent authorities will
endeavor to establish a single country of residence.
If they are
unable to do so, the company will not be entitled to claim the
benefits of the Convention as a resident of either Contracting
State.
It will continue to be considered a resident of both
States for purposes of providing benefits to other persons who
are entitled to Convention benefits (i.e., those who receive
dividends, interest or royalties from the dual resident and who
are entitled to the treaty's reduced rates of source country tax
on those items of income) and for purposes of the domestic
taxation laws of the two States.
Paragraph 4 provides that where a person, other than an
individual or a company, is a resident of both Contracting states
under their respective laws, the competent authorities will
establish a single country of residence and agree on how the
Convention is to apply to such a person.
Article 5.
PERMANENT ESTABLISHMENT
This Article defines the term
. "permanent establishment , "
which is relevant to several artlcles of the Convention. The
current or former existence of a permanent establishment in a
-11Contracting state is necessary under Article 6 (Business Profits)
for that state to tax the business profits of a resident of the
other Contracting state. Articles 10, 11 and 12 (dealing with
dividends, interest, and royalties, respectively) provide for
reduced rates of tax at source on payments of these items of
income to a resident of the other state only when the income is
not attributable to a permanent establishment or fixed base which
the recipient has or had in the source state; if the income is
attributable to a permanent establishment, Article 6 (Business
Profits) applies (and if the income is attributable to a fixed
base, Article 14 (Independent Personal Services) applies).
This Article is similar in most respects to the
corresponding articles of the OECD Model and conforms with u.s.
treaty policy.
It does, however, depart from that Model and
those policies in certain respects.
Paragraph 1 provides the basic definition of the term
"permanent establishment." As used in the Convention, the term
means a fixed place of business through which a resident of one
Contracting state carries ~n business activities in the other
Contracting State.
It is not necessary that the resident be a
legal entity.
Point 1 of the Protocol makes clear that it is
also unnecessary that the fixed place of business be owned by the
resident.
In the case of an individual, Article 14 (Independent
Personal Services) uses the concept of a "fixed base" rather than
a "permanent establishment," but the two concepts are considered
to be parallel.
Paragraph 2 contains a list of examples of fixed places of
business that constitute permanent establishments: a place of
management, a branch, an office, a factory, a workshop, and a
mine, well, quarry or other place of extraction of natural
resources.
The use of singular nouns in this illustrative list
is not meant to imply that each such place necessarily represents
a separate permanent establishment.
In the case of mines or
wells, for example, several such places of business could
constitute a single permanent establishment if the project is a
whole commercially and geographically' (see the following
discussion under construction sites and drilling operations).
Mines, wells, or quarries are examples of fixed places that may
not be owned by the resident of the other State but that can
nonetheless form a permanent establishment of that resident.
paragraph 3 adds that a construction site, installation or
assembly project, or an installation or drilling rig (onshore or
offshore) or ship used to explore for or exploit natural
resources also constitutes a permanent establishment, but only if
it lasts more than 12 months. This is the period provided for in
the OECD Model, and it is consistent with u.s. treaty policy.
The 12-month test applies separately to each individual site or
project. A series of contracts or projects that are
-12interdependent both commercially and geographically is to be
treated as a single project.
For example, the construction of a
housing development would be considered a single project even if
each house were constructed for a different purchaser.
Similarly, the drilling of several wells within the same
geographic area and as part of the same commercial operation will
be considered a single permanent establishment.
The 12-month period begins when work (including preparatory
work carried on by the resident) physically begins in a
Contracting State. A site should not be regarded as ceasing to
exist when work is temporarily discontinued.
If the 12-month
threshold is exceeded, the site or project constitutes a
permanent establishment from the first day.
The foregoing interpretation of paragraph 3 is based on the
Commentaries to paragraph 3 of Article 5 of the OECD Model, which
constitutes the generally accepted international interpretation
of the language in paragraph 3 of Article 5 of the Convention.
The furnishing of supervisory services may give rise to a
permanent establishment under paragraph 3. Supervisory services
that do not themselves last for more than 12 months may
nonetheless be an interrelated part of a construction project; in
that case, the period of time during which supervisory services
were carried on will be added to the time during which the
construction is carried on for purposes of determining whether
the building contractor meets the 12-month test.
Supervisory
services may be performed by the building contractor or by
another enterprise (~, a subcontractor).
If the services are
performed by another enterprise, then such services may also
constitute an independent permanent establishment of that other
enterprise if they continue for more than 12 months. The
addition of the reference to supervisory services generally is
consistent with the OECD Model. The commentary to paragraph 3 of
Article 5 of the OECD Model points out that activities of
planning and supervision, as well as activities of
subcontractors, are taken into account in determining whether the
general contractor has a permanent establishment.
The furnishing of services, including consultancy services,
by a resident of one Contracting State through employees or other
personnel in the other State will give rise to a permanent
establishment if such services last for more than 12 months.
As
is true with respect to the type of permanent establishment
created through a construction project, time spent performing
services with respect to the same or related service projects
will be aggregated for purposes of applying this 12-month
threshold.
Although the preferred u.S. treaty policy is that
services do not give rise to a permanent establishment unless
performed through a fixed place of business or by a dependent
agent, the United States has agreed to similar provisions in
-13other treaties with developing countries (for example, India and
Indonesia and, more recently, the Czech Republic and the Slovak
Republic). Moreover, the 12-month threshold agreed to in this
Convention is much longer than the 183 days that the United
States has accepted in these other treaties. The U.N. Model also
contains a shorter period of an aggregate of 6 months in a 12
month period.
Paragraph 4 contains exceptions to the general rule of
paragraph 1 that a fixed place of business through which a
business is carried on constitutes a permanent establishment.
The paragraph lists a number of activities that may be carried on
through a fixed place of business but that, nevertheless, will
not give rise to a permanent establiShment. The use of
facilities solely to store, display or deliver merchandise
belonging to a resident will not constitute a permanent
establishment of that resident. The maintenance of a stock of
goods belonging to a resident solely for the purpose of storage,
display or delivery, or solely for the purpose of processing by
another resident will not give rise to a permanent establishment
of the resident. The maintenance of a fixed place of business
solely for purchasing goods or collecting information for the
resident, or for carrying out any other activity of a preparatory
or auxiliary character for the resident, such as advertising, the
supplying of information, or the conduct of certain research
activities, will not constitute a permanent establishment of the
resident.
A combination of the activities described in paragraph 4
will not give rise to a permanent establishment.
Paragraphs 5 and 6 specify when the use of an agent will
constitute a permanent establishment. Under paragraph 5, a
dependent agent of a resident of one State will be deemed to be a
permanent establishment of that resident in the other State if
the agent has and habitually exercises an authority to conclude
contracts in the name of the resident.
If, however, the agent's
activities are limited to those activities specified in paragraph
4 that would not constitute a permanent establiShment if carried
on directly by the resident through a fixed place of business,
the agent will not be a permanent establishment of the resident.
Under paragraph 6, a resident of one State will not be
deemed to have a permanent establishment in the other State
merely because it carries on business in the other State through
an independent agent, including a broker or general commission
agent, as long as the agent is acting in the ordinary course of
his business.
Paragraph 7 clarifies that a company that is a resident of a
contracting State will not be deemed to have a permanent
establishment in the other Contracting State merely because it
-14-
controls, or is controlled by, a company that is a resident of
that other Contracting state or that carries on business in that
other Contracting state. The determination whether a permanent
establishment exists will be made solely on the basis of the
factors described in paragraphs 1 through 6 of the Article.
Whether a company is a permanent establishment of a related
company, therefore, is based solely on those factors and not on
the ownership or control relationship between the two.
Article 6.
BUSINESS PROFITS
The location of this Article (and the articles on real
property income and related persons) is different from the OECD
Model and other U.S. treaties. Nothing sUbstantive is intended
by this ordering of the subject matter, which merely reflects the
suggestion that it is more logical.
Article 6 provides the rules for the taxation by a
Contracting State of the business profits of a resident of the
other Contracting State. currently, the rate of tax on profits
in Kazakhstan is 30 percent, and the rate on corporate profits in
the United States is 35 percent.
Paragraph 1 states the general rule that business profits
(as defined in paragraph 6) of a resident of one Contracting
State may not be taxed by the other Contracting State unless the
resident carries on or has carried on business in the other
Contracting State through a permanent establishment (as defined
in Article 5 (Permanent Establishment»
situated in that other
State. Where that condition is met, the other State may tax the
business profits attributable to the assets or activity of the
permanent establishment. The State in which the permanent
establishment is situated may also tax the business profits
derived from the sales in that State of goods or merchandise of
the same kind as those sold through the permanent establishment
and the business profits from the resident's other business
activities in that State if the activities are the same kind as
those performed through the permanent establishment. The latter
rule derives from the U.N. Model and is similar to provisions
that appear in the United States treaties with Mexico, Indonesia,
and India.
It amounts to a partial "force of attraction," by
attributing to the permanent establishment sales of goods or
performance of services by the home office if the goods or
services are the same kind as those sold or performed,
respectively, through the permanent establishment. This "force
of attraction" attributes profits to the permanent establishment
whether or not the assets and activities of the permanent
establishment were involved in the sale or performance.
Such a
"force of attraction" rule is often requested by developing
countries to prevent avoidance of their tax at source, although
it is not the preferred u.S. position.
-15-
Paragraph 1 incorporates the rule of section 864 (c) (6) of
the Code with respect to deferred payments. Thus, if income was
attributable to a permanent establishment or fixed base when
earned, it is taxable by the state where the permanent
establishment or fixed base was located, even if receipt of the
income is deferred until the permanent establishment or fixed
base has ceased to exist. This same approach is reflected in the
provisions of Articles 10 (Dividends), 11 (Interest), 12
(Royalties), and 14 (Independent Personal Services) dealing with
amounts attributable to a permanent establishment or fixed base.
Paragraph 2 provides that the Contracting States will
attribute to a permanent establishment the profits that it would
be expected to make if it were an independent entity, engaged in
the same or similar activities under the same or similar
conditions.
Profits so attributable to a permanent
establishment are taxable in the state where the permanent
establishment is situated or was situated at the time the profits
were made.
The profits attributable to a permanent establishment may be
from sources within or without a Contracting state. ThUS,
certain items of foreign source income described in section
864(C) (4)(B) or (C) of the Code may be attributed to a U.s.
permanent establishment of a resident of Kazakhstan and be
subject to tax in the United States. The concept of
"attributable to" in the Convention is narrower than the concept
of "effectively connected" in section 864(c) of the Code. The
limited "force of attraction" rule in Code section 864(c) (3),
therefore, is not applicable under the Convention to the extent
it is broader than the rule of subparagraphs b) and c) of
paragraph 1 of this Article.
Paragraph 3 provides that the tax base must be reduced by
deductions for expenses incurred for the purposes of the
permanent establishment. These include expenses directly
incurred by the permanent establishment and a reasonable
allocation of expenses, as long as the expenses were incurred on
behalf of the resident's business enterprise as a whole or a part
of it that includes the permanent establishment and as long as
the expenses relate to the business activities of the resident.
Allocable expenses would include executive and general
administrative expenses, research and development expenses,
interest, and charges for management, consultancy, or technical
assistance, wherever incurred and without regard to whether they
are actually reimbursed by the permanent establishment. The
permanent establishment must be able to document such expenses,
if so requested by the tax authorities of the State in which it
is located.
-16-
To ensure continuous and consistent tax treatment, paragraph
3 also requires that the method for calculating the profits and
losses of a permanent establishment be the same from year to year
unless there is a good and sufficient reason to change the
method. A taxpayer may not vary the method from year to year
simply because a different method achieves a more favorable tax
result.
Paragraph 3 also clarifies, as does the U.N. Model and the
commentary to the OECD Model, that a permanent establishment may
not take deductions for royalties, fees, commissions, or service
fees paid to its home office or any other office of the resident.
There was no intention, however, to deny deductions for such
payments when they are made as reimbursement of actual expenses
incurred by the home office or another office. The point of this
provision is to clarify that, because the home office and the
permanent establishment are parts of a single entity, there
should be no profit element in intra-company transfers.
Point 8 b) of the Protocol ensures that Kazakhstan will
permit a full deduction of interest expense in computing the
profits of a U.s. resident's permanent establishment in
Kazakhstan. Kazakhstan is not, however, required to allow a
deduction for interest in excess of any limitation specified in
Kazakh law, as long as that limit permits deduction of an arm's
length interest rate, taking into account a reasonable risk
premium.
Paragraph 4 provides that no business profits will be
attributed to a permanent establishment because it purchases
goods or merchandise for the enterprise of which it is a
permanent establishment. This rule refers to a permanent
establishment that performs more than one function for the
enterprise, including purchasing.
For example, the permanent
establishment may purchase raw materials for the enterprise's
manufacturing operation and may sell the manufactured output.
While business profits may be attributable to the permanent
establishment with respect to its sales activities, no profits
are attributable with respect to its purchasing activities.
If
the sole activity were the purchasing of goods or merchandise for
the enterprise, the issue of the attribution of income would not
arise, because under subparagraph 4(d) of Article 5 (Permanent
Establishment) there would be no permanent establishment.
Paragraph 5 of this Article applies where the information
available either from the taxpayer or through competent authority
is insufficient to calculate business profits under the other
provisions of the Article.
In particular, paragraph 5 applies
where there is insufficient information concerning expenses.
In
that event, either Contracting State may apply its internal laws
to determine the profits of the permanent establishment. These
internal laws may make assumptions about expenses and thus may
-17estimate profits, rather than compute them with complete
certainty.
The Memorandum of Understanding between the Contracting
States makes clear that paragraph 5, and thus any internal law of
either country that presumes expenses, may not be applied if
books and records audited by a certified public accountant are
available.
In that case, the audited books and records will be
considered adequate for calculating actual profits, and it will
not be necessary--or permissible--to resort to presumptions.
In
addition, paragraph 5 itself provides that information will be
considered readily obtainable by the competent authority if the
taxpayer provides the information within 91 days of that
competent authority's written request. This provision
effectively establishes the procedure to be followed by a
competent authority before it may invoke this paragraph to apply
any internal law, and it ensures that the taxpayer is consulted
and given an opportunity to cooperate.
Paragraph 6 illustrates the meaning of the term "business
profits," as it is used in this Article. The term includes
income from manufacturing, mercantile, transportation,
communication, or extractive activities (including the operation
of a mine), as well as income from the furnishing of the services
of others.
It does not include income from the rental of
tangible personal property or income from the rental or licensing
of cinematographic films or films or tapes used for radio or
television broadcasting. Compensation received by an individual
for his or her personal services, whether the individual is selfemployed or an employee, is not within the scope of "business
profits." Rather, that compensation is covered by Article 14
(Independent Personal Services) if the individual is selfemployed or by Article 15 (Income from Employment) if the
individual is an employee.
Paragraph 7 coordinates the provisions of this Article and
other provisions of the Convention.
Under paragraph 7, where
business profits include items of income that are dealt with
separately under other articles of the Convention, the provisions
of those articles will, except where they specifically provide to
the contrary, take precedence over the provisions of Article 6.
Thus, for example, the taxation of interest will be determined by
the rules of Article 11 (Interest) except where, as provided in
paragraph 4 of Article 11, the interest is attributable to a
permanent establishment, in which case the provisions of Article
6 will apply.
Article 7.
ASSOCIATED ENTERPRISES
This Article allows the contracting States to make
appropriate adjustments to the taxable income and tax liability
of related persons that engage in non-arm's length transactions
-18-
with one another. The Article provides that the states may make
such adjustments as are necessary to reflect the income or tax
that each party to the transaction would have had if the
transaction had been at arm's length.
Paragraph 1 a) deals with the circumstance where a resident
of a Contracting State participates, directly or indirectly, in
the management, control, or capital of a resident of the other
Contracting State, and paragraph 1 b) .deals with a situation in
which the same persons participate, directly or indirectly, in
the management, control, or capital of a resident of one of the
Contracting states and of any other person. The term "control"
includes any kind of control, whether or not legally enforceable
and however exercised or exercisable.
If, in either of these
related party cases, there are commercial or financial dealings
that do not reflect arm's length terms or conditions, the
competent authorities may adjust the income of their residents to
reflect an arm's length transaction.
The adjustments allowed by the provisions of paragraph 1 can
give rise to taxation of the same income by both Contracting
states. To address this potential double taxation, paragraph 2
provides that, where a Contracting state has made an adjustment
to the income of one of its residents to reflect arm's length
terms, the other Contracting State will make a corresponding
adjustment to the tax liability of a related person resident in
that other state.
It is understood that the other Contracting
state need' adjust its tax only if it agrees that the initial
adjustment is appropriate. The other provisions of the
convention, where relevant, are to be taken into account. The
competent authorities will consult, as necessary, in applying
these provisions.
Paragraph 2 of Article 25 (Mutual Agreement Procedure)
explains that the corresponding adjustment by the other
Contracting State will not be prevented by a domestic statute of
limitations or other procedural limitation. The "saving clause"
of paragraph 3 of Article 1 (General Scope) does not apply to
paragraph 2 of Article 25.
(See Article 1 (4) (a).)
Thus, even
if the statute of limitations has run or if there is a closing
agreement between the Internal Revenue Service and the taxpayer,
a refund of tax may be required to implement a corresponding
adjustment.
Statutory or procedural limitations, however, cannot
be overridden to impose additional tax because, under paragraph 2
of Article 1 (General Scope), the Convention cannot restrict any
statutory benefit.
Paragraph 3 simply confirms this Article 7 does not restrict
the application of either Contracting State's domestic laws that
adjust the income of related persons.
The reference in paragraph
1 to "income," for example, does not imply that adjustments may
not relate to deductions, exemptions, credits, or other elements
-19-
affecting tax liability. Adjustments to the elements of tax
liability are permitted even if they are different from, or go
beyond, those authorized by paragraph 1 of this Article, as long
as they accord with the general principles of paragraph 1, i.e.,
the adjustments reflect what would have transpired had the
related parties been acting at arm's length.
Article B.
SHIPPING AND AIR TRANSPORT
This Article provides the rules that govern the taxation of
income from the operation of ships and aircraft in international
traffic. This Article, rather than Article 6 (Business Profits),
applies even if a resident of one State has a permanent
establishment in the other state to which profits from the
operation of ships and aircraft in international traffic are
attributable.
"International traffic" is defined in subparagraph 1 f} of
Article 3 (General Definitions). Income from the operation of
ships or aircraft in international traffic, when derived by a
resident of either Contracting State, may be taxed only by that
state, the country of residence. The other contracting State
must exempt the income from tax, even if the income arises in or
is attributable to a permanent establishment in that State. The
only circumstance in which the non-resident State may tax income
from the operation of ships or airplanes is when the income
arises from transport solely between places in that State (i.e.,
only when the income is not derived from operation in
"international traffic" as defined in paragraph 1 f) of Article
3) •
Income from the rental of ships or planes on a full basis
for use in international traffic is considered operating income
and is taxable only in the country of residence.
Income from the
bareboat leasing of ships or planes is also exempt from tax at
source if the ship or aircraft is used in international traffic
by the lessee.
In such a case, it does not matter whether the
lessor carries on a business of operating ships or planes; the
rule applies even to a leasing company. However, if the lessor
is an operating company, and the income is incidental to income
from such operations, the exemption from source State taxation
extends also to income from the rental of ships or aircraft used
in domestic traffic by the lessee.
Income from the leasing or
use of containers in international traffic is also exempt from
tax at source under this Article, whether derived by an operating
company or by a leasing company.
Paragraph 3 clarifies that the provisions of paragraphs 1
and 2 apply to income from participation in a pool, joint
business, or international transportation agency.
For example,
if a Kazakh airline were to form a consortium with other national
-20-
airlines, the Kazakh participant's share of the income derived
from u.s. sources would be covered by this Article.
Article 9.
INCOME FROM REAL PROPERTY
Paragraph 1 provides the standard income tax treaty rule
that income derived by a resident of a Contracting state from
real property, including income from agriculture or forestry,
located in the other Contracting state, may be taxed in that
other state. The income may also be taxed in the state of
residence.
Paragraph 2 defines real property in accordance with the
laws of the Contracting States, but provides that it includes, in
any case, any interest in land, unsevered products of land, and
structures on the land, and excludes boats, ships, and airplanes.
Paragraph 3 clarifies that the Article covers income from
any use of real property, without regard to the form of use or
lease.
Paragraph 4 provides for a binding election by the taxpayer
to be taxed on a net basis. The election is based on u.s. treaty
policy and reflects u.s. law.
Because this Article provides for
net basis taxation, it generally provides the same tax result as
Article 6 (Business Profits).
Article 10.
DIVIDENDS
This Article provides rules for limiting the taxation at
source of dividends paid by a company that is a resident of one
Contracting State to a shareholder who is a resident of the other
Contracting State.
It also provides rules for the imposition of
a tax at source on branch profits, analogous to the tax on
dividends paid by a subsidiary to its parent company.
Notwithstanding the source State's treaty obligation to limit the
rate of tax it applies to dividends, that State may, in
accordance with point 4 of the Protocol, withhold on dividends at
the applicable domestic rates, as long as the State timely
refunds any excess amount withheld over the maximum rates
established by the treaty.
Paragraph 1 of Article 10 preserves the general right of a
Contracting state to tax its residents on dividends received from
a company that is a resident of the other Contracting state. The
same result is achieved by the saving clause of paragraph 3 of
Article 1 (General Scope).
Except as otherwise provided in paragraph 4 and in point 2
of the Protocol (discussed below), paragraph 2 also permits the
source State to tax a dividend but limits the rate of source
State tax that may be imposed on dividends paid to a resident of
-21-
the other state. When the beneficial owner of the dividend is a
company resident in the other state that owns at least 10 percent
of the voting stock of the paying corporation, the maximum source
rate is 5 percent.
In other cases, the source State tax is
limited to 15 percent of dividends beneficially owned by
residents of the other state.
Paragraph 3 defines the term "dividends" as used in this
Article. The term encompasses income from any shares or rights
that are not debt claims and that participate in profits.
It
also includes income from other corporate rights treated for
domestic law tax purposes as dividends in the country of
residence of the distributing company and income from other
arrangements, even debt claims, if such arrangements carry the
right to participate in profits and the income is characterized
as a dividend under the domestic law of the country of residence
of the distributing company. The last case takes into account
domestic law distinctions between debt and equity. The
definition of dividends in this Article also confirms that
distributions by a Kazakhstan joint venture to the venturer's
foreign participants are dividends for purposes of this Article.
Thus, such distributions are eligible for the reduced tax rates
specified in paragraph 2.
paragraph 4 explains that, where dividends are attributable
to a permanent establishment or fixed base that the beneficial
owner maintains in the other State, they are not subject to the
provisions of paragraphs 1 and 2 of this Article, but are covered
by Article 6 (Business Profits) or Article 14 (Independent
Personal Services), as appropriate. This is also the case if the
permanent establishment or fixed base has ceased to exist when
the dividends are received as long as the dividends are
attributable to a permanent establishment or fixed base that did
exist in an earlier year.
Paragraph 5 permits a Contracting state to impose a branch
profits tax on a corporation that is a resident of the other
State. The tax is in addition to the ordinary tax on business
profits and may be applied not only where there is a permanent
establishment but also where the source state applies a net basis
tax in accordance with other articles of the Convention. The
additional tax is imposed on the "dividend equivalent amount" of
profits, at the 5 percent rate that would apply to dividends paid
by a wholly-owned subsidiary corporation to its parent. The U.S.
tax will be imposed in accordance with section 884 of the
Internal Revenue Code, or a successor statute, subject to the
reduced rate provided for in this Article.
Point 2 b) of the
Protocol explains the meaning of the term "dividend equivalent
amount," and, in the case of the United States, defines the term
consistently with u.s. law.
Kazakhstan's new tax law, enacted by
presidential decree on April 24, 1995, imposes a branch tax at
-22the rate of 15 percent, which will be reduced by the treaty to 5
percent.
Paragraph 2 a) of the Protocol also relaxes the limitations
on source country taxation for dividends paid by a u.s. Regulated
Investment Company (RIC) or a Real Estate Investment Trust
(REIT). A dividend paid by a RIC is subject to the 15-percent
portfolio dividend rate regardless of the percentage of voting
shares of the RIC held by the recipient of the dividend. The 5percent direct investment rate is intended to relieve multiple
levels of corporate taxation. A RIC, however, pays no corporatelevel tax on income it distributes to shareholders, and, to
maintain its tax-favored status, RICs typically do distribute
substantially all of their income. There is, therefore,
effectively, no corporate-level RIC tax; the shareholder-level
tax is the only u.s. tax imposed on the RIC's income. Moreover,
a foreign shareholder could own a 10 percent interest in a RIC
without owning a 10 percent interest in the companies whose
shares are held by the RIC, effectively converting a portfolio
dividend into a direct investment dividend without incurring any
additional tax.
In the case of a dividend paid by a REIT, the treaty does
not limit the rate of tax that may be applied. Thus, in the case
of the united States, a 30 percent tax will apply to REIT
distributions.
In some other recent u.s. treaties, the tax on
REIT dividends is limited to the 15-percent portfolio dividend
rate for certain individual shareholders presumed to be in the
lowest bracket of the u.s. individual income tax.
In this
Convention, however, the single statutory rate of 30 percent will
apply to all REIT dividends.
Article 11.
INTEREST
This Article governs the taxation of interest. The ability
of the residence State to tax interest is provided by paragraph 1
and also preserved by the saving clause of paragraph 3 of Article
1 (General Scope).
Interest derived from one Contracting State
and beneficially owned by a resident of the other State may also
be taxed by the first (source) State. However, as provided in
paragraph 2, the tax imposed by the source State may not exceed
10 percent. This reduced rate does not apply to back-to-back
loans. Notwithstanding its treaty obligation to limit the rate of
tax applied to interest, the source State may, in accordance with
point 4 of the Protocol, withhold on interest at its domestic
rates, as long as it timely refunds any excess amount withheld
over the maximum rates established by the treaty.
In the absence of the Convention, Kazkhstan's withholding
rate on interest paid to a u.S. resident (and not attributable to
a permanent establishment of that resident in Kazakhstan) would
-23-
be 15 percent. The general U.S. statutory rate on payments of
interest to nonresidents is 30 percent, with an exemption for
portfolio interest.
The preferred U.S. treaty policy is source country exemption
of interest paid to a resident of the other country. This policy
coincides with U.S. internal law, which generally exempts
interest paid to nonresidents from U.S. tax.
It is not uncommon,
however, particularly in treaties with developing countries, for
the United states to agree to some source country tax. Point 3
a) of the Protocol provides that, if Kazahkstan agrees in a
treaty. between it and another country that is a member of the
OECD to impose a rate at source on interest lower than the 10
percent provided for in this Convention, this Convention will be
promptly amended to incorporate that lower rate. The amended
Convention would then be submitted to the United States Senate
for its acceptance of the lower rate (see also, point 4 of the
Memorandum of Understanding).
As the term lIinterest" is not specifically defined in the
convention, its meaning depends upon the domestic law of the
State whose tax.is being applied (see paragraph 2 of Article 3
(General Definitions)}. The term is used in the Convention in
the usual sense to refer to income from debt claims of every kind
other than those giving rise to dividends under paragraph 3 of
Article 10 (Dividends).
Penalties and fines for late payment
are ~enerally not included in the treaty concept of interest;
such amounts may be imposed in accordance with domestic law.
Paragraph 3 specifies two categories of interest that,
notwithstanding the provisions of paragraph 2, are exempt from
tax at source when the beneficial owner is a resident of the
other State. Those categories are: (i) interest paid or
beneficially owned by either Contracting State or any political
subdivision or local authority thereof or any government
instrumentality agreed upon by the competent authorities, and
(ii) interest on loans of three years or longer that are made,
guaranteed, or insured by a specified public lending institution.
Point 3 b) of the Protocol provides that the lending institutions
to which loans in (ii) will apply are the Export-Import Bank, the
Overseas Private Investment Corporation of the United States, and
any other similar agencies that are agreed upon in the future by
the competent authorities.
Point 3 b) of the Protocol further
provides that there will be no required exemption for loans made
or guaranteed by these institutions if the lender has a right of
recourse against any person other than the borrower or a
governmental body in the borrower's country. This Point arose
from Kazakhstan's view that the exemption should not cover
internal group financing or loans to joint ventures in which
there are other foreign participants besides the U.S. venturers.
-24Paragraph 4 provides an exception from the rules of
paragraphs 1, 2, and 3 in cases where the beneficial owner of the
interest, a resident of one Contracting state, carries on
business through a permanent establishment in the other
Contracting state or performs independent personal services
through a fixed based situated in that other state and the
interest is attributable to that permanent establishment or fixed
base.
In such a case, the income is taxable to the permanent
establishment or fixed base in accordance with the provisions of
Article 6 (Business Profits) or Article 14 (Independent Personal
Services). This rule applies even if the permanent establishment
or fixed base no longer exists when the interest is received or
accrued, as long as the interest would have been attributable to
the permanent establishment or fixed base if it had been paid or
accrued in the earlier year.
Paragraph 5 provides a source rule.
Interest is considered
to arise in a Contracting state if paid by a resident of that
State (including the State itself).
In addition, interest paid
by any person (whether or not a resident) and borne by a
permanent establishment or fixed base or other activity giving
rise to income subject to tax on a net basis in the non-residence
State under the Convention (~, income from real property under
Article 9, certain royalty income under paragraphs 2 and 3 b) of
Article 12, and gains under paragraph 1 or 2 of Article 13) is
considered to arise in that State.
For this purpose, interest is
considered to be "borne by" a permanent establishment, fixed
base, or other trade or business if it is allocable to (whether
or not deductible from) taxable income of that permanent
establishment, fixed base, or trade or business.
If the actual
amount of interest on the books of a u.S. branch of a Kazakh
business exceeds the amount of interest allocated to the branch
under Treas. Reg. § 1.882-5, any such interest will not be
considered u.S. source interest for purposes of this Article.
Conversely, the total amount of interest allocated to the branch
under that regulation will be u.S. source even if the amount
exceeds branch book interest.
The source rules in paragraph 5, as applied to interest paid
by Kazakh corporations conducting business in the United States
through a permanent establishment or fixed base, are consistent
with the rules contained in Treas. Reg. § 1.884-4, which treat
interest allocable to the u.S. trade or business of a foreign
corporation under Treas. Reg. § 1.882-5 as if such interest were
paid by a domestic corporation and, thus, sourced in the United
States. The presence of this source rule confirms that interest
paid by a U.S. permanent establishment of a Kazakh corporation
within the meaning of section 884(f) (1) (A) of the Code, is
'
subject to a 10 percent rate of tax pursuant to paragraph 2 where
such interest is paid to a resident of Kazakhstan.
-25-
Paragraph 6 provides that if, as a result of a special
relationship between persons, the amount of interest paid is
excessive, Article 11 will apply only to the amount of interest
payments that would have been made absent such special
relationship (i.e., an arm's length interest payment). Any
excess amount of interest paid remains taxable according to the
domestic law of the source state, with due regard to the other
provisions of the Convention. Thus, for example, if the excess
amount would be treated as a distribution of profits, such amount
could be taxed as a dividend rather than as interest, but the tax
would be subject, if appropriate, to the rate limitations of
paragraph 2 of Article 10 (Dividends).
Point 3 c) of the Protocol reserves the right of the United
states to tax an excess inclusion of a residual holder of a Real
Estate Mortgage Investment Conduit (REMIC) in accordance with
U.S. domestic law; thus, the tax on such an excess inclusion of a
resident of Kazakhstan would be subject to the domestic rate of
withholding tax, now 30 percent.
Paragraph 7 clarifies that the United states may also impose
a tax on the "excess interest amount" of a Kazakh resident that
conducts business in the United states through a permanent
establishment or fixed base or derives income in the United
States that is otherwise subject to tax on a net basis under the
Convention.
Paragraph 7 limits the rate of such tax, however, to
not more than 10 percent of the "excess interest amount." This
is the same rate that applies to interest under paragraph 2.
The "excess interest amount" is defined in point 3 d) of the
Protocol to coincide with the provisions of Code section
884(f) (1) (B).
Accordingly, the United States may apply its tax
on excess interest (but at the lowered treaty rate) to the
excess, if any, of (i) interest borne by a U.S. permanent
establishment, fixed base, or other trade or business of a
Kazakhstan resident subject to tax on a net basis over (ii) the
interest paid by such permanent establishment, fixed base, or
trade or business.
(The interest would be U.S. source under
paragraph 5 because it is borne by a U.S. branch.)
Under current
u.S. law, the excess amount is deemed paid by a U.S. corporation
to a Kazakhstan corporation. Moreover, current U.S. law imposes
branch level interest taxes only on foreign corporations and not
on non-corporate foreign residents.
Interest will be considered
"borne by" a permanent establishment even if the interest is not
fully deductible in that year, provided it is allocable in that
year to the permanent establishment's U.s. income under U.s.
domestic rules.
Unlike the united states, Kazakhstan does not currently
impose a tax on excess interest comparable to the U.s. tax on
excess interest. The provisions permitting application of a tax
on an excess interest amount, however, are drafted reciprocally.
-26-
Should Kazakhstan enact a tax on excess interest, the "excess
interest amount" to which it could apply that tax would be
limited to the amount of interest deductible in computing the
profits of a Kazakh branch of a u.S. resident, provided the
amount were similar to the amount that would be "excess interest"
under u.S. law.
Article 12.
ROYALTIES
This Article limits the taxation at source by each
Contracting State of royalties paid to a resident of the other
Contracting State.
Paragraph 1 preserves the residence State's general right to
tax its residents on royalties arising in the other Contracting
State. The same result is achieved by the saving clause of
paragraph 3 of Article 1 (General Scope).
Paragraph 2 permits the source State to tax royalties but
limits the rate of source State tax to 10 percent of the gross
amount of royalties beneficially owned by residents of the other
State. Notwithstanding its treaty obligation to limit the rate of
tax applied to royalties, the source State may, in accordance
with point 4 of the Protocol, withhold on royalties at its
domestic rates, as long as it timely refunds any excess amount
withheld over the maximum rates established by the treaty.
As defined in paragraph 3, the term "royalties" includes
payments for equipment rentals.
(Payments for the rental of
ships, aircraft, and containers in connection with international
traffic, however, are covered by Article 8 (Shipping and Air
Transport).)
Paragraph 2 provides that the beneficial owner of
royalties arising from equipment rentals may elect to compute the
source State tax on a net basis, as if the royalties were
attributable to a permanent establishment or fixed base.
In that
case, the 10 percent maximum rate of paragraph 2, which limits
any gross basis tax, will not be applicable. The election
effectively treats income from the leasing of equipment as if it
were attributable to a permanent establishment in the source
State and covered by Article 6 (Business Profits). The preferred
u.S. position is in fact to treat income from the rental of
tangible personal property under Article 6. A beneficial owner
of the payments from equipment rentals that makes the net
election may, in addition to the source State tax on profits, be
subject to any source state branch taxes under paragraph 5 of
Article 10 (Dividends) or paragraph 7 of Article 11 (Interest).
Paragraph 2 further defines the term "royalties" as used in
the Convention to mean payments of any kind received as a
consid 7ration for ~he.use of, ~r t~e.right to.use, any copyright
of a llterary, artlstlc, or sClentlflc work, lncluding computer
software programs, video cassettes, and films and tapes for radio
-27-
and television broadcasting. The term also includes payments for
the use of, or right to use, any patent, trademark, design or
model, plan, secret formula or process, or other like right or
property; or for information concerning industrial, commercial,
or scientific experience. The term "information concerning
industrial, commercial, or scientific experience" alludes to the
concept of "know-how" and means information that is not publicly
available and that cannot be known from mere examination of a
product and mere knowledge of the progress of technique. As
provided in the Commentaries to the OECD Model (Paragraph 11 of
the Article 12 Commentaries), "In the know-how contract, one of
the parties agrees to impart to the other, so that he can use
them for his own account, his special knowledge and experience
which remain unrevealed to the public." This distinguishes the
"know-how" contract from a contract for the provision of services
or technical assistance, in which one party agrees himself to
perform work for the other party.
paragraph 4 provides an exception to the rules of paragraphs
1 and 2 in cases where royalties are attributable to a permanent
establishment or fixed base that the beneficial owner, a resident
of one Contracting state, has in the other Contracting state. In
such a case, the royalties are taxable to the permanent
establishment or fixed base in accordance with the provisions of
Article 6 (Business Profits) or Article 14 (Independent Personal
Services). The same rule applies if the permanent establishment
or fixed base has ceased to exist when the royalties are
received, so long as the royalties would have been attributable
to it if they had been paid or accrued in the earlier year.
Paragraph 5 provides a source rule for royalties that
reflects the U.S. rule. That is, royalties will be deemed to
arise in a Contracting State, and thus may be taxed there in
accordance with the provisions of paragraph 2, if they are paid
for the use or right to use in that State property giving rise to
the royalty.
Paragraph 6 provides that if, as a result of a special
relationship between persons, the royalty paid is excessive,
Article 12 will apply only to the amount of royalty payments that
would have been made absent such special relationship (i.e., an
arm's length royalty payment). Any excess amount of royalties
paid remains taxable according to the laws of the United States
and Kazakhstan, respectively, with due regard to the other
provisions of the Convention.
If, for example, the excess amount
is treated as a distribution of profits, such excess amount could
be taxed as a dividend rather than as a royalty payment, but the
tax imposed on the dividend payment would be subject, if
appropriate, to the rate limitations of paragraph 2 of Article 10
(Dividends).
Article 13. GAINS
-28-
This Article provides rules governing when a Contracting
state may tax capital gains derived by a resident of the other
Contracting state.
Paragraph 1 provides that each state may tax gains on the
alienation of real property situated in that state. The
Convention does not interfere with the domestic law rules on the
taxation of such gains, other than to require non-discriminatory
treatment under Article 24 (Non-discrimination).
Paragraph 2 elaborates, in effect, on the rule of paragraph
1 by permitting each state to tax gains from the alienation of
real property held not only directly but also indirectly through
a corporation, partnership, trust, estate, or other legal person.
Thus, to the extent the property of a corporation or other legal
person consists principally of real property situated in a
Contracting state, gain on the alienation of an interest in that
corporation or other person may be taxable by that state. This
is true whether or not the corporation or other legal person is
itself resident of that State. Subparagraph b) of paragraph 2
provides similar treatment for gain on the alienation of an
interest in a partnership, trust, or estate (again, whether or
not it is a resident of a Contracting state) to the extent the
gain is attributable to real property situated in a Contracting
State. The term "real property" for purposes of paragraph 2
includes the shares of any company and the interest in any
partnership, trust, or estate referred to in the paragraph.
It
also specifically includes a "United States real property
interest" as defined in Code section 897 or any successor to that
provision.
Paragraph 3 provides a rule similar to provisions in the
United States treaties with Spain and Mexico.
It permits a
Contracting State to tax the gain derived by a resident of the
other State on the disposition of shares or other rights in the
capital of a corporation or other legal person resident in the
first State. The right to impose this tax, however, is permitted
only if the person disposing of the shares has or had at any time
during the 12-month period preceding the disposition a direct or
indirect interest of at least 25 percent in the vote or value of
the corporation or other legal person. At present, neither the
United States nor Kazakhstan imposes a tax on the alienation by a
nonresident of shares in a local corporation or other legal
person.
This paragraph, therefore, currently has no practical
effect.
Point 6 of the Protocol provides that, in the event
either State introduces such a tax in the future, it must inform
the other State in a timely manner and must consult with that
other state with a view to providing for nonrecognition treatment
in appropriate cases. The cases envisioned were those involving
corporate reorganizations and other intercompany transfers.
The
negotiators believed it prudent to postpone consideration of
nonrecognition provisions until such time as actual laws make
-29-
clearer what exceptions and allowances are necessary.
Moreover,
views within each Contracting State on the types of transactions
that are appropriately excepted from current taxation may change.
Thus, elaborate nonrecognition provisions of the type that appear
in the United states treaties with Spain and Mexico are not
provided in the present agreement, but the Convention does impose
a good faith obligation to craft such exceptions in the event
domestic laws change.
It is expected that the corresponding
provisions in the treaties with Mexico and Spain will serve as
guidance in the crafting of exceptions in this Convention.
Tc the extent one state does tax the share gains of
residents of the other State as permitted by paragraph 3, the
residence state will source the gains in the non-residence state
to the extent necessary to permit a foreign tax credit or
otherwise avoid double taxation.
Paragraph 4 provides that gain from the alienation of
personal property attributable to a permanent establishment or
fixed base that a resident of one Contracting state has in the
other Contracting State may be taxed by that other state. Gain
from the alienation of personal property comprising part or all
of the assets of the permanent establishment or fixed base also
may be taxed by that other State. Paragraph 4 does not permit
the united States to impose tax under Code section 864(C) (7) with
respect to gain from the subsequent disposition of assets that
were formerly used in connection with a U.S" permanent
establishment or fixed base. Kazakhstan does not tax gain in
such circumstances.
Paragraph 5 provides that gains derived by a resident of one
of the Contracting States from the alienation of ships, aircraft,
containers, or related equipment operated in international
traffic may be taxed only by that State. Occasional use of a
ship, aircraft, container, or related equipment in domestic
traffic should not cause the disposition of such property to fall
outside the scope of this provision.
Paragraph 6 reserves the exclusive right to tax gains with
respect to any property not specified in the previous paragraphs
of this Article to the State in which the alienator is a
resident.
Article 14.
INDEPENDENT PERSONAL SERVICES
The Convention deals in separate articles with different
classes of income from personal services. Article 14 deals with
the general class of income from independent personal services,
and Article 15 deals with the general class of income from .
employment, sometimes referred to as dependent personal services.
Articles 16 through 19 provide exceptions and additions to these
general rules for directors' fees (Article 16); government
-30-
service salaries (Article 17); pensions and social security
benefits (Article 18); and certain income of students, trainees
and researchers (Article 19).
Unlike the OECD Model and certain other u.s. treaties, this
convention does not provide a separate article dealing with
entertainers and athletes. Like the OECD Model and other u.s.
treaties, the Convention does not provide a separate rule for the
remuneration of teachers.
(See the discussion under Article 19
(Students, Trainees, and Researchers.») The compensation of such
individuals is taxable under this Article or Article 15 (Income
from Employment).
Income derived by an individual who is a resident of one
Contracting state from the performance of personal services in an
independent capacity is exempt from tax in that other state
unless one of two conditions is met. The income may be taxed in
that other state if the services are or were performed there (see
Code section 864(c) (6»
and if the income is attributable to a
fixed base that the individual regularly used or uses in that
other State in performing services. Alternatively, if the
individual is or was present in that other State for more than an
aggregate of 183 days in any twelve month period beginning or
ending in the taxable year concerned, that other State may tax
the income attributable to the activities performed there,
whether or not there is a fixed base. Under either the fixed
base or 183 day presence test, it is understood that the taxation
of income from independent personal services is to be governed by
the principles set forth in Article 6 (Business Profits).
In
particular, the income attributed to the services must be taxed
on a net basis, after allowance of deductions for business
expenses, in accordance with principles similar to those provided
in Article 6 for the taxation of business profits of a permanent
establishment. However, the nonresident State may only tax
income that is attributed to services performed in that State and
may not in any case tax income from services performed elsewhere.
Paragraph 2 notes that the term "independent personal
services" includes independent scientific, literary, artistic
educational or teaching activities, as well as the independent
activities of physicians, lawyers, engineers, architects,
dentists, and accountants. This list, which is derived from the
OECD Model, is not exhaustive. The term includes all personal
services performed by an individual for his own account, where he
receives the income and bears the risk of loss arising from the
services.
Article 15.
INCOME FROM EMPLOYMENT
-31This Article deals with the taxation of remuneration derived
by a resident of a Contracting State from the performance of
personal services as an employee. paragraph 1 also provides that
the more specific rules of Articles 16 (Directors' Fees), 17
(Government Service), and 18 (pensions, Etc.) apply in the case
of employment income described in one of those articles. Thus,
even though the state of source has a right to tax employment
income generally under Article 15, it may not have the right to
tax a particular type of income under the Convention if that
right is proscribed by one of the aforementioned articles.
Similarly, these other articles may expand the source state's
right to tax beyond the circumstances in which Article 15 would
permit it to tax.
Under paragraph 1, remuneration derived by an employee who
is a resident of a Contracting State may be taxed by his state of
residence. This is the same result achieved by the saving clause
of paragraph 3 of Article 1 (General Scope). Under paragraph 2,
the remuneration also may be taxed by the other Contracting state
if the remuneration is derived from the performance of services
in that other State and if one of the following is true:
(1) the
individual is present in that other State for a period or periods
exceeding in the aggregate 183 days in any twelve month period
beginning or ending in the taxable year concerned; (2) the
remuneration is paid by, or on behalf of an employer who is a
resident of that other State; or (3) the remuneration is borne as
a deductible (or capitalizable) expense by a permanent
establishment or fixed base that the employer has in that other
State.
If a foreign employer pays the salary of an employee, but
a host country corporation or permanent establishment reimburses
the foreign employer in a deductible payment that can be
identified as a reimbursement, either condition (2) or (3), as
the case may be, will be considered to have been fulfilled.
Conditions (2) and (3) are intended to ensure that a Contracting
state will not be required both to allow a deduction to the payor
for the amount paid and to exempt the employee on the amount
received.
Failure to satisfy any of the three conditions will
result in exclusive residence state taxation of employment
income.
Paragraph 3 contains a special rule exempting income from
tax at source in one particular case. That case involves
remuneration for services performed as an employee aboard a ship
or aircraft operated in international traffic.
Article 16.
DIRECTORS' FEES
This Article provides that a contracting State may tax the
fees paid by a company which is a resident of that State for
services performed by a resident of the other Contracting State
in his or her capacity as a director of the company.
For this
purpose, "similar payments" includes fixed salaries (or the
-32-
portion thereof) paid for services performed as a director (not
to include any portion of such salary paid for performance as an
officer).
Article 17.
GOVERNMENT SERVICE
This Article follows the corresponding provisions of the
OECD Model.
Paragraph 1 provides that generally payments from the public
funds of a Contracting State or political subdivision or local
authority to compensate an individual for performing governmental
services may be taxed only by that State. However, if the
services are rendered in the other State by an individual who is
either a citizen of that other State, or was a resident of that
other State prior to taking the governmental job (or otherwise
did not become a resident of the other State solely for the
purpose of taking the job), the compensation may be taxed only by
that other State.
It is understood that a governmental worker's
spouse who takes a governmental job subsequent to becoming a
resident of the host state nevertheless will be considered to
have become a resident of the host State solely for the purpose
of taking a governmental job.
The rules of paragraph 1 are an exception to the saving
clause of paragraph 3 of Article 1 (General Scope) for
individuals who are neither citizens nor permanent residents of
the State where the services are performed. Thus, for example,
payments by Kazakhstan to its employees at the Kazakh Embassy in
Washington, D.C. are exempt from u.S. tax if the employees are
not u.S. citizens or green card holders and were not residents of
the United States at the time they became employed by Kazakhstan,
even if they would otherwise be considered u.S. residents for tax
purposes.
(Under the 1984 modification to the definition of a
u.S. resident in Code section 7701, this exception to the saving
clause is of less relevance, because time spent in the United
States as a foreign government employee does not count in
applying the physical presence test of residence.)
Paragraph 2 provides that this Article applies only to
remuneration paid in respect of services of a governmental
nature. Remuneration paid in respect of services for a
government-conducted business (for example, a government-operated
airline) are covered by Articles 14 (Independent Personal
Services) or 15 (Income from Employment), as appropriate.
This Article does not cover pensions paid to individuals in
respect of services rendered to the government of one of the
Contracting States. Such payments are covered instead in Article
18 (Pensions, Etc.).
Article 18.
PENSIONS, ETC.
-33The general rule of this Article is that pensions and
similar remuneration in consideration of past employment may be
taxed only by the Contracting state of which the beneficial owner
is a resident. It is understood that the services need not have
been performed by the beneficial owner of the pension; for
example, a pension paid to a surviving spouse who is a resident
of Kazakhstan would be exempt from taxation by the United States
on the same basis as if the right to the pension had been earned
directly by the surviving spouse. A pension may be paid in
installments or in a lump sum.
Subparagraph b) of paragraph 1 provides the first exception
to the general rule, that social security benefits and other
public pensions paid by a Contracting state may be taxed only by
that state.
(This rule is also an exception to the saving clause
of paragraph 3 of Article 1 (General Scope).) Thus, a Kazakh
social security benefit will be exempt from U.S. tax even if the
beneficiary is a U.S. resident or a U.S. citizen (whether
resident in the United States, Kazakhstan, or a third country).
Paragraph 2 provides rules for the taxation of pensions paid
from public funds in respect of governmental services. Such
pensions may be taxed only by the paying State unless the
individual is a resident and citizen of the other State, in which
case only the other (residence) state may tax the pension. The
rules of paragraph 2 do not apply to social security benefits and
other public pensions which are not in respect of services
rendered to the paying government or a political subdivision or
local authority thereof; such amounts are taxed exclusively by
the source State under the terms of paragraph 1 b). However,
paragraph 2, in particular subparagraph b), does apply to social
security payments to U.s. Government employees for whom the
social security system is the retirement plan related to their
government service. Thus, in the unusual case where a Kazakh
citizen and resident derives a pension for u.s. Government
employment that is paid under the social security system, only
Kazakhstan may tax that pension, as provided by paragraph 2 b).
This could happen, for example, if a locally hired driver for the
U.S. Embassy in Almaty were to retire and receive a U.s. pension
under social security.
Annuities derived and beneficially owned by an individual
resident of a contracting State may be taxed only by that state.
This provision is intended to cover traditional annuity
arrangements that provide retirement benefits to individuals. It
is not intended to exempt from tax at source income from
arrangements that are a variation of traditional annuities and
that accrues to corporations or other legal persons.
Paragraph 4 provides for exclusive residence State taxation
of alimony payments. The term "alimony" is defin 7d by paragraJ;>h
4 to mean periodic payments made pursuant to a wr1tten separat10n
-34-
agreement or decree of divorce, separate maintenance, or
compulsory support, which payments are taxable to the recipient
under the laws of the state of residence. Under U.S. law,
alimony payments are taxable to the recipient (and deductible by
the payer). Kazakhstan does not tax the recipient of alimony
(nor does it permit a deduction by the payer).
In general,
"alimony" payments are made in Kazakhstan solely for the support
of children, and there is no concept of payments made solely for
the support of a spouse or former spouse.
Paragraph 5 addresses child support payments and provides
for exclusive source State taxation. Thus, when a resident pays
child support to a resident of the other State, only the firstmentioned State may tax the payment. This rule is an exception
to the saving clause of paragraph 3 of Article 1 (General Scope).
Thus, a U.S. resident deriving child support payments from a
resident of Kazakhstan will be exempt from any U.S. tax on those
payments.
Under the laws of both the united States and
Kazakhstan, child support payments are not taxable to the
recipient in any case (and are not deductible by the payer).
Article 19.
STUDENTS, TRAINEES AND RESEARCHERS
This Article deals with visiting students, trainees, and,
researchers. An individual who is a resident of one of the
Contracting States and who visits the other Contracting State for
the primary purpose of studying at an accredited educational
institution, such as a university, or of studying or doing
research as the recipient of a grant or similar payment from a
charitable organization, or of acquiring training for a
profession will not be taxed by the host State on amounts
received from abroad to cover his expenses and on any grant or
similar payment regardless of its source.
The reference to "primary purpose" is meant to describe
individuals participating in a full-time program of study,
training, or research.
It was substituted for the reference in
the OECD Model to "exclusive purpose" to prevent too narrow an
interpretation; it is not the intention to exclude from the
coverage of this paragraph full-time students who, in accordance
with their visas, may hold part-time employment.
For U.S.
purposes, a religious, charitable, etc. organization as described
in paragraph 1 c) means an organization that qualifies as taxexempt under Code section 501(c) (3).
The exemptions provided in paragraph 1 are available for the
period of time ordinarily necessary to complete the study,
training, or research but not for more than five years in the
case of training or research.
It is expected that in most cases
study programs would also be completed within five years·
however, an individual who completes both undergraduate ~nd
-35-
graduate degrees in the host state could require a longer period.
For the exemption to apply to a researcher, the research
must be undertaken in the public interest, and not primarily for
the private benefit of a specific person or persons. For
example, the exemption would not apply to a grant from a taxexempt research organization to search for the cure to a disease
if the results of the research became the property of a forprofit company. The exemption would not be denied, however, if
the tax-exempt organization licensed the results of the research
to a for-profit enterprise in consideration of an arm's length
royalty. consistent with its tax-exempt status.
This Article is an exception to the saving clause of
paragraph J of Article 1 (General Scope). Thus, a Kazakh
student, trainee, or researcher is entitled to the benefits of
this Article even if such individual becomes a resident of the
United States under the sUbstantial presence test of Code section
7701(b). However, the benefits of this Article are not available
to a U.s. citizen or green card holder.
Article 20.
OTHER INCOME
This Article provides the rules for the taxation of items of
income derived by a resident of a Contracting State and arising
in the other contracting state that are not dealt with in the
other articles of the Convention. such income includes lottery
winnings, punitive damages, and cancellation of indebtedness
income.
Such income may be taxed in the State in which it
arises.
Income arising in a third state is not dealt with in
this Article. Thus, domestic laws apply, unless the income
constitutes business profits of a permanent establishment or
fixed base of a resident of the other Contracting State, in which
case Article 6 (Business Profits) or 14 (Independent Personal
Services) applies.
Article 21.
LIMITATION ON BENEFITS
Article 21 addresses the problem of "treaty shopping" by
assuring that source basis tax benefits granted by a contracting
state pursuant to the Convention are limited to the intended
beneficiaries -- residents of the other contracting state -- and
are not extended to residents of third states not having a
substantial presence in, or business nexus with, the other
contracting State.
In a typical case of treaty shopping, a
resident of a third State might esta~lish an entity resident in a
Contracting state for the purpose of deriving income from the
other contracting state and claiming source state benefits with
respect to that income. Article 21 limits the abuse of the
Convention by limiting the benefits of the Convention to those
persons whose residence in a Contracting state is not considered
to have been motivated by the existence of the Convention.
-36-
Absent Article 21, the entity would generally be entitled to
benefits as a resident of a Contracting state, subject to any
limitations imposed by the domestic law of the source state,
(~, business purpose, substance-over-form, step transaction or
conduit principles) applicable to a particular transaction or
arrangement. Article 21 and general anti-abuse provisions
complement each other, as Article 21 generally determines whether
an entity has a sufficient nexus to the contracting state to be
treated as a resident for treaty purposes, while general antiabuse provisions determine whether a particular transaction
should be recast in accordance with the substance of the
transaction.
Article 21 follows the form used in other recent U.S. income
tax treaties.
See,~, the Convention between the United
States of America and the Federal Republic of Germany for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with Respect to Taxes on Income and Capital and to certain other
Taxes. The structure of the Article is as follows:
Paragraph 1
lists a series of attributes of a resident of a Contracting
State, the presence of anyone of which will entitle that person
to benefits of the Convention in the other Contracting state.
Paragraph 2 provides that benefits also may be granted to a
person not entitled to benefits under the tests of paragraph 1,
if the competent authority of the source State determines that it
is appropriate to provide benefits in that case.
Paragraph 3
defines the term "gross income" as used in paragraph l(e} (ii).
The first category of persons eligible for benefits from the
other Contracting state under paragraph 1 consists of individual
residents of a Contracting state.
It is unlikely that
individuals can be used to derive treaty-benefitted income on
behalf of a third-country resident.
If such an individual is
receiving income as a nominee on behalf of a third country
resident, benefits will be denied under the respective articles
of the Convention by the requirement that the beneficial owner of
the income be a resident of a Contracting State.
The second category consists of active businesses that are
residents of one of the Contracting states and derive income from
the other Contracting State that is connected with, or incidental
to, that business.
For this purpose, the business of making or
managing investments is not considered an active business unless
carried on by a bank or insurance company. The first six
examples in the Memorandum of Understanding regarding the scope
of the Limitations on Benefits Article in the Convention Between
the Federal Republic of Germany and the United States of America
illustrate the situations covered by subparagraph (b).
The third category, in subparagraph (c), consists of
companies whose shares are regularly traded in substantial volume
on an officially recognized securities exchange, or a company
-37-
wholly owned, directly or indirectly, by a company that is a .
resident of the same State and whose shares are so traded. po~nt
7 of the Protocol specifies that the term "officially recognized
securities exchange" means, in the case of the United States, the
NASDAQ System owned by the National Association of securities
Dealers, Inc., and any stock exchange registered with the
securities Exchange Commission as a national securities exchange
for purposes of the Securities Exchange Act of 1934. The
Memorandum of Understanding between the two States provides that
any other exchange will be treated as an "officially recognized
exchange" under subparagraph (c) only if it is officially
recognized by either State and agreed upon by the competent
authorites of both States. This clarifies that point 7 neither
limits the U.S. exchanges that may be "officially recognized"
under paragraph 1 (c) to those specified in the Protocol nor
implies that any exchange recognized by Kazakhstan is
automatically within subparagraph (c). Thus, any future exchange
officially recognized by Kazakhstan will be reviewed by the
competent authorites and, only if they agree that it provides
adequate requirements for listing and trading, will be treated as
an "officially recognized exchange" for purposes of granting
treaty benefits to companies listed and traded on it.
The fourth category covers tax-exempt organizations. If
more than half of its beneficiaries, members, or participants (if
any) are individual residents of either Contracting state or
persons who meet the other criteria of this Article, the taxexempt organization will be a qualified resident.
The fifth category provides a two-part test, the so-called
ownership and base erosion tests. Both must be satisfied for the
resident to be entitled to benefits under subparagraph (e). The
ownership test requires that more than 50 percent of the
beneficial interest in the person (or, in the case of a
corporation, more than 50 percent of each class of its shares) be
owned, directly or indirectly, by persons who are themselves
entitled to benefits under the other tests of paragraph 1 (other
than subparagraph (b». The base erosion test requires that not
more than 50 percent of the person's gross income be used,
directly or indirectly, to meet liabilities to persons other than
persons eligible for benefits under the other tests of paragraph
1 (other than subparagraph (b». For this purpose "gross income"
means gross receipts or, in the case of a manufacturing or
producing activity, gross receipts less the direct costs of labor
and materials.
(See paragraph 3.)
The rationale for this two-part test is that, to prevent
to third-country
res~dents, .~t ~s not suf~~c~ent to requ~re sUbstantial ownership
of the equ~ty of the ent~ty by treaty country residents. It is
also necessary to ensure that the entity's tax base not be eroded
by deductible payments to third country residents.
tre~ty bene~it~ frominur~n9 substantia~ly
-38-
It is intended that the provisions of paragraph 1 will be
self-executing. Unlike the provisions of paragraph 2, discussed
below, claiming benefits under paragraph 1 does not require
advance competent authority ruling or approval. The tax
authorities may, of course, on review, determine that the taxpayer has improperly interpreted the paragraph and is not
entitled to the benefits claimed.
It is understood that, just as the two Contracting states
and their political subdivisions are to be treated as residents
of those States for purposes of Convention benefits, they also
are entitled to benefits under Article 21.
Paragraph 2 permits the competent authority of the state in
which income arises to grant Convention benefits in additional
cases, even if the beneficial owner of the income does not meet
the safe harbor standards of paragraph 1 (or the information is
not available to make such a determination). This discretionary
provision is included in recognition that, with the increasing
scope and diversity of international economic relations, there
may be cases where significant participation by third country
residents in an enterprise of a Contracting state is warranted by
sound business practice and does not indicate a motive of
attempting to derive unintended Convention benefits.
Paragraph 3 defines the term "gross income" as used in
paragraph l(e) (ii).
Article 22.
CAPITAL
This Article specifies the circumstances in which a
Contracting State may impose tax on capital owned by a resident
of the other Contracting state. At the time the treaty was
signed, neither the United States nor Kazakhstan imposed a
national-level tax on capital. There was some indication,
however, that Kazakhstan might enact such a tax, and the purpose
of this Article was to provide rules to deal with any such tax
subsequently enacted by either state. The recently enacted tax
code of Kazakhstan contains provisions for capital taxes on land,
vehicles, and certain business assets. This Article specifically
permits Kazakhstan to impose a capital tax on real property (as
defined in Article 9 (Income from Real Property»
of a U.s.
resident situated in Kazakhstan (paragraph 1) and on movable
business assets forming part of the permanent establishment or
fixed base of a U.S. resident in Kazakhstan (paragraph 2).
Paragraphs 1 and 2 would also permit the United states to impose
capital taxes on real property of a Kazakhstan resident located
in the United states and on a Kazakhstan resident's business
assets held in connection with a permanent establishment or fixed
base in the United States.
In the cases covered by paragraphs 1
and 2, the taxing right given to the State where the capital is
-39-
located is not an exclusive right; the State of residence may
also tax.
,
Paragraph 3 ~rovides that capital represented by ships,
a1rcraft or conta1ners owned by a resident of one Contracting
state and operated in international traffic may be taxed only in
the residence state. This is consistent with the rule of Article
8 (Shipping and Air Transport) that addresses the income from
international transportation activities.
Paragraph 4 provides that all other items of capital not
otherwise specified in the Article will be taxed exclusively by
the residence State. For this purpose, a "resident" is defined
under Article 4 (Residence). Thus, for example, a U.s. citizen
may be a "resident" of Kazakhstan and would be subject to capital
taxes in Kazakhstan under paragraph 4 but would also be subject
to any capital tax in the United states under the saving clause
of paragraph 3 of Article 1 (General Scope).
Article 23.
RELIEF FROM DOUBLE TAXATION
In this Article, each Contracting State undertakes to
relieve double taxation by granting a credit against its income
tax for the income tax paid to the other country. It also
provides a credit to a parent company (one owning at least 10
percent of the voting stock of a company that is a resident of
the other state) for tax "indirectly" paid to that other State.
Each Contracting State uses the foreign tax credit to avoid
double taxation of income arising in the other State. The credit
is subject to the limitations of domestic law, such as Code
sections 59(a), 902, and 904.
Point 8 of the Protocol further elaborates on the provisions
in this Article.
Subparagraph (a) of point 8 provides that
Kazakhstan will credit the u.s. tax imposed on U.S. citizens
resident in KaZakhstan by reason of citizenship, subject only to
the limitation to the amount of the Kazakh tax on non-Kazakhstan
source income. This includes the portion of the U.s. tax imposed
solely on the basis of citizenship in .. accordance with the saving
clause of paragraph 3 of Article 1 (General Scope). Thus, the
United States fully retains primary taxing jurisdiction with
respect to U.S. source income and third-country source income of
a U.S. citizen who is resident in Kazakhstan. Accordingly, it is
not necessary to re-source any of the U.S. source income of such
an individual to avoid double taxation.
(Cf. Paragraph 3 of
Article 23 (Relief from Double Taxation) of the U.S.-German
income tax convention.)
Kazakhstan confirms in point 8 b) of the Protocol that, in
computing the taxes on profits a~d income , specified in Articl 7 2
(Taxes Covered), it allows certa1n deduct~ons to a Kazakh ent1ty
wholly owned by U.S. residents, to joint ventures involving U.S.
-40-
investors, and to permanent establishments of u.s. residents.
The deductions specified in point 8 b) are the amount of wages
actually paid and interest, whether or not paid to a bank and
without regard to the term of the debt. The amount of interest
allowed as a deduction, however, shall not exceed the limitation
on interest deductions under Kazakhstan law, as long as the
limitation permits deduction of at least an arm's length rate of
interest, with a reasonable risk premium. 2 (Kazakhstan's new tax
law, which was enacted by presidential decree on April 24, 1995,
makes no distinction between foreign and domestic ownership for
purposes of interest and wage deductions and generally permits
full deduction of these expenses.)
Based upon the confirmation of deductions in point 8 b) of
the Protocol, Article 23 provides that the Kazakhstan taxes
referred to in Article 2 shall be treated as income taxes, and
therefore are eligible for the foreign tax credit.
Thus, when
those Kazakhstan taxes are paid by ventures wholly or partly
owned by u.s. investors, they will be eligible for foreign tax
credits in the United States.
The deductions for wages and interest are critical to the
agreement by the United states to provide a foreign tax credit
for the Kazakh taxes covered under Article 2. The united states
permits a credit only for foreign taxes imposed on net income,
and the deduction of wages and interest is necessary to ensure
that the base of the Kazakh tax is net income. Kazakhstan has an
obligation under Article 2 (Taxes Covered) to notify the United
states, through the competent authority mechanism, of significant
changes in its law, including changes that deny or have the
effect of denying, these significant deductions. The United
States will not be obligated under the Convention to grant a
foreign tax credit should Kazakhstan change its law in the future
to deny these deductions. Moreover, the United States may,
without regard to any treaty obligation, make an independent
assessment of any other substantial change in Kazakh law to
ensure that the Kazakh tax remains creditable under principles of
U.s. domestic law.
Subaragraph c) of Point 8 of the Protocol provides that
income tax paid by a Kazakh person that is treated as a
partnership under U.s. principles will be treated by the United
states as having been paid by the U.s. partners, pursuant to the
Point 8 b) does not alter the general rule under
Article 6 (Business Profits) that deductions will not be allowed
for interest paid by a permanent establishment to the home
office.
Consequently, in accordance with Article 6 (Business
Profits), a permanent establishment will be allowed to claim
deductions for interest expenses only to the extent they are
reasonably allowable to the permanent establishment.
2
-41rules of the Code. The Code rules regarding foreign taxes paid
or accrued by a partnership are found in sections 702 and 901 and
in Treas. Re~. S 1.90l-l(a). Private letter rulings issued by
the IR~ conf1r~ that the foreign taxes paid by a partnership, at
least 1n the c1rcumstances addressed by those rulings "flow
through" to its partners (P.L.R. 7934096 and P.L.R. 72ll160390A).
Subparagraph d) of point B of the Protocol clarifies that
does not provide for a "tax sparing" credit, that
1S, a cred1t for taxes waived under a tax holiday or other
provision.
It is firm u.s. treaty policy not to grant a treaty
credit .for taxes that are not in fact paid to the treaty partner;
the foreign tax credit in the United states is available only for
taxes actually paid or accrued to a foreign taxing authority.
Subparagraph d) does, however, provide that, in the event the
United States revises this policy or agrees in a treaty with
another country to give a tax sparing credit, this Convention
will be promptly amended to incorporate a tax sparing credit.
If
this Convention is so amended, approval by the United states
Senate would be required before a tax sparing credit would be
effective with respect to Kazkkhstan.
~he conven~ion
24.
NON-DISCRIMINATION
This Article ensures that citizens and residents of a
Contracting State will not be subject to discriminatory taxation
in the other Contracting state. This Article does not require
identical treatment of taxpayers. Distinctions in tax treatment
may be based upon differences in taxpayers' circumstances and in
such cases are not discriminatory within the meaning of this
Article.
certain examples of such treatment are discussed below.
Generally, non-discrimination under this Article means
providing the better of national treatment or most-favored-nation
treatment with respect to statutory rules and administrative
practice; it does not require most-favored-nation treatment when
citizens or residents of a third State are provided benefits
under special agreements, such as bilateral income tax treaties
with the third State. Thus, if Kazakh law imposes a more
favorable tax regime on the income of joint ventures with a
specified percentage of foreign capital vis-a-vis companies
wholly owned by residents, the benefits of the favorable regime
will also apply to joint ventures in which the foreign
participation is by U.S. citizens or residents.
Paragraph 1 provides that a citizen of one Contracting State
may not be subject to taxation or connected requirements in the
other contracting state which are different from or more burdensome than the taxes and connected requirements imposed upon a
citizen of that other State or of a third State in the same
circumstances. A citizen of a Contracting State is afforded
protection under this paragraph even if the citizen is not a
-42resident of either contracting state. Thus, a u.s. citizen who
is resident in a third country is entitled, under this paragraph,
to the same tax treatment in Kazakhstan as a citizen of any other
country who is a resident of that third country and in the same
circumstances.
It is understood, however, that for u.s. tax purposes, a
u.s. citizen who is resident outside the united states, whether
in Kazakhstan or a third country, is not in the same
circumstances as a citizen of Kazakhstan who is a resident
outside the united states, whether in Kazakhstan or a third
country, because the u.s. citizen is subject to u.s. tax on his
worldwide income and the Kazkahstan citizen is subject to u.s.
tax only on his u.s. income.
It is understood that neither
Contracting state is required to grant to residents of the other
Contracting state the same personal exemptions and deductions
that it provides to its own residents to take account of marital
status or family responsibilities.
Paragraph 2 of the Article provides that a permanent
establishment in a Contracting state of a resident of the other
Contracting state may not be less favorably taxed in the firstmentioned State than an enterprise of that first-mentioned State
or of a third state that is carrying on the same activities. The
latter, most-favored-nation, treatment does not extend to
benefits granted to permanent establishments of residents of a
third State in accordance with a special agreement with that
third State, such as an income tax Convention.
Section 1446 of the Code imposes on any partnership, whether
domestic or foreign, the obligation to withhold tax from a
foreign partner's distributive share of income effectively
connected with a u.s. trade or business.
If tax has been overwithheld, the partner can, as in other cases of over-withholding,
file for' a refund.
In the context of the Convention, this
obligation applies with respect to a Kazakh resident partner's
share of the partnership income attributable to a u.s. permanent
establishment. There is no similar obligation with respect to
the distributive shares of u.s. resident partners.
It is understood that this withholding provision is not a
form of discrimination within the meaning of paragraph 2 of the
Article, but merely a reasonable adaptation of the mode of
taxation to the particular circumstances of nonresident partners.
Like other withholding provisions applicable to nonresident
aliens, this is a reasonable method for the collection of tax
from persons who are not continually present in the United
States, and as to whom it may otherwise be difficult for the
United states to enforce its tax jurisdiction. Cf. the "backup
withholding" rules of section 3406 which apply only to u.s.
citizens and residents and serve a similar purpose.
(The
-43-
relationship between paragraph 2 and the imposition of the branch
tax is dealt with below in the discussion of paragraph 5.)
Paragraph 3 prohibits discrimination in the allowance of
deductions. When a resident of a Contracting state pays interest
or royalties or makes other disbursements to a resident of the
other Contracting state, the first-mentioned Contracting state
must allow a deduction for those payments in computing the
taxable profits of the enterprise under the same conditions as if
the payment had been made to a resident of the first-mentioned
state. An exception to this rule is provided for cases where the
provisions of paragraph 1 of Article 7 (Associated Enterprises),
paragraph 6 of Article 11 (Interest) or paragraph 6 of Article 12
(Royalties) apply, because all of these provisions permit the
denial of deductions in certain circumstances in respect to
excess (not at arm's length) payments involving related persons.
Paragraph 3 is not intended to limit in any way the application
of domestic thin capitalization rules, such as section 163(j),
which may deny or defer deductions for interest, as long as such
rules continue to be consistent with the arm's length standard.
The term "other disbursements" is understood to include a
reasonable allocation of executive and general administrative
expenses, research and development expenses and other expenses
incurred for the benefit of a group of related persons which
includes the person incurring the expense.
Paragraph 3 also provides that any debts of a resident of a
Contracting State to a resident of the other Contracting state
are deductible in the first-mentioned Contracting state in
computing taxable capital under the same conditions as if the
debt had been contracted to a resident of the first-mentioned
state. This Article also applies to taxes imposed by local
authorities in either Kazakhstan or the United States.
(See
discussion of paragraph 6.) Thus, for example, if a tax is
imposed on the value of real property net of debt, the same
deduction must be allowed with respect to debt of creditors who
are residents of either contracting State.
Paragraph 4 requires that a Contracting State not impose
other or more burdensome taxation or connected requirements on a
company which is a resident of that State that is wholly or
partly owned or controlled, directly or indirectly, by one or
more residents of the other Contracting State, than the taxation
or connected requirements it imposes on similar resident
companies owned by residents of the first-mentioned State or of a
third State. It is understood that the U.s. rules which impose
tax on a liquidating distribution of a U.S. subsidiary of a
Kazakh company and the rule restricting the use of small business
corporations to u.s. citizens and resident alien shareholders do
not violate the provisions of this Article.
-44Paragraph 5 of the Article specifies that no provision of
the Article will prevent either Contracting state from imposing
the branch profits tax described in paragraph 5 of Article 10
(Dividends) or the branch level interest tax described in
paragraph 7 of Article 11 (Interest).
Paragraph 6 provides that, notwithstanding the specification
of taxes covered by the Convention in Article 2 (Taxes Covered),
the non-discrimination protection in this Article applies to
taxes of every kind and description. Although not explicitly so
stated, this rule is intended to extend to taxes at all levels of
government. The reference to taxes of political subdivisions was
omitted largely for drafting reasons with respect to the Russian
language text. Customs duties are not considered to be taxes for
this purpose.
The saving clause of paragraph 3 of Article 1 (General
Scope) does not apply to this Article, by virtue of the
exceptions in paragraph 4(a) of Article 1. Thus, for example, a
u.s. citizen who is resident in Kazakhstan may claim benefits in
the United States under this Article.
Article 25.
MUTUAL AGREEMENT PROCEDURE
This Article provides for cooperation between the competent
authorities of the Contracting States to resolve disputes that
may arise under the Convention and to resolve cases of double
taxation not provided for in the Convention.
Paragraph 1 provides that where a person considers that the
actions of one or both Contracting States will result for him in
taxation that is not in accordance with the Convention he may
present his case to the competent authority of his State of
residence or citizenship. It is not necessary for a person first
to have exhausted the remedies provided under the national laws
of the Contracting States before presenting a case to the
competent authorities. Also, the Convention does not limit the
time during which a case may be brought.
Paragraph 2 provides that, if the competent authority of the
Contracting State to which the case is presented considers the
case to have merit, and if it cannot reach a unilateral solution,
it will seek agreement with the competent authority of the other
Contracting State to avoid taxation not in accordance with the
Convention. If agreement is reached under this provision, it is
to be implemented even if implementation would be otherwise
barred by the statute of limitations or by some other procedural
limitation, such as a closing agreement.
Because, as specified
in paragraph 2 of Article 1 (General Scope), the Convention
cannot operate to increase a taxpayer's liability, the Convention
overrides time or other procedural limitations of domestic law
-45-
only for the purpose of making refunds (not for the purpose of
imposing additional tax).
Paragraph 3 authorizes the competent authorities to seek to
resolve difficulties or doubts that may arise as to the
application or interpretation of the Convention. The paragraph
includes a non-exhaustive list of examples of the kinds of
matters about which the competent authorities may reach
agreement. They may agree to the same attribution of income,
deductions, credits or allowances between a resident of one
contracting State and its permanent establishment in the other,
and to the allocation of income, deductions, credits or
allowances between persons. These allocations are to be made in
accordance with the arm's length principles of Article 6
(Business Profits) and Article 7 (Associated Enterprises). The
competent authorities may also agree to settle a variety of
conflicting applications of the Convention, including those
regarding the characterization of items of income, the
application of source rules to particular items of income,
differences in meanings of a term, and differences in applying
penalties, fines and interest. Agreements reached by the
competent authorities under this paragraph need not conform to
the internal law provisions of either Contracting state. The
competent authorities also may address cases of double taxation
not foreseen by the Convention and attempt to reach an agreement
that would prevent that result.
Paragraph 4 authorizes the competent authorities to
communicate with each other directly for these purposes. It is
not necessary to communicate through diplomatic channels.
Paragraph 5 provides for an arbitration procedure, to be
implemented subsequently by an exchange of diplomatic notes. The
competent authorities will consult after the Convention has been
in force for three years to decide whether it is appropriate to
exchange the notes. One of the key factors for the U.S.
competent authority in making that decision will be the u.s.
experience under the arbitration provisions of the U.S.-Germany
treaty, which entered into force in 1991 and which contains the
first arbitration provision of any U.S. income tax treaty. If
the competent authorities decide to exchange the diplomatic notes
to implement an arbitration procedure in this Convention, they
will also agree to procedures to be followed in arbitration. It
is expected that such procedures will ensure that arbitration
will not generally be available where matters of either state's
tax policy or domestic law are involved, that the arbitrators
will be bound by the Convention's confidentiality and disclosure
provisions, and that the decision in arbitration will be premised
upon the Convention, the provisions of each State's domestic law,
and the principles of international law. The procedures to be
established by the exchange of notes also will address the costs
of arbitration and the composition of the arbitration board.
-46-
Point 9 of the Protocol also provides for the competent
authorities to consult whenever either believes that the law of
the other Contracting state is or may be applied in a manner that
significantly limits or eliminates a benefit provided by the
Convention.
In that event, the competent authorities shall
consult with a view to restoring the balance of benefits. 'The
State of which the request to consult is made shall accede to the
request by beginning consultations within three months of the
request.
If the States are unable to agree on how to modify the
Convention to restore the balance of benefits, the affected state
may terminate the Convention in accordance with Article 29
(Termination) even if the Convention has been in force fewer than
five years. Alternatively, the affected state may resort to
other procedures permitted under the general principles of
international law.
This Article 25 represents another exception to the saving
clause of paragraph 3 of Article 1 (General Scope); the benefits
of this Article are thus available to residents of either
Contracting state and to u.s. citizens.
(See paragraph 4(a) of
Article 1.)
Article 26.
EXCHANGE OF INFORMATION
This Article provides for the exchange of information
between the competent authorities of the Contracting States. The
information to be exchanged is that necessary for carrying out
the provisions of the Convention or the domestic laws of the
United States or Kazakhstan concerning the taxes covered by the
Convention.
For the purposes of this Article, the taxes covered
by the Convention include all taxes imposed at the national level
(see paragraph 4).
Exchange of information with respect to
domestic law is authorized insofar as the taxation under those
domestic laws is not contrary to the Convention. Thus, for
example, information may be exchanged with respect to any
national level tax for purposes of implementing the taxes covered
by Article 2, even if the transaction to which the information
relates is a purely domestic transaction in the requesting State.
Paragraph 1 states that information exchange is not
restricted by Article 1 (General Scope). This means that
information may be requested and provided under this Article with
respect to persons who are not residents of either Contracting
State.
For example, if a third-country resident has a permanent
establishment in Kazakhstan that engages in transactions with a
U.S. resident, the united States could request information with
respect to that permanent establishment, even though it is not a
resident of either Contracting State. Such information would not
be routinely exchanged, but may be requested in specific cases.
Paragraph 1 also provides assurances that any information
received in accordance with this Article will be treated as
-47-
secret, subject to the same restrictions on disclosure that apply
to information obtained under the laws of the requesting State.
Information received may be disclosed only to persons, including
courts and administrative bodies, concerned with the assessment,
collection, enforcement or prosecution in respect of the taxes to
which the information relates, or to persons concerned with the
administration of these taxes. The information must be used by
such persons in connection with these designated functions.
Persons concerned with the administration of taxes in the united
states include the tax-writing committees of Congress and the
General Accounting Office. Information received by these bodies
is for use in the performance of their role in overseeing the
administration of u.s. tax laws. Information received under this
Article may be disclosed in public court proceedings or in
judicial decisions.
Paragraph 2 explains that the obligations undertaken in
paragraph 1 to exchange information do not require a Contracting
State to carry out administrative measures that are at variance
with the laws or administrative practice of either state. Nor is
either State obligated to supply information not obtainable under
the laws or administrative practice of either state. Thus, there
is no obligation to furnish information to the other Contracting
State if either the requested state or the requesting state could
not obtain such information for itself in a domestic case. There
is also no obligation to disclose trade secrets or other
information, the disclosure of which would be contrary to public
policy. Either Contracting State may, however, at its
discretion, subject to the limitations of the paragraph and its
internal law, provide information which it is not obligated to
provide under the provisions of this paragraph.
The Memorandum of Understanding between the two States
clarifies that, notwithstanding any provision of either state's
law, information contained in banking documents, including
banking documents pertaining to third persons involved in
transactions with residents of either State, will be made
available under this Article, in civil or criminal tax
investigations. Thus, domestic laws regarding bank secrecy may
not be invoked to prevent the exchange of banking information or
documents under this Article.
Paragraph 3 provides that, when information is requested by
a contracting state in accordance with this Article, the other
Contracting state is obligated to obtain the requested
information as if the tax in question were the tax of the
requested State, even if that state has no direct tax interest in
the case to which the request relates. The paragraph further
provides that the requesting State may specify the form in which
information is to be provided {~ depositions of witnesses and
authenticated copies of original documents}, so that the
information can be used in the judicial proceedings of the
-48-
requesting state. The requested state should provide the
information in the form requested to the same extent that it can
obtain information in that form under its own laws and
administrative practices with respect to its own taxes.
Article 27.
DIPLOMATIC AGENTS AND CONSULAR OFFICERS
This Article confirms that any fiscal privileges to which
members of diplomatic or consular missions are entitled under the
general provisions of international law or under special
agreements will apply, notwithstanding any provisions of this
Convention. Thus Article protects any fiscal privileges of
technical staff and other employees of such missions as well as
those with diplomatic status.
Article 28.
ENTRY INTO FORCE
This Article provides the rules for bringing the Convention
into force and giving effect to its provisions. Paragraph 1
provides for the ratification of the Convention by both
Contracting States and the prompt exchange of instruments of
ratification.
Paragraph 2 provides that the Convention will enter into
force on the date on which instruments of ratification are
exchanged. The Convention will have effect with respect to taxes
withheld at source on dividends, interest and royalties for
amounts paid or credited on or after the first day of the second
month following the month in which the Convention enters into
force.
For example, if the Convention were to enter into force
on July 1, 1995, the withholding rates on dividends, interest and
royalties would be reduced (or eliminated) for amounts paid on or
after September 1, 1995. For all other income taxes, the
Convention will have effect for taxable periods beginning on or
after January 1 of the year in which the Convention enters into
force.
The 1973 Convention will cease to have effect when the
provisions of this Convention take effect. Point 10 of the
Protocol provides that a person entitled to the benefits of the
Convention may elect to continue to apply any legal rules under
the 1973 Convention for the first taxable year in which this
Convention wou~d other~ise ha~e.effect. ,This is a taxpayer-bytaxpayer electl0n. ThlS provlsl0n can be relevant, for example
to a teacher or journalist who may be entitled under the 1973 '
Convention, but not under this Convention, to a special exemption
from tax in the host country with respect to the individual's
remuneration for those services. In such a case, the individual
could elect to apply all of the legal rules applicable under the
1973 Convention for the first taxable year, but he could not
choose, for example, to apply the 1973 Convention rules with
respect to personal service income and the rules of this
-49-
convention with respect to dividend income. A U.S. company that
has already begun to perform a construction contract or to
explore for oil in ~azakhstan might also elect to apply the rules
of the 1973 Convent~on because that Convention contains a more
generous permanent establishment threshold (36 months) than does
the proposed Convention (12 months). (However the maximum
benefit that such a company could obtain from the 1973 Convention
is 12 additional months.)
Article 29.
TERMINATION
The Convention is to remain in effect indefinitely, unless
terminated by one of the Contracting States in accordance with
the provisions of this Article. A Contracting state may
terminate the Convention at any time after 5 years from the date
of its entry into force by giving written notice through
diplomatic channels to the other Contracting State at least six
months in advance. If such notice is given, the Convention will
cease to apply in respect of taxes withheld on dividends,
interest and royalties paid or credited on or after the first of
January following the six month period and with respect to other
taxes for taxable periods beginning on or after the first of
January following the six month period. Thus, for example, if
notice of termination is given in July or later of a calendar
year, the termination will not be effective as of the following
January 1 but as of the second January 1, because the notice
period must continue for at least six months.
Article 29 relates to unilateral termination of the
Convention by a contracting state. The Article does not prevent
the contracting States from entering into a new bilateral
agreement that supersedes, amends or terminates provisions of the
Convention either prior to the expiration of the five year period
or without the six month notification period.
Point 9 of the Protocol relates to unilateral termination of
the Convention by a contracting State before the expiration of
the five year minimum period provided for in paragraph 1 of
Article 29. This provision, discussed in more detail in the
explanation of Article 25 (Mutual Agreement Procedure), above,
was included at the request of Kazakhstan to address the
possibility of future U.S. legislative provisions overriding one
or more treaty provisions.
PROTOCOL
The provisions of the proto?ol a~e an integral part of the
Convention. Each has been descr~bed ~n the discussion of the
article to which it refers.
MEMORANDUM OF UNDERSTANDING
-50-
The Memorandum of Understanding reflects the contracting
states' mutual interpretation of certain Convention provisions
and is equally binding on both states.
Its provisions have been
described in the discussion of the articles to which they refer.
I! '
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TREABURYD£~
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TECHNICAL EXPLANATION OF THE CONVENTION
BETWEEN THE GOVE~O~oTHE UNITED STATES
OF AMERICA AND THE GOVERNxENTOFSWEDEN FOR THE
AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION
OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME
SIGNED AT STOCKHOLM ON SEPTEMBER 1, 1994
INTRODUCTION
This document is a technical explanation of the Convention
between the United states and Sweden signed on September 1, 1994
(lithe Convention"). References are made to the Convention between
the United States and Sweden for the avoidance of double taxation
and the establishment of rules of reciprocal administrative assistance in the case of income and other taxes signed on March 23,
1939, as amended by the supplementary Protocol signed on october
22, 1963 (lithe prior Convention").
The Convention replaces the
prior Convention.
References in this Explanation to the "OECD
Model" are to the Model Tax Convention on Income and on Capital,
published by the OECD in 1992, as amended in 1994.
The Technical Explanation is an official guide to the
Convention. It reflects the policies behind particular Convention
provisions, as well as understandings reached with respect to the
application and interpretation of the Convention.
The Convention was accompanied by an exchange of notes dealing
with two provisions of the Convention.
These notes will be
discussed in the explanations of the relevant Articles.
Article 1.
PERSONAL SCOPE
Paragraph 1 provides that the Convention is applicable to
residents of the united states or Sweden except where the terms of
the Convention provide otherwise.
Under Article 4 (Residence) a
person is treated as a resident of a Contracting state if that
person is, under the laws of that state, liable to tax therein by
reason of his domicile, residence or other similar criteria,
subject to certain limitations described in Article 4.
If,
however, a person is, under those criter~a, a resident of both
Contracting states, a single Sta:te of res1d~nce (or. ~o state of
residence) is assigned under Art1cle 4.
Th1s def1n1t1on governs
for all provisions of the Convention.
Certain provisions are
applicable to persons who may not be residents o~ either Contracting state.
For example., ,paragraph 1 of Art1cl.e 24 (Nondiscrimination) applies to c1t1zens of the contract1ng States,
irrespective of their residence.
Under ~rticle 26 (Excha~ge of
information) information may be exchanged w1th respect to res1dents
of third States.
Paragraph 2 of Article 1, like the comparable provision of
other u.s. treaties, describes the relationship between the rules
of the Convention, on the one hand, and the laws of the contracting
states and other agreements between the Contracting states, on the
other.
This paragraph makes explicit the generally accepted
principle that no provision in the Convention may restrict any
exclusion, exemption, deduction, credit or other allowance accorded
by the tax laws of the Contracting States.
For example, if a
deduction would be allowed under the Internal Revenue Code (the
"Code") in computing the taxable income of a resident of Sweden,
the deduction will be available to that person in computing income
under the Convention.
In no event may the application of the
Convention increase the tax burden on a resident of a contracting
state beyond that permitted under the State's internal law. Thus,
a right to tax given by the Convention cannot be exercised by the
united states unless that right also exists under the Code.
A taxpayer may generally rely on more favorable treatment
afforded under the Code.
A taxpayer may not, however, pick and
choose among Code and Convention provisions in an inconsistent
manner in order to minimize tax. For example, assume a resident of
Sweden has ·three separate businesses in the united States. One is
a profitable permanent establishment and the other two are trades
or businesses that do not meet the permanent establishment
threshold tests of the Convention. One is profitable and the other
incurs a loss. Under the Convention, the income of the permanent
establishment is taxable, and both the profit and the loss of the
other two businesses are ignored. Under the Code, all three would
be taxable.
The loss would be offset against the profits of the
two profitable ventures.
The taxpayer may not invoke the
Convention to exclude the profits of the profitable trade or
business and invoke the Code to offset the loss of the loss trade
or business against the profit of the permanent establishment.
(See Rev. Rul. 84-17 C.B. 1984-1, 10.) If the taxpayer invokes the
Code to subject all three ventures to u.s. tax, he would not be
precluded from invoking the Convention with respect to, for
example, any dividend income he may receive from the United States
that is not effectively connected with any of his business
activities in the United states.
Similarly, nothing in the Convention can be used to deny any
benefit granted by any other agreement between the United States
and Sweden. For example, if certain protections, not found in the
Convention, are afforded under a Consular Convention or under a
Treaty of Friendship, Commerce and Navigation, those protections
will be available to residents of the Contracting States regardless
of any provisions to the contrary (or silence) in the Convention.
Paragraph 3 of Article 1 affects obligations undertaken by the
contracting Sta tes under other agreements.
Subparagraph (a)
provides that, notwithstanding any other agreement to which the
contracting States may be parties, a dispute concerning whether a
-2-
measure is within the scope of this convention shall be considered
only by the competent authorities of the Contracting states, and
the procedures under this convention exclusively shall apply to the
dispute.
Thus, procedures for dealing with disputes that may be
incorporated into trade, investment, or other agreements between
the Contracting states shall not apply for the purpose of determine
the scope of the Convention.
Subparagraph (b) of paragraph 3 provides that, unless the
competent authorities determine that a taxation measure is not
within the scope of this Convention, the nondiscrimination
obligations of this Convention exclusively shall apply with respect
to that measure, except for such national treatment or mostfavored-nation ("MFN") obligations as may apply to trade in goods
under the General Agreement on Tariffs and Trade ("GATT").
No
national treatment or MFN obligation under any other agreement
shall apply with respect to that measure.
Thus, unless the
competent authorities agree otherwise, any national treatment and
MFN obligations undertaken by the Contracting states under
agreements other than the Convention shall not apply to a taxation
measure with the exception of GATT as applicable to trade in goods.
Subparagraph( c) of paragraph 3 defines a "measure" as a law,
regulation, rule t procedure, decision, administrative action, or
any other form of measure.
The provisions of paragraph 3 are an exception to the rule
provided in paragraph 2 of this Article under which the Convention
shall not restrict in any manner any exclusion, exemption,
deduction, credit, or other allowance now or hereafter accorded by
any other agreement between the Contracting States.
Paragraph 4 contains the traditional saving Clause, and
paragraph 5 contains exceptions.
In many u. S. treaties the
provision is reciprocal.
Sweden, however, was not interested in
preserving its taxing right over Swedish citizens and residents, so
the provision was made unilateral, affecting only U. S. taxing
rights.
Under paragraph 4 the United States reserve its right,
except as provided in paragraph 5, to tax its residents and
citizens notwithstanding any Convention provisions to the contrary.
The concept of "residence" for purposes of ·the convention,
including the saving clause, is defined in Article 4 (Residence).
The saving clause operates as follows: If, for example, a Swedish
resident performs independent personal services in the United
States and the income from the services is not attributable to a
fixed base in the United States, Article 14 (Independent personal
Services) would normally prevent the United States from taxing the
income. If, however, the Swedish resident is also a citizen of the
united states, the saving clause permits the United States to
include the remuneration in the worldwide income of the citizen and
subject it to tax under the normal Code rules.
(For special
foreign tax credit rules applicable to the U.S. taxation of certain
-3-
u.s. income of its citizens resident in Sweden see paragraph 3 of
Article 23 (Relief from double taxation». If an individual who is
not a u.s. citizen is a resident of the united states under the
Code, and is also a resident of Sweden under Swedish law, and that
individual has a permanent home available to him in Sweden and not
in the united States, he would be treated as a resident of Sweden
under Article 4 and for purposes of the saving clause. The United
States would not be permitted to apply its statutory rules to that
person if they are inconsistent with the Convention.
Also under paragraph 4, the United States reserves its right
to tax former u.S. citizens whose loss of citizenship had as one of
its principal purposes the avoidance of u.S. tax.
Such a former
citizen is taxable in accordance with the provisions of section 877
of the Code for 10 years following the loss of citizenship.
Paragraph 5 sets forth certain exceptions to the saving clause
in cases where its application would contravene policies underlying
provisions of the Convention that are intended to extend U. S.
benefits to its citizens and residents.
Subparagraph 5(a) lists
certain provisions of the Convention that will be applicable to all·
u.S. citizens and residents, despite the general saving clause rule
of paragraph 4:
(1)
Paragraph 2 of Article 9
(Associated
enterprises) grants the right to a correlative adjustment, and,
particularly, permits the override of the statute of limitations
for the purpose of refunding tax under such a correlative
adjustment. (2) Paragraph 2 of Article 19 (Pensions and annuities)
deals with social security benefits.
Its inclusion in the
exceptions to the saving clause means that social security benefits
paid by Sweden to a u.S. resident will, as intended, be taxed only
by Sweden.
(3) Article 23 (Relief from double taxation) confers
the benefit of double taxation relief by a Contracting State on its
citizens and residents. To apply the saving clause to this Article
would render the Article meaningless.
(4) Article 24 (Nondiscrimination) generally prohibits discriminatory taxation by one
contracting State of the citizens and residents of the other.
These prohibitions are intended to apply even if the citizen or
resident is also a citizen or resident of the taxing State.
(5)
Article 25 (Mutual agreement procedure) may confer benefits by a
State on its citizens and residents.
For example, the statute of
limitations may be waived for refunds or the competent authorities
may use a definition of a term which differs from the internal law
definition.
As with the foreign tax credit, these benefits are
intended to be granted by a State to its citizens and residents.
Subparagraph 5(b) provides a different set of exceptions to
the saving clause.
The effect of this provision is to extend
certain benefits to persons who are neither U. S. citizens nor
lawful permanent residents (i.e., "green card" holders).
If, for
example, beneficiaries of these provisions come to the United
States from Sweden and remain in the United States long enough to
become residents under the Code, but do not acquire immigrant
-4-
status (i.e., they do not become "green card" holders) and are not
united states citizens, the United states will continue to grant
these benefits even if they conflict with the Code rules.
The
benefits preserved by this paragraph are the host country
exemptions for the following items of income: government service
salaries and pensions under Article 20 (Government service);
certain income of students and trainees under Article 21 (students
and trainees); and the income of diplomatic and consular officers
under Article 28 (Diplomatic agents and consular officers).
Article 2.
TAXES COVERED
This Article identifies the U.S. and Swedish taxes to which
the Convention applies. The covered taxes of the united states are
specified in subparagraph l(a). They are the Federal income taxes
imposed by the Code (excluding the accumulated earnings tax and the
personal holding company tax), the excise taxes imposed on insurance premiums paid to foreign insurers (Code section 4371), and the
excise taxes imposed with respect to private foundations (Code
sections 4940 through 4948).
The Convention does not apply to
social security taxes (Code sections 1401, 3101, 3111 and 3301).
U.S. and Swedish social security taxes are dealt with in the
bilateral Social Security Totalization Agreement, which entered
into force on January 1, 1987.
The convention applies to the U.s. excise tax on insurance
premiums only to the extent that the risks covered by such premiums
are not reinsured (directly or indirectly) with a person not
entitled (under this or any other convention to which the united
states is a party) to exemption from the tax. providing Convention
coverage for the U.s. insurance excise tax effectively exempts from
the tax Swedish companies that insure U.s. risks, subject to the
anti-conduit rule for reinsurance described above. This result is
confirmed in paragraph 8 of Article 7 (Business profits).
Under
the Code, the tax applies to a Swedish company only if it earns
premiums that are not attributable to an active trade or business
in the United States or that are exempt by treaty from net basis
U.s. income tax (because they are not attributable to a permanent
establishment).
Under Article 7 (Business profits), the United
states does not subject the business profits of a Swedish
enterprise to a covered tax if the income of the enterprise is not
attributable to a permanent establishment that the enterprise has
in the United states. In contrast with this convention, the prior
Convention did not cover the insurance excise tax, allowing it to
be imposed on premiums paid to Swedish insurers if such premiums
were not attributable to a permanent establishment of the insurer
in the united states.
Except with respect to Article 24 (Non-discrimination), state
and local taxes in the United states are not covered by the
Convention.
Article 24 prohibits discriminatory taxation with
respect to all taxes, whether or not they are covered taxes under
-5-
Article 2, and whether they are imposed by the Contracting states,
their political subdivisions or local authorities.
Sub-paragraph l(b) specifies the existing Swedish taxes to
which the Convention applies. These are: (i) the State income tax,
including the sailor's tax and the coupon tax; (ii) the special
income tax on non-residents; (iii) the special income tax on nonresident entertainers and artistes; (iv) the communal income tax;
(v) the State capital tax; and (vi) the excise tax imposed on
insurance premiums paid to foreign insurers. The State capital tax
is covered only as described in paragraph 3 of the Article (see
below) .
Under paragraph 2, the Convention will apply to any taxes that
are identical, or substantially similar, to those enumerated in
paragraph 1, and that are imposed in addition to, or in place of,
the existing taxes after September 1, 1994 (the date of signature
of the Convention). The paragraph further provides that the U.S.
and Swedish competent authorities will notify each other of
significant changes in their taxation laws.
This requirement
refers to changes that are of significance to the operation of the
Convention. It also provides that the competent authorities notify
each other of any significant published materials dealing with the
Convention.
Such materials include official explanations,
regulations, rulings or judicial decisions.
Paragraph 3 provides rules that limit the extent to which the
Swedish State capital tax will apply under the Convention to
certain classes of U.S. citizens and residents (as determined under
Article 4 (Residence».
The base of the tax applicable to those
persons (described below) is limited to real property situated in
Sweden and to movable property attributable to a Swedish permanent
establishment of the U.S. taxpayer or to a fixed base available to
the taxpayer in Sweden for the purpose of performing independent
personal services. Thus, such persons will not be subject to the
Swedish capital tax on non-Swedish property. The persons subject
to the tax only on this limited basis are specified in subparagraphs (a) through (e) of paragraph 3. They are: (a) an individual
who is both a citizen and resident of the United States, and who is
not a citizen of Sweden;
(b) an individual U.s. resident,
regardless of his citizenship, who has been a U.S. resident for
three successive taxable years prior to the effective date of the
Convention (~, the first year beginning after the exchange of
instruments of ratification) and for each taxable year thereafter;
(c) a U.S. citizen who is not also a Swedish citizen, and who
visits Sweden for a period not exceeding two years, and who is, or
was immediately prior to such visit, a resident of the United
States; (d) the estate of any of the individuals described in the
three preceding subparagraphs; and (e) any company resident in the
united States.
-6-
Article 3.
GENERAL DEFINITIONS
Paragraph 1 of Article 3 defines a number of basic terms used
in the Convention.
Terms that are not defined in the Convention
are dealt with in paragraph 2. Certain other terms are defined in
other articles of the Convention. For example, the term "resident
of a Contracting state" is defined in Article 4 (Residence). The
term "permanent establishment" is defined in Article 5 (Permanent
establishment). The terms "dividends," "interest" and "royalties"
are defined in Articles 10, 11 and 12, respectively, which deal
with the taxation of those classes of income.
subparagraph 1 (a) defines the term "person" to include an
indiviqual, an estate, a trust, a partnership, a company and any
other body of persons. The term "company" is defined in subparagraph 1 (b) as an entity treated as a body corporate for tax
purposes.
Since the term "body corporate" is not defined in the
Convention, in accordance with paragraph 2 of this Article, it has
the meaning that it has under the law of the Contracting state
whose tax is being applied.
Thus, for u.s. tax purposes, the
principles of Code section 7701 will be applied to determine
whether an entity is a body corporate.
The terms "enterprise of a Contracting state" and "enterprise
of the other Contracting State" are defined in subparagraph 1 (c) as
an enterprise carried on by a resident of a Contracting state and
an enterprise carried on by a resident of the other contracting
state, respectively. The term "enterprise" is not defined in the
Convention.
Subparagraph l(d) defines the term "international traffic."
This definition is significant principally in relation to Article
8 (Shipping and air transport), but also is relevant to Article 15
(Dependent personal services). The term means any transport by a
ship or aircraft except when the vessel is operating solely between
places within
a
Contracting State.
The
exclusion
from
international traffic of transport solely between places wi thin one
of the States means, for example, that carriage of goods or
passengers between New York and Chicago by either a u.s. or a
Swedish carrier would not be treated as international traffic. The
substantive taxing rules of the Convention relating to the taxation
of income from transport, principally Article 8 (Shipping and air
transport), therefore, would not apply to income from such
carriage.
If the carrier is a Swedish resident (if that were
possible under u.s. law) the United states would not be required to
exempt the income under Article 8. The income would, however, be
treated as business profits under Article 7 (Business profits),
and, therefore, would be taxable in the united states only if
attributable to a u.S. permanent establishment, and then only on a
net basis.
The gross basis u.s. tax would not apply under the
circumstances described.
If, however, goods or passengers are
carried from Stockholm to New York, and some of the goods or
-7-
passengers are carried only to New York, while the rest are taken
to Philadelphia, the entire transport, including the New York to
Philadelphia portion, would be international traffic.
Subparagraphs lee) (i) and (ii) define the term "competent
authority" for the United States and Sweden, respectively.
The
U.S. competent authority is the Secretary of the Treasury or his
delegate.
The Secretary of the Treasury has delegated the
competent authority function to the Commissioner of Internal
Revenue, who has, in turn, redelegated the authority to the
Assistant Commissioner (International).
With respect to interpretative issues, the Assistant Commissioner acts with the
concurrence of the Associate Chief Counsel (International) of the
Internal Revenue Service. The competent authority of Sweden is the
Minister of Finance, his authorized representative, or the
authori ty which is designated as competent authority for the
purposes of the Convention.
The terms "united States" and "Sweden" are defined in
subparagraphs 1 (f) and (g), respectively. The term "United states"
is defined to mean the United States of America, not including
Puerto Rico, the Virgin Islands, Guam or any other U.s. possession
or territory.
The U.s. continental shelf (with respect to the
exploration or exploitation of natural resources) is also specifically included within the definition of the united states.
The
term "Sweden" means the Kingdom of Sweden. The term includes the
Swedish continental shelf (with respect to the exploration or
exploitation of natural resources).
Paragraph 2 establishes a procedure for determining a
definition for a term, for purposes of the Convention, that is not
otherwise defined in the Convention.
The paragraph provides the
general rule that any such term will have the meaning that it has
under the law of the Contracting State whose tax is being applied.
A meaning other than this statutory meaning may be used, however,
if the context so requires, or if the competent authorities,
pursuant to the authority granted to them in paragraph 3 of Article
25 (Mutual agreement procedure), so agree. If, for example, the
meaning of a term cannot be readily determined under the law of a
Contracting State, or if there is a conflict in meaning under the
laws of the two States which creates problems in the application of
the Convention, the competent authorities may establish a common
meaning in order to prevent double taxation or further any other
purpose of the Convention. This common meaning need not conform to
the meaning of the term under the laws of either Contracting State.
Article 4 - RESIDENCE
Article 4 sets forth rules for determining whether a person is
a resident of the United States or Sweden for purposes of the
Convention. As a general matter only residents of the Contracting
States may claim the benefits of the Convention. The definition of
-8-
resident in the Convention is to be used only for purposes of the
Convention.
The prior Convention contains no comprehensive
definition of a resident.
In general, a person will be considered a resident of a
Contracting State if he is subject to tax in that state under its
internal law by reason of his residence, domicile, or other similar
criterion.
A person who, under this rule, is a resident of one
State and not of the other will (subject to an exception described
below) be treated for purposes of the Convention as a resident of
the State in which he is resident under internal law. If, however,
a person is resident in both Contracting states under their
respective taxation laws, the Article assigns a single state of
residence to such a person for purposes of the convention through
the use of tie-breaker rules or competent authority agreement.
Paragraph 1 defines the term "resident of a Contracting
State." In general, this definition incorporates the definitions
of residence in U.S. and Swedish law. A resident of a contracting
State is a person who, under the laws of that State, is subject to
tax there by reason of his domicile, residence, place of
management, place of incorporation or any other criterion of a
similar nature.
Nontaxable entities are considered residents of
their state of organization because they are subj ect to the
taxation laws of that state.
Residents of the united states
include aliens who are considered u.s. residents under Code section
7701(b). Unlike certain other u.s. treaties, "citizenship" is not
included among the explicit criteria of residence in the
Convention.
However, it is understood to be a "criterion of a
similar nature" under paragraph 1.
An exception to this general
rule for certain individuals is described below.
Subparagraph l(a) specifies that a person liable to tax in a
state only in respect of income from sources within that State will
not be treated as a resident of that state for purposes of the
Convention. For example, a Swedish consular official stationed in
the united states, who may be subj ect to U. S. tax on his u. s.
source investment income, but is not taxable in the United states
on his salary and non-U.S. source income, by operation both of
Article 20 (Government service) and Code section 893, would not be
considered a resident of the United States for purposes of the
Convention.
Similarly, a Swedish enterprise with a permanent
establishment in the United states is not, by virtue of that
permanent establ ishment, a resident of the united states.
The
enterprise is subject to U.s. tax only with respect to its income
attributable to the U.S. permanent establishment, not with respect
to its world-wide income, as is a U.S. resident.
Subparagraph l(b) makes clear that a partnership, estate or
trust will be treated as a resident of a Contracting state for
purposes of the convention only to the extent that the income
derived by such person is subject to tax in that State as the
-9-
income of a resident, either in the hands of the person deriving
the income or in the hands of its beneficiaries. Under U.s. law,
a partnership, estate or trust is often not itself a taxable
enti ty.
Thus, for U. s. tax purposes, the question of whether
income received by such an entity is received by a resident will be
determined by the residence for taxation purposes of the person
subject to tax on such income, which may be the partner, grantor,
the beneficiaries or the partnership, estate or trust itself,
depending on the circumstances. This rule regarding the residence
of estates or trusts is applied to determine the extent to which
that person is entitled to treaty benefits with respect to income
that it receives from the other Contracting state.
As noted above, paragraph 1 contains an exception for certain
individuals to the general rule that residence under internal law
also determines residence under the Convention. It is not always
sufficient for an individual to be a resident under the laws of the
United States (or a citizen of the united States) to be treated as
a United states resident under the Convention.
A United states
citizen or an alien lawfully admitted for permanent residence (a
"green card holder") who does not have a substantial presence,
permanent home, or habitual abode in the United states and who is
not a resident of Sweden under paragraph 1, will not be treated as
a resident of the united states for purposes of the Convention.
Thus, a U.S. citizen or green card holder who is resident in a
third country and who has a substantial presence, permanent home or
habitual abode in the United states will be entitled to most
benefits under the Convention. If such a person is also considered
a resident of Sweden under Swedish internal law, and therefore
under paragraph 1, the individual will be considered a resident of
both States.
Such person's status will be determined under the
tie-breaker rules of paragraph 2 (described below).
If an individual is considered a resident of each State under
its laws, a single state of residence is determined by application
of the tie-breaker rules of paragraph 2.
Paragraph 2(a) provides
that such an individual will be resident in the state in which the
individual has a permanent home. If the individual has a permanent
home available to him in both States, he will be considered to be
a resident of the Contracting State to which his personal and
economic relations are closest, i.e., the location of his "center
of vital interests." Under paragraph 2(b), if he has no center of
vital interests or if he does not have a permanent home available
to him in either state, he will be treated as a resident of the
Contracting State in which he maintains an habitual abode. Under
paragraph 2(c), if he has an habitual abode in both States or in
neither of them, he will be treated as a resident of the State of
which he is a citizen.
If he is a citizen of both States or of
neither, paragraph 2(d) provides that the competent authorities
will, by mutual agreement, assign a single State of residence.
-10-
Paragraph 3 addresses companies that are treated by each
State, under its laws, as a resident of that state.
paragraph 3
provides that if a company is considered under paragraph 1 to be a
resident of both States, then if it is created under the laws of
either the United states or Sweden it will be considered to be a
resident of the state in which it is created.
Paragraph 4 addresses dual-residence issues for persons other
than individuals or companies that are considered residents of both
states under paragraph 1.
Under this paragraph, the competent
authorities are instructed to determine a single State of residence
by mutual agreement.
Article 5 - PERMANENT ESTABLISHMENT
This Article defines the term "permanent establishment. II This
definition is relevant under several articles of the Convention.
The existence of a permanent establishment in a contracting State
is necessary under Article 7 (Business profits) for the taxation by
that State of the business profits of a resident of the other
Contracting State.
Since the term "fixed base" in Article 14
(Independent personal services) is understood by reference to the
definition of "permanent establishment," this Article is also
relevant for purposes of Article 14.
Articles 10, 11 and 12
(dealing with dividends, interest, and royalties, respectively)
provide for reduced rates of tax at source on payments of these
items of income to a resident of the other state only when the
income is not attributable to a permanent establishment or fixed
base that the recipient has in the source State.
This Article follows closely both the OECD Model provisions
and recent U.S. treaties.
The protocol to the prior Convention
contains a similar definition of "permanent establishment".
Paragraph 1 provides the basic definition of the term
"permanent establishment. If
As used in the convention, the term
means a fixed place of business through which the business of an
enterprise is wholly or partly carried on.
Paragraph 2 contains a list of fixed places of business that
will constitute a permanent establishment. The list is illustrati ve and non-exhaustive.
According to paragraph 2, the term
permanent establishment includes a place of management, a branch,
an office, a factory, a workshop, and a mine, oil or gas well,
quarry or other place of extraction of natural resources.
Paragraph 3 provides rules to determine when a building site
or a construction or installation project constitutes a permanent
establishment. Only if the site, project, etc. lasts for more than
twelve months does it constitute a permanent establishment.
The
twelve-month test applies separately to each individual site or
project.
The twelve-month period begins when work (including
-11-
preparatory work carried on by the enterprise) physically begins in
a Contracting State.
A series of contracts or projects that are
interdependent both commercially and geographically are to be
treated as a single project for purposes of applying the
twelve-month threshold test.
For example, the construction of a
housing development would be considered a single project even if
each house in the development is constructed for a different
purchaser. If the twelve-month threshold is exceeded, the site or
project constitutes a permanent establishment as of the first day
that the work in that state began.
This interpretation of the
Article is based on the Commentaries to paragraph 3 of Article 5 of
the OECD Model, which contains language almost identical to that in
the Convention.
This interpretation, therefore, constitutes the
generally accepted international interpretation of the language in
paragraph 3 of Article 5 of the Convention.
In addition, installations, drilling rigs, or ships operating
offshore to explore for or exploit natural resources are considered
permanent establishments only if their use exceeds twelve months.
Supply ships are not considered ships used to explore for or
exploit natural resources. Natural resources do not include fish.
Paragraph 4 contains exceptions to the general rule of
paragraph 1 that a fixed place of business through which a business
is carried on constitutes a permanent establishment. The paragraph
lists activities that may be carried on through a fixed place of
business, but that will not give rise to a permanent establishment.
The use of facilities solely to store, display or deliver
merchandise belonging to an enterprise will not constitute a
permanent establishment of that enterprise. Tne maintenance of a
stock of goods belonging to an enterprise solely for the purpose of
storage, display or delivery, or solely for the purpose of
processing by another enterprise will not give rise to a permanent
establishment of the first-mentioned enterprise. The maintenance
of a fixed place of business solely for the purchases goods or
merchandise, or for activities that have a preparatory or auxiliary
character for the enterprise, such as advertising or the supply of
information and scientific activities, will not constitute a
permanent establishment of the enterprise. Finally, a combination
of
these
activities will
not give
rise
to
a
permanent
establishment.
Paragraphs 5 and 6 specify the circumstances under which an
agent will constitute a permanent establishment of the principal.
Under paragraph 5, a dependent agent of an enterprise will be
deemed to be a permanent establishment of the enterprise if the
agent has and habitually exercises an authority to conclude
contracts in the name of that enterprise. If, however, the agent's
activities are limited to those activities specified in paragraph
4, which would not constitute a permanent establishment if carried
on by the enterprise through a,fixed place of business, the agent
will not be a permanent establ~shment of the enterprise.
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Under paragraph 6, an enterprise will not be deemed to have a
permanent establishment in a Contracting state merely because it
carries on business in that State through an independent agent,
including a broker or general commission agent, if the agent is
acting in the ordinary course of its business.
Paragraph 7 clarifies that a company that is a resident of a
contracting state will not be deemed to have a permanent establishment in the other Contracting state merely because it controls,
or is controlled by, a company that is a resident of that other
contracting State, or that carries on business in that other
contracting State. The determination of whether or not a permanent
establishment exists will be made solely on the basis of the
factors. described in paragraphs 1 through 6 of the Article.
Whether or not a company is a permanent establishment of a related
company, therefore, is based solely on those factors and not on the
ownership or control relationship between the companies.
Article 6 - INCOME FROK REAL PROPERTY
Paragraph 1 of Article 6 provides that income of a resident of
a Contracting state derived from real property situated in the
other Contracting state may be taxed in the Contracting State in
which the property is situated. As clarified in paragraph 3, the
income referred to in paragraph 1 means income from any use of real
property, including, but not limited to, income from direct use by
the owner and rental income from the letting of real property.
Income from real property also includes income from agriculture and
forestry. This Article does not grant an exclusive taxing right to
the situs state, but merely grants it the primary right to tax.
The Article does not impose any limitation in terms of rate or form
of tax on the situs State.
Paragraph 2 prov ides that the term "real property" has the
same meaning that it has under the law of the situs state.
In
addition, the paragraph specifies certain classes of property
which, regardless of internal law definitions, are to be included
within the meaning of the term for purposes of the Convention. The
definition of "real property" for purposes of Article 6, however,
is more limited than the expansive definition of "real property
situated in the Other Contracting state" in paragraph 2 of Article
13 (Gains) I which includes not only real property itself, but
certain interests in real property.
Paragraph 4 clarifies that the situs state may tax the real
property income of a resident of the other contracting State even
in the absence of a permanent establishment or fixed base in the
situs state, notwithstanding the requirements of Articles 7
(Business profits) and 14 (Independent personal services) that in
order to be taxable, income must be attributable to a permanent
establishment or fixed base, respectively. Thus, the situs state
may tax income from real property of an enterprise and income from
-13-
real property used for the performance of independent personal
services, regardless of whether the enterprise or individual has a
permanent establishment or fixed base in the situs state.
The Article does not include language found in many u. s.
treaties providing for a taxpayer election to be taxed on real
property income on a net basis.
It was thought unnecessary to
include such a provision since both states allow for net basis
taxation of real property income under internal law.
Article 7 - BUSINESS PROFITS
This Article provides rules for the taxation by one of the
states of the business profits of an enterprise of the other.
Paragraph 1 contains the basic rule that business profits of an
enterprise of one state may not be taxed by the other state unless
the enterprise carries on business in that other state through a
permanent establishment (as defined in Article 5 (Permanent
establishment» situated there. Where this condition is met, the
state in which the permanent establishment is situated may tax the
income of the enterprise, but only so much of the income as is
attributable to the permanent establishment. This rule is broadly
similar to the rule in the prior Convention.
Paragraph 2 provides rules for the attribution of business
profits to a permanent establishment.
It provides that the
Contracting States will attribute to a permanent establishment the
profits that it would have earned had it been an independent
entity, engaged in the same or similar activities under the same or
similar circumstances.
The computation of the business profits
attributable to a permanent establishment under this paragraph is
subject to the rules of paragraph 3 for the allowance of expenses
incurred for the purpose of earning the income.
The profits
attributable to a permanent establishment may be from sources
within or without a Contracting State.
ThUS, certain items of
foreign source income described in Code section 864(c) (4) (B) may be
attributed to a u.s. permanent establishment of a Swedish
enterprise and subject to tax in the United states. The concept of
"attributable to" in the Convention is narrower than the concept of
"effectively connected" in Code section 864(c). The limited "force
of attraction" rule in Code section 864 (c) (3) is not applicable
under the Convention.
Paragraph 2 differs in one respect from the comparable
paragraph in many recent u. s. treaties, but conforms in this
respect to the OECD Model.
In certain other u.s. treaties, the
permanent establishment is treated as if it were a "distinct and
independent enterprise," and the reference to it dealing wholly
independently with the enterprise of which it is a permanent
establishment is deleted. The language in other u.s. treaties is
intended to make clear that, as described in paragraph 10 of the
OECD Commentaries to Article 7, the permanent establishment is to
-14-
be treated as if it were a totally independent enterprise, i.e.,
one that deals independently with all related companies, ~ot just
its home office.
In the course of the negotiations, the Swedish
negotiators made clear that they subscribed to the interpretation
in the DECO commentaries, but preferred to retain, at least in
part, the language from the DECO Model. Thus, there should be no
difference in application between paragraph 2 of Article 7 and its
analogue in other u.s. treaties.
Paragraph 3 of the Article provides that in determining the
business profits of a permanent establishment, deductions shall be
allowed for expenses incurred for the purposes of the permanent
establishment.
Deductions are to be allowed regardless of where
the expenses are incurred. The paragraph specifies that among the
expenses for which deductions are allowed are a reasonable
allocation of expenses for research and development, interest and
other similar expenses. Also included is a reasonable allocation
of executive and general administrative expenses.
Paragraph 4 provides that no business profits will be
attributed to a permanent establ ishment merely because it purchases
goods or merchandise for the enterprise of which it is a permanent
establishment. This rule refers to a permanent establishment that
performs more than one function for the enterprise, including
purchasing. For example, the permanent establishment may purchase
raw materials for the enterprise's manufacturing operation and sell
the manufactured output.
While business profits may be
attributable to the permanent establishment with respect to its
sales activities, no profits are attributable to its purchasing
activities.
If the sole activity were the purchasing of goods or
merchandise for the enterprise the issue of the attribution of
income would not arise, because, under subparagraph 4(d) of Article
5
(Permanent establishment),
there would be no permanent
establishment.
Paragraph 5 provides that only those business profits derived
from a permanent establishment's assets or activities are to be
attributed to the permanent establishment. This rule clarifies, as
noted in connection with paragraph 2 of the Article, that the
Code's limited "force of attraction" principle is not incorporated
into the Convention.
To assure continuous and consistent tax
treatment, the same method for determining the profits of a
permanent establishment is to be used from year to year, unless
there is good reason to change.
Paragraph 6 explains the relationship between the provisions
of Article 7 and other provisions of the Convention.
Under
paragraph 6, where business profits include items of income that
are dealt with separately under other articles of the Convention,
the provisions of those articles will, except where they specifically provide to the contrary, take precedence over the provisions
of Article 7. ThUS, for example, the taxation of interest will be
-15-
determined by the rules of Article 11 (Interest), and not by
Article 7, unless, as provided in paragraph 3 of Article 11, the
interest is attributable to a permanent establishment, in which
case the provisions of Article 7 apply.
Paragraph 7 provides a definition of "profits." The term is
defined to mean income derived from any trade or business carried
on by any person or group of persons.
with one exception, the
definition of business profits used in many U. S. treaties is
retained in paragraph 7, including specifically the reference to
income from the rental of tangible personal (movable) property.
The definition does not, however, define film rentals as profits.
Instead, film rentals are considered royalties under paragraph 2 of
Article 12 (Royalties). There is little substantive significance
in classifying film rentals under Article 12 instead of Article 7.
Under both articles, film rentals are taxed exclusively by the
residence country, unless they are attributable to a permanent
establishment or a fixed base, in which case they may be taxed on
a net basis in the country in which the permanent establishment or
fixed base is located.
Paragraph. 8 clarifies that the U. S. Federal excise tax on
insurance or reinsurance premiums paid to foreign insurers will not
be imposed on insurance premiums paid to an insurance business
carried on by a Swedish enterprise, whether or not the business is
carried on through a U.S. permanent establishment. The U.S. waiver
of excise taxes applies only to the extent that the relevant risk
is not reinsured, directly or indirectly, with a person not
entitled to relief from such tax. Reinsurance of a relevant risk
includes reinsurance against, or with respect to, underlying
hazards, risks, losses, or liabilities within the United States.
For example, the waiver would not be available if an underlying
u.S. risk were reinsured or retroceded by a Swedish insurer to a
swiss insurer, because the U.S.-Switzerland income tax convention
does not provide for a waiver of these U.S. excise taxes.
Paragraph 8(b) states the corresponding rule for Swedish excise
taxes on insurance premiums. Sweden does not impose an excise tax
on reinsurance premiums.
The U.S. negotiators agreed to waive these excise taxes only
after a review of Swedish law indicated. that the income tax imposed
by Sweden on Swedish resident insurers results in a burden that is
substantial in relation to the u.S. tax on u.S. resident insurers.
On the basis of this analysis, u.S. negotiators concluded that it
was appropriate to waive the U.S. excise taxes in this Convention.
The waiver of the u.S. excise tax in paragraph 8 merely
restates the result that obtains under a c""mbination of U. S. law
and other provisions .o~ the Convention. The :nited States may not,
pursuant to the prov1s1ons of paragraph 1 ot Article 7, impose the
excise tax on the income of any Swedish enterprise that is not
attributable to a permanent establishment in the United States.
-16-
Under Code section 4373, the tax may not be imposed on any amount
that is effectively connected with the conduct of a trade or
business in the United states (unless that amount is exempt from
net basis U.s. income tax pursuant to a treaty obligation of the
United States).
Since any amount attributable, under the
Convention, to a permanent establishment in the united States will
also be effectively connected with a u.s. trade or business, the
tax may also not be imposed on any income of a Swedish enterprise
that is attributable to a permanent establishment in the united
states.
Paragraph 9 clarifies that any income, gain or expense
attributable to a permanent establishment during its existence is
taxable or deductible in the state in which the permanent
establishment is situated even if the payment is deferred until
after the permanent establishment no longer exists. This paragraph
incorporates into the Convention the rule of Code section
864 (c) (6) •
This Article is subject to the saving clause of paragraph 3 of
Article 1 (Personal scope).
Thus, if, for example, a citizen of
the United states who is a resident of Sweden derives business
profits from the United states that are not attributable to a
permanent establishment in the United States, the United states may
(subject to the special foreign tax credit rules of paragraph 3 of
Article 23 (Relief from double taxation» tax those profits as part
of the worldwide income of the citizen, notwithstanding the fact
that this Article generally would exempt such income of a Swedish
resident from u.s. tax.
As with any benefit of the Convention, the enterprise claiming
the benefit of Article 7 must be entitled to the benefit under the
provisions of Article 17 (Limitation on benefits).
Article 8 - SHIPPING AND AIR TRANSPORT
This Article provides rules governing the taxation of profits
from the operation of ships and aircraft in international traffic.
The term II international traffic" is defined in subparagraph 1 (d) of
Article 3 (General definitions).
It is understood, based on the
provisions of paragraph 2 of Article 1 (Personal scope), that any
benefits to which a resident of one of the States is entitled by
virtue of the exchange of notes between the United states and
Sweden (effective on January 1, 1987) under the authority of Code
section 883 (if any), will continue to be available regardless of
any provisions to the contrary in the Convention.
Paragraph 1 provides that profits of an enterprise of a
contracting State from the operation of ships or aircraft in
international traffic shall be taxable only in that state.
By
virtue of paragraph 6 of Article 7 (Business profits), profits of
an enterprise of a Contracting State that are exempt in the other
-17-
contracting State under this paragraph remain exempt even if ~he
enterprise has a permanent establishment in that other Contract1ng
State.
Paragraph 2 deals with certain income from the rental of ships
or aircraft in international traffic. As indicated in paragraph 5
of the DECO Commentaries to Article 8, income of an enterprise of
a Contracting State from the rental of ships or aircraft on a full
basis (i. e., wi th crew) is considered to be income from the
operation of ships and aircraft and is, therefore, exempt from tax
in the other Contracting State under paragraph 1.
Paragraph 2
extends the exemption under the Article to certain income from the
bare-boat leasing of ships and aircraft. Unlike certain other U.S.
treaties, however, income from bareboat rentals of ships or
aircraft is included within the definition of profits from the
operation of ships or aircraft in international traffic in the
Convention only to the extent that the rental profits are
incidental to profits from the operation of ships and aircraft.
Thus, an enterprise that is not in the business of operating ships
or aircraft in international traffic and that derives income from
renting ships or aircraft would not be able to claim the benefits
of Article 8. Income from the non-incidental leasing of ships or
aircraft, even if the ships or aircraft are used in international
traffic, is treated as business profits.
Such non-incidental
rental income consequently is taxable in the source State only if
it is attributable to a permanent establishment which the lessor
has in the source State. It is understood that if, for example, a
bank is a resident of one of the States and has a permanent
establishment in the other State, and that bank leases an aircraft
to an airline in the other State, the rental income will not be
attributable to the permanent establishment if the permanent
establishment was not involved in negotiating or concluding the
lease agreement.
The rental income consequently will not be
subject to tax by that other State. Similarly, if the activities
of the bank in that other State are not sufficient to rise to the
level of a permanent establishment, the lease income will not be
taxable in that other State.
Paragraph 3 provides that the profits of an enterprise of a
Contracting State from the use, maintenance, or rental of
containers (including equipment for their transport) which are used
for the transport of goods in international traffic will be exempt
~rom tax in the other Contracting State.
This result obtains
regardless of whether the recipient of the income is engaged in the
operation of ships or aircraft in international traffic, and
regardless of whether the enterprise has a permanent establishment
in the other contracting State.
The shipping and air transport
provisions of the prior treaty do not deal with income from the
use, maintenance or rental of containers. Such income, therefore,
is treated under that Convention as business profits.
-18-
Paragraph 4 clarifies that paragraphs 1 and 3 apply equally to
profits
from
an
enterprise
of
a
Contracting state
from
participation in a pool, joint business or international operating
agency.
Profits derived by the air transport consortium
Scandinavian Airlines System (SAS) are covered by paragraphs 1 and
3, but only to the extent that the SAS profits correspond to the
participation held in that consortium by AB Aerotransport (ABA),
the Swedish partner of SASe
SAS is an entity in the nature of a
partnership which was created jointly by the legislatures of
Sweden, Norway and Denmark. The exemption applies to the income of
the consortium in its entirety because, in addition to the present
Convention, the united States income tax conventions with Norway
and Denmark provide similar exemptions to residents of those
states.
In addition, notes exchanged at the signing of the convention
provide that all income earned by SANA Inc. (Scandinavian Airlines
of North America Inc., a New York corporation) from the operation
in international traffic of aircraft would be treated as income of
SAS, the consortium whose constituent corporate members own the
stock of SANA Inc.
SANA Inc. was created and is operated as an
entity apart from SAS to satisfy u.s. regulations regarding foreign
airlines, which SAS as a consortium could not meet. SANA Inc. is
a conduit for SAS with regard to receipts and its expenses are
guaranteed by SASe Therefore the income of SANA Inc. will be taxed
no differently under the Convention than if it were earned directly
by SASe
The taxation of gains from the alienation of ships, aircraft
or containers is dealt with in paragraph 4 of Article 13 (Gains).
This Article is subject to the saving clause of paragraph 4 of
Article 1 (Personal scope).
The United States, therefore, may,
subject to the special foreign tax credit rules of paragraph 3 of
Article 23 (Relief from double taxation), tax the shipping or air
transport profits of a resident of Sweden if that Swedish resident
is a citizen of the United States.
As with any benefit of the Convention, an enterprise claiming
the benefit of this Article must be entitled to the benefit under
the provisions of Article 17 (Limitation on benefits).
Article 9 - ASSOCIATED ENTERPRISES
Article 9 incorporates into the Convention the general
principles of Code section 482. It provides that when related
persons (i.e., associated enterprises described in subparagraphs
l(a) and l(b» engage in transactions that are not at arm's length,
the contracting States may make appropriate adjustments to the
taxable income of such related persons to reflect the income these
persons would have earned with respect to such transactions had
-19-
there been an arm's length relationship between the persons.
prior convention contains similar rules.
The
Paragraph 1 deals with the circumstance where an enterprise of
a Contracting state is related to an enterprise of the other
Contracting state, and the enterprises make arrangements or impose
condi tions between themselves in their commercial or financial
relations different from those that would be made between
independent persons. Under these circumstances a contracting state
may adjust the income (or loss) of the enterprise situated in that
state to reflect the income that would have been earned in the
absence of such a relationship. The paragraph specifies what the
term "associated enterprise" means in this context. An enterprise
of one Contracting state is associated with an enterprise of the
other Contracting State if it participates directly or indirectly
in the management, control, or capi tal of the other.
Two
enterprises also are associated if any third person or persons
participate directly or indirectly in the management, control, or
capital of both. The term "control" includes any kind of control,
whether or not legally enforceable and however exercised or
exercisable.
Paragraph 2 provides that where a Contracting state has made
an adjustment to the profits of an enterprise of that State that is
consistent with the provisions of paragraph 1 (i. e., that was
appropriate to reflect arm's length conditions), and the associated
enterprise in the other State has been subject to tax on those same
profits, that other Contracting State is obligated to make a
corresponding, or correlative, adjustment to the tax liability of
that associated enterprise. The Contracting state making such an
adjustment will take the other provisions of the convention, where
relevant, into account.
For example, if the effect of a
correlative adjustment is to treat a Swedish corporation as having
made a distribution of profits to its U.s. parent corporation, the
provisions of Article 10 (Dividends) will apply, and Sweden may
impose a withholding tax on the dividend. The rate of the tax will
be determined by the provisions of Article 10.
The competent
authorities are authorized to consult, if necessary, to resolve any
differences in the application of these provisions. For example,
there may be a disagreement over whether an adjustment made by a
Contracting state under paragraph 1 was appropriate.
Paragraph 3 clarifies that nothing in this Article affects the
rights of the Contracting states to apply internal law provisions
relating to adjustments between related parties. such adjustments
the distribution, apportionment, or allocation of income,
deductions, credits or allowances -- are permitted even if they are
different from, or go beyond, those authorized by paragraph 1 of
the Article, so long as they accord with the general principles of
paragraph 1, i.e., that the adjustment reflects what would have
transpired had the related parties been acting at arm's length.
-20-
If a correlative adjustment is made under paragraph 2, it is
to be implemented pursuant to paragraph 2 of Article 25 (Mutual
agreement procedure), notwithstanding any time limits or other
procedural limitations in the law of the Contracting state making
the adjustment.
The saving clause of paragraph 4 of Article 1
(Personal scope) does not apply to paragraph 2 of Article 9 (see
the exceptions to the saving clause in subparagraph (a) of
paragraph 5 of Article 1).
Thus, even if the statute of
limitations has run, or there is a closing agreement between the
Internal Revenue Service and the taxpayer, a refund of tax can be
made in order to implement a correlative adjustment arising under
paragraph 2 of Article 9.
Statutory or procedural limitations,
however, cannot be overridden to impose additional tax, because,
under paragraph 2 of Article 1 the Convention cannot restrict any
statutory benefit.
The united states intends that its regulations under Code
section 482 will adhere fully to the arm's length standard.
In
particular, the "commensurate with income" approach for determining
royalty rates with respect to intangible property transferred
between related parties is to be applied consistently with the
arm's length standard.
The commensurate with income approach
recognizes that in certain cases it may be appropriate under the
arm's length standard to make periodic adjustments to royalty rates
between related parties.
In particular, as noted in a 1992 OECD
Report on the United States Proposed Regulations under Section 482,
it is not always possible for the Internal Revenue Service to know
what prof its were reasonably foreseeable at the time that an
intangible was transferred.
In such cases and others periodic
adjustments may be warranted.
It is anticipated that the
commensurate with income approach and the section 482 regulations
in general will be applied in a manner consistent with the
principles underlying paragraph 1 of Article 9.
Article 10 - DIVIDENDS
Article 10 provides rules for both source and residence
country taxation of dividends and similar amounts paid by a company
resident in one state to a resident of the other. Generally, the
Article limits the source country's right to tax dividends and
amounts treated as dividends or dividend equivalents.
Paragraph 1 preserves the residence country's general right to
tax dividends arising in the source country by permitting the
residence country to tax its residents on dividends received from
a company that is a resident of the source country.
Paragraph 2 grants the source country the right to tax
dividends paid by a company that is a resident of the source
country. If the beneficial owner of the dividends is a resident of
the other Contracting State, the source country tax is limited to
5 percent of the gross amount of the dividends if the beneficial
owner is a company that holds directly at least 10 percent of the
-21-
voting power of the company paying the dividends. Source country
taxation is limited to 15 percent of the gross amount of the
dividends in all other cases. Indirect ownership of voting shares
(~, through tiers of corporations) and direct ownership of
nonvoting shares are not considered for purposes of determining
eligibility for the 5 percent direct dividend rate.
Paragraph 3
provides special rules for certain U.S.
conduit entities.
withholding rates for dividends under the prior convention are the
same, except that the requirements for applicability of the 5
percent rate are somewhat different.
The term "beneficial owner", as used in paragraph 2, is not
defined in the Convention, and is, therefore, defined as under the
internal law of the country imposing tax (i.e., the source
country).
The beneficial owner of the dividend for purposes of
Article 10 is the person to which the dividend income is attrib~
utable for tax purposes under the laws of the source state. Thus,
if a dividend paid by a corporation of one of the States is
received by a nominee or agent that is a resident of the other
State on behalf of a person that is not a resident of that other
State, the dividend is not entitled to the benefits of this
Article. However, a dividend received by the nominee on behalf of
a resident of that other State would be entitled to the benefits.
This paragraph does not affect the taxation of the profits out
of which the dividends are paid, but affects the taxation only of
the dividend itself.
Special limitations on the rate of source country taxation are
also provided in paragraph 3 for dividends paid by u.S. Regulated
Investment Companies and Real Estate Investment Trusts ("RICs" and
"REITs"). Dividends paid by RICs are denied the 5 percent direct
dividend rate and subjected to the 15 percent portfolio dividend
rate regardless of the percentage of voting shares held directly by
a Swedish corporate recipient of the dividend.
Dividends paid by
a REIT are generally taxed at source at the full 30 percent
statutory rate.
However, dividends paid by REITs are taxed at
source at the 15 percent portfolio dividend rate if the beneficial
owner of the dividend is a Swedish individual who owns less than a
10 percent interest in the REIT.
The denial of the 5 percent withholding rate at source to all
RIC and REIT shareholders, and the denial of the 15 percent rate to
most shareholders of REITs, is intended to prevent the use of these
conduit entities to gain unjustifiable benefits for certain
shareholders.
For example, a Swedish corporation that wishes to
hold a diversified portfolio of u.S. corporate shares may hold the
portfolio directly and pay a u.S. withholding tax of 15 percent on
all of the dividends that it receives. Alternatively, it may place
the portfolio of u.S. stocks in a RIC, in which the Swedish
corporation owns more than 10 percent of the shares, but in which
the corporation has arranged to have a SUfficient number of small
-22-
shareholders to satisfy the RIC diversified ownership requirements.
Since the RIC is a pure conduit, there are no U.S. tax costs to the
Swedish corporation of interposing the RIC as an intermediary in
the chain of ownership.
In the absence of the special rules in
paragraph 2, however, the interposition would transform portfolio
dividends into direct investment dividends, taxable at source by
the United states at only 5 percent.
Similarly, a resident of Sweden may hold U.S. real property
directly, and pay U.S. tax either at a 30 percent rate on gross
income or at the ordinary income tax rates specified in Code
sections 1 or lIon the net income. As in the preceding example,
by placing the real estate holding in a REIT, the Swedish investor
could transform real estate income into dividend income, and absent
the special rule, transform high-taxed income into much lower-taxed
income.
In the absence of the special rule, if the REIT shareholder is a Swedish corporation that owns at least a 10 percent
interest in the REIT, the withholding rate would be 5 percent; in
all other cases it would be 15 percent. In either event, a tax of
30 percent or more would be significantly reduced. One exception
to this rule is the relatively small individual investor who might
be subject to a U.S. tax of 15 percent of the net income even if he
earned the real estate income directly. Under the special rule in
paragraph 3, such individuals, defined as those holding less than
a 10 percent interest in the REIT, remain taxable at source at a 15
percent rate.
Paragraph 4 defines the term dividends as used in the
Convention. The term includes income from shares or other rights
(not being debt-claims) participating in profits, as well as other
income derived from other corporate rights that is subjected to the
same taxation treatment as income from shares by the laws of the
Contracting State of which the company making the distribution is
a resident.
The term also includes income from arrangements
(including debt obligations) that carry the right to participate in
prof its to the extent so characterized under the laws of the
Contracting State in which the income arises.
Paragraph 5 excludes dividends paid with respect to holdings
that form part of the business property of a permanent establishment or fixed base from the general source country limitations of
paragraph 2. Such dividends will be taxed on a net basis using the
rates and rules of taxation generally applicable to residents of
the state in which the permanent establishment or fixed base is
located, as modified by Articles 7 (Business profits) or 14
(Independent personal services) of the convention.
Paragraph 6 bars one State from imposing any tax on dividends
paid by a company resident in the other State, except insofar as
such dividends are otherwise subject to net basis taxation in the
first-mentioned Contracting State because such dividends are paid
to a resident of such first-mentioned contracting State, or the
-23-
holding in respect of which the dividends are paid forms par~ OL
the business property of a permanent establishment or pertains to
a fixed base situated in such first-mentioned State.
Paragraph 7 provides an exemption from u.s. excise taxes on
private foundations in the case of a religious, scientific,
literary, educational, or charitable organization which is resident
in Sweden, but only if such organization has received substantially
all of its support from persons other than citizens or residents of
the United States. This provision is designed to ensure that the
Nobel Foundation, a Swedish charitable organization, will not be
subject to U.S. excise taxes.
This provision is similar to
paragraph 4 of Article XXI of the income tax treaty between the
United States and Canada.
Paragraph 8 provides for the imposition of a branch profits
tax. This paragraph provides the basic authority under the Convention for a State to impose an additional tax (~, a branch
profits tax such as that imposed by section 884(a) of the Code) on
a company that is resident in the other Contracting State and that
has a permanent establishment in the first-mentioned State or that
is subject to net basis taxation in such State under Article 6
(Income from real property) or under paragraph 1 of Article 13
(Gains).
In the case of the United States, the base to which the
tax is applied includes only the portion of the business profits of
a company attributable, under the Convention, to the permanent
establishment and the net income subject to tax under Article 6 or
paragraph 1 of Article 13.
This amount is only subject to the
branch profits tax to the extent that it represents the "dividend
equivalent amount," as the term is defined under United states law,
and as that statutory definition may be amended from time to time,
but only to the extent that the amended definition remains in
conformity with the principles described in paragraph 8.
For example, the United States may impose its branch profits
tax on business profits of a Swedish company attributable to a
permanent establishment in the United States.
In addition, the
United States may impose its branch profits tax on income of a
Swedish corporation subject to taxation on a net basis because the
Swedish corporation has elected under Code section 882(d) to treat
income from real property not otherwise taxed on a net basis as
effectively connected income, or because the gain arises from the
disposition of a United States Real Property Interest other than an
interest in a United States corporation. The United States may not
impose its branch profits tax on the business profits of a Swedish
corporation that are effectively connected with a U.S. trade or
business but that are not attributable to a permanent establishment
and are not otherwise subject to U.S. taxation under Article 6 or
paragraph 1 of Article 13.
Although paragraph 8 is drafted in a reciprocal fashion, thus
allowing both States to impose a branch tax, as of the time of
-24-
signature of the Convention only the United states imposed such a
tax.
Paragraph 9 provides that the branch profits tax permitted by
paragraph 8 shall not 'be imposed at a rate exceeding the direct
dividend withholding rate of five percent that is provided for in
paragraph 2(a).
Notwithstanding the foregoing limitations on source country
taxation of dividends, the saving clause of paragraph 4 of Article
1 (Personal scope) permits the United States to tax dividends
received by its residents and citizens, subject to the special
foreign tax credit rules of paragraph 3 of Article 23 (Relief from
double ~axation), as if the Convention had not come into effect.
As with any benefit of the Convention, a resident of one of
the States claiming the benefit of this Article must be entitled to
the benefit under the provisions of Article 17 (Limitation on
benefits) .
Article 1.1. -
INTEREST
Article 11 provides rules for source and residence country
taxation of interest.
Paragraph 1 grants to the residence state the exclusive right
to tax interest derived and beneficially owned by its residents.
ThUS, the exemption at source for interest in the prior Convention
is generally carried forward to this Convention.
Unlike the prior Convention which did not explicitly define
"interest" , under the new treaty, paragraph 2 of Article 11
expansively defines the term "interest" as used in this Article to
me~n income from debt-claims of every kind, whether or not the
claim is secured by a mortgage, and whether or not carrying a right
to participate in the profits of the debtor.
The definition of
interest includes income from Government securities and from bonds
or debentures, including premiums or prizes attaching to such
securities, bonds or debentures. The definition also encompasses
an excess inclusion with respect to a residual interest in a real
estate mortgage investment conduit. A special rule is provided in
paragraph 7 for this category of interest.
Penalty charges for
late payment are excluded from the definition of interest.
Interest does not include dividends as defined in Article 10 even
if such dividends are income arising from debt-claims.
Paragraph 3 provides an exception to the general rule of
paragraph 1 that bars a source country tax on interest.
The
exception applies in cases where the beneficial owner of the
interest carries on business through a permanent establishment in
the source State or performs independent personal services from a
fixed base situated in the source State and the debt claim in
-25-
respect of which the interest is paid forms part of the business
property of such permanent establishment or fixed base. In such
cases the provisions of Article 7 (Business profits) or Article 14
(Independent personal services) will apply and the source state
will generally retain the right to impose tax on such interest
income.
Paragraph 4 provides a source rule for interest. It provides
that interest shall be deemed to arise in a state when the payer is
the State itself, or a political subdivision, local authority or
resident of that state.
There is an exception, however, to the
general rule that interest arises in the State of residence of the
payer. The exception arises when the payer, even if he is a thirdState resident, has a permanent establishment or a fixed base in
one of the states and the interest is borne by that permanent
establishment or fixed base. In that case, the interest is deemed
to arise in the State in which the permanent establishment or fixed
base is situated.
Paragraph 5 deals with cases where there is a special
relationship between the payer and the beneficial owner of
interest.
The provisions of Article 11 apply only to interest
payments that would have been made absent such special relationships (i.e., an arm's length interest payment). Any excess amount
of interest paid remains taxable according to the laws of the
united states and Sweden respectively, with due regard to the other
provisions of the Convention.
Thus, for example, if the excess
amount would be treated as a distribution of profits, such amount
could be taxed as a dividend rather than as interest, but the tax
would be subject to the rate limitations of paragraph 2 of Article
10 (Dividends).
Paragraph 6 limits the right of one state to impose tax on
interest payments made by a resident of the other. The paragraph
provides for the imposition of tax under those circumstances only
with respect to (1) interest paid to a resident of the firstmentioned State, (2) interest attributable to a permanent establishment or a fixed base located in that first-mentioned state, or
(3) interest that arises in the first-mentioned State and is not
paid to a resident of the other state. Thus, under subparagraph
(a), the united States may tax interest paid by a Swedish resident
to a resident of the United States as part of the world-wide income
of the U.s. resident.
Under subparagraph (b), the United states
may tax interest paid by a resident of Sweden if that interest is
attributable to a permanent establishment located in the United
States, and is therefore subject to U.S. tax as part of the income
of the,permanent establish~ent. Fina,lly, under subpara9raph (c),
the Un~ted States may tax ~nterest pa~d by a resident of Sweden if
(1) that interest is borne by a U.s. permanent establishment of
that Swedish resident,
(2) it is not portfolio interest or
otherwise exempt from U.s. tax, and (3) the beneficial owner of the
interest is a resident of a country that does not have a treaty
-26-
with the united states that exempts interest from tax at source.
For example, if aU. S. permanent establishment of a Swedish company
borrows from a Swiss bank, interest paid on that loan would be u.S.
source, and would be subject to tax at a rate of 5 percent under
the U.S.-Switzerland treaty. No tax, however, would be imposed by
the united States on the permanent establishment of the Swedish
company under the excess interest provisions of section 884(f} of
the Code, since excess interest is treated in this case as interest
paid by a resident of the united States to a resident of Sweden,
and such interest is exempt from u.S. tax under paragraph 1 of this
Article.
Although paragraph 2 includes an excess inclusion with respect
to a residual interest in a u.S. real estate mortgage investment
conduit (REMIC) within the definition of interest, paragraph 7
provides that the exemption at source for interest provided for in
paragraph 1 does not apply to such income. Instead, such income
may be taxed in the State where the excess inclusion arises. Under
united States law, this class of income is subject to the statutory
30 percent U. S. rate of tax at source.
The legislation that
created REMICs in 1986 provided that such excess inclusions were to
be taxed at the full 30 percent statutory rate, regardless of any
then-existing treaty provisions to the contrary. Providing for the
30 percent rate in the convention,
therefore, conforms the
treatment of excess inclusions with respect to residents of Sweden
to Congressional intent.
Notwithstanding the limitations on source country taxation of
interest contained in this Article, the saving clause of paragraph
4 of Article 1 (Personal scope) permits the united States to tax
interest received by its residents and citizens, subject to the
special foreign tax credit rules of paragraph 3 of Article 23
(Relief from double taxation), as if the Convention had not come
into effect.
As with any benefit of the Convention, a resident of one of
the states claiming the benefit of this Article must be entitled to
the benefit under the provisions of Article 17 (Limitation on
benefits).
Article 12 - ROYALTIES
Article 12 provides rules for source and residence country
taxation of royalties.
Paragraph 1 grants to the residence state the exclus~ve right
to tax royalties arising in the other ,State, a~d der1ved and
beneficially owned by a resident of the f1rst-ment1oned State.
Paragraph 2 generally follows other u.s. treatie~ and defines
the term "royalties" for purposes o,f the. Convent1on to mean
payments of any kind received as a cons1derat10n for the use of, or
-27-
the right to use, any copyright of a literary, artistic, or
scientific work; for the use of, or the right to use, any patent,
trade mark, design or model, plan, secret formula or process; or
for information concerning industrial, commercial, or scientific
experience. The term also includes gains derived from the
alienation of any such right or property that are contingent on the
productivity, use, or further alienation thereof.
In addition,
payments received in connection with the use or right to use
cinematographic films, or works on film, tape, or other means of
reproduction used for radio or television broadcasting are
specifically included in the definition of royalties.
The
reference to "other means of reproduction" makes clear that future
technological advances in the field of radio and television
broadcasting will not affect the inclusion of payments relating to
the use of such means of reproduction within the definition of
royalties.
.
Paragraph 3 of Article 12 provides an exception to the source
country exemption for royalties in cases where the beneficial owner
of the royalties carries on business through a permanent
establishment in the source state or performs independent personal
services from a fixed base situated in the source state and the
royalties are attributable to the permanent establishment or fixed
base. In such cases the provisions of Article 7 (Business profits)
or Article 14 (Independent personal services) will apply, and the
source state will generally retain the right to tax such royalties
on a net basis.
Paragraph 4 deals with cases involving special relationships
between the payor and beneficial owner of a royalty.
Paragraph 4
provides that the provisions of Article 12 apply to royalty
payments between related persons only to the extent that such
payments would have been made absent such special relationships
(i.e., an arm's length royalty payment). Any amount in excess of
an arm's length payment remains taxable according to the laws of
the source state, with due regard to the other provisions of the
Convention.
If, for example, the excess amount is treated as a
distribution of profits under the national law of the source state,
such excess amount will be taxed as a dividend rather than as a
royalty payment, but the tax imposed on the dividend payment will
be subject to the rate limitations of paragraph 2 of Article 10
(Dividends).
Notwithstanding the limitations on source country taxation of
royalties contained in this Article, the saving clause of paragraph
4 of Article 1 (Personal scope) permits the United states to tax
royalties received by its residents and citizens, subject to the
special foreign tax credit rules of paragraph 3 of Article 23
(Relief from double taxation), as if the Convention had not come
into effect.
-28-
As with any benefit of the Convention, a resident of one of
the states claiming the benefit of this Article must be entitled to
the benefit under the provisions of Article 17 (Limitation on
benefits) .
ARTICLE 13 - GAINS
Article 13 provides rules for source and residence country
taxation of gains from the alienation of property.
Paragraph 1 preserves the situs country right to tax gains
derived from the alienation of real property situated in the situs
state (the "source State").
Thus, paragraph 1 permits gains
derived by a resident of one state from the alienation of real
property located in the other State to be taxed by such other
state.
However, paragraph 1 does not grant the situs state an
exclusive right to tax these gains. The residence state may also
tax these gains from real property, subject to the rules of Article
23 (Relief from double taxation).
Paragraph 2 defines the term "real property situated in the
other Contracting State." Where the united states is the source
state, the term includes real property referred to in Article 6
(Income from real property) and certain indirect interests in such
property.
Such indirect interests include a United states real
property interest in the United states, as that term is defined in
the Code on the date of signature of the Convention, and as
amended.
In addition, the treaty clarifies that an interest in a
partnership, trust, or estate, to the extent that the assets of
such entity consist of united states real property interests
situated in the United states, are included in this definition.
Thus, the United states preserves its right to collect the tax
imposed by section 897 of the Code on gains derived by foreign
persons from the disposition of united states real property
interests, including gains arising from indirect dispositions
described in section 897(g). For this purpose, the source rules of
section 861 (a) (5) of the Code shall determine whether a united
States real property interest is situated in the united states.
Where Sweden is the source state, the term "real property
situated in the other contracting State" includes property that is
real property under the laws of Sweden that is situated in Sweden.
This encompasses real property referred to in Article 6 and shares
or similar rights in a company the assets of which consist,
directly or indirectly, mainly of such real property.
The definition of "real property situated in the other state"
applies solely for purposes of Article 13.
Therefore, this
definition has no effect on the right to tax income covered in
other articles of the Convention, such as Article 6 (Income from
real property).
-29-
Paragraph 3 preserves the source country right to tax gains
from the disposition of movable property in certain circumstances.
Paragraph 3 provides that gains from the disposition of movable
property which are attributable to a permanent establishment which
an enterprise of a State has in the other State or which are
attributable to a fixed base available to a resident of a State for
the purpose of performing independent personal services, and gains
from the disposition of such a permanent establishment (alone or
with the whole enterprise) or of such a fixed base, may be taxed in
the other State. This provision permits gains from the alienation
by a resident of a State of an interest in a partnership, trust or
estate that has a permanent establishment situated in the other
State to be taxed as gains attributable to such permanent
establishment under paragraph 3.
Thus, for example, the united
States may tax gains derived from the disposition of an interest in
a partnership that has a permanent establishment in the United
States, whether or not the assets of such partnership consist of
movable property.
The rule in paragraph 9 of Article 7 (Business profits)
dealing with deferred income and expenses of a permanent
establishment or fixed base applies to paragraph 3 of this Article.
Thus, gains from the disposition of movable property which are
attributable to a permanent establishment or fixed base, but are
deferred until after the permanent establishment or fixed base no
longer exists, may nevertheless be taxed by the State in which the
permanent establishment or fixed base was located.
Paragraph 4 provides a further exception from the rule set
forth in paragraph 3.
Paragraph 4 provides that profits derived
from the disposition of ships and aircraft operated by an
enterprise in international traffic and from movable property (such
as containers) attributable to the operation of such ships and
aircraft are taxable only in the State in which the enterprise is
resident.
This paragraph applies to gains derived by the air
transport consortium Scandinavian Airlines System ("SAS"), but only
to the gains that correspond to the participation held in that
consortium by AB Aerotransport ("ABA"), the Swedish partner of SASe
(The special status of SAS is discussed in connection with Article
8 (Shipping and air transport).)
Even though the issue is addressed in the first sentence of
the paragraph, the second sentence of paragraph 4 explicitly
clarifies that gains from the disposition of containers used in
international traffic by an enterprise of a Contracting State shall
be taxable only in that State.
For this purpose, containers are
deemed to include trailers, barges, and related equipment used for
the transport of containers.
Paragraph 5 provides that gains described in Article 12
(Royalties) shal~ be taxable in ac~ordance with the provisions of
Article 12.
Thl.s paragraph appll.es to gains derived from the
-30-
al~en?tion ~f
rights to intangible property if the amount of the
productivity, use or disposition thereof,
wh~ch are descr1bed ~n paragraph 2 of Article 12.
Treatment of
gains attributable to intangible property that are not described in
par~graph 2 of Article 12 is governed by paragraphs 3 or 6 of
Art1cle 13.
ga~n ~s cont~nge~t on~he
Subject to the special rule of paragraph 7, paragraph 6 grants
state the exclusive right to tax gains from the
d1spos1t1on of property other than those specifically referred to
in the preceding paragraphs of Article 13.
t~
the,r~sidence
Paragraph 7 provides a special rule for an individual who had
been a.resident of Sweden and who has become a resident of the
united States.
With respect to such an individual, Sweden will
have the right to tax gains referred to in paragraph 6 from any
property derived by such individual at any time during the ten
years following the date on which the individual ceased to be a
resident of Sweden.
Al though this Article is not reciprocal,
pursuant to paragraph 4 of Article 4 (Residence) the united States
retains the right to tax its former citizens where their loss of
citizenship had as one of its principal purposes the avoidance of
tax.
Notwithstanding the foregoing limitations on source country
taxation of certain gains, the saving clause of paragraph 4 of
Article 1 (Personal scope) permits the United States to tax gains
realized by its residents and citizens, subject to the special
foreign tax credit rules of Article 23 (Relief from double
taxation), as if the Convention had not come into effect.
As with any benefit of this Convention, a resident of one of
the States claiming the benefit of this Article must be entitled to
the benefit under the provisions of Article 17 (Limitation on
benefits).
Article 14 - INDEPENDENT PERSONAL SERVICES
The Convention deals in separate articles with different
classes of income from personal services. Article 14 deals with
the general class of income from independent personal services and
Article 15 deals with the general class of dependent personal
service income. Exceptions or additions to these general rules are
found in Articles 16 and 18 through 21 for directors' fees (Article
16): performance income of artistes ,and ,athletes (~rticle 1~):
pensions in respect of personal serv~ce 1ncome, soc1al secur~ty
benefits and annuities (Article 19): government service salaries
and pensions (Article 20): and students and trainees (Article 21).
Article 14 provides the general rule that an individual who is
a resident of a contracting State and who derives income from the
performance of personal services in an independent capacity will be
-31-
exempt from tax in respect of that income by the other contracting
state unless certain conditions are satisfied. The income may be
taxed in the other contracting State if the services are performed
in that other State, and the income is attributable to a fixed base
that is regularly available to the individual in that other state
for the purpose of performing his services.
If, however, the
individual is a Swedish resident who performs independent personal
services in the united States, and he is also a U.S. citizen, the
United states may, by virtue of the saving clause of paragraph 4 of
Article 1 (Personal scope), tax his· income without regard to the
restrictions of this Article, subject to the special foreign tax
credit rules of paragraph 3 of Article 23 (Relief from double
taxation) .
The term "fixed base" is not defined in the Convention, but
its meaning is understood to be analogous to that of the term
"permanent establishment," as defined in Article 5 (Permanent
establishment) •
Similarly, some rules of Article 7 (Business
profits) for attributing income and expenses to a permanent
establishment are relevant for attributing income to a fixed base.
However, the taxing right conferred by this Article with respect to
income from independent personal services is somewhat more limited
than that provided in Article 7 for the taxation of business
profits. In both Articles 7 and 14 the income of a resident of one
Contracting State must be attributable to a permanent establishment
or fixed base in the other State in order for that other State to
have a taxing right. In Article 14, however, the income also must
be attributable to services that are performed in that other state,
while Article 7 is not concerned with the place of performance of
the income-generating activities so long as 'the income is
attributable to the permanent establishment.
The rule in paragraph 9 of Article 7 (Business profits)
dealing with deferred income and expenses of a permanent
establishment or fixed base applies to this Article. Thus, income,
gain or expense that is attributable to a fixed base, but is
deferred until after the fixed base is no longer available to the
performer of the services may nevertheless be taxed or deducted, as
the case may be, by the State in which the fixed base was located.
Article 15 - DEPENDENT PERSONAL SERVICES
Article 15 deals with the taxation of remuneration derived by
a resident of a Contracting State as an employee.
Under paragraph 1, remuneration in respect of employment
derived by an individual who is a resident of a Contracting state
generally may be taxed only by his State of residence.
To the
extent his remuneration is derived from an employment exercised in
the other State ("the host St.ate"), the remuneration may also be
taxed by the host State, subJect to the conditions specified in
paragraph 2.
In such a case the individual's State of residence
-32-
wil~ relieve dou~le taxation in accordance with the provisions of
Art~cle
23 (Rel~ef from double taxation).
Consistent with the
general rule of construction that the more speci f ic rule takes
precedence over the more general, income dealt with in Articles 16
(Dir~ctor~' fees), 19 (Pensions and annuities), and 20 (Government
serv~ce) ~s governed by the provisions of those articles rather
than this Article.
Paragraph 2 provides that the host state may not tax the
remuneration of a resident of the other state derived from services
performed in the host state, if three conditions are satisfied: (1)
the individual is present in the host State for a period or periods
not exceeding 183 days in any consecutive twelve month period; (2)
the remuneration is paid by, or on behalf of, an employer who is
not a resident of the host state; and (3) the remuneration is not
borne as a deductible expense by a permanent establishment or fixed
base that the employer has in the host state.
If a foreign
employer pays the salary of an employee, but a host state
corporation or permanent establishment reimburses the foreign
employer in a deductible payment which can be identified as a
reimbursement, neither condition (2) nor (3), as the case may be,
will be considered to have been fulfilled~ Conditions (2) and (3)
are intended to assure that a state will not be required both to
allow a deduction to the payor for the amount paid and to exempt
the employee on the amount received. In order for the remuneration
to be exempt from tax in the host state, all three conditions must
be satisfied.·
Paragraph 3 contains a special rule applicable to remuneration
for services performed by an individual who is a resident of a
state as an employee aboard a ship or aircraft operated in
international
traffic,
including
an
aircraft
operated
in
international traffic by the air transport consortium Scandinavian
Airlines System ("SAS").
(The special situation of SAS is
discussed in connection with Article 8
(Shipping and air
transport).) Such remuneration shall be taxable only in the state
of residence of the employee if the services are performed as a
member of the regular complement of the ship or aircraft.
The
"regular complement" includes the crew.
In the case of a cruise
ship, it may also include others, such as entertainers, le~turers,
etc., employed by the shipping company to serve on the sh~p. The
use of the term "regular complement" is intended to clarify that a
person who exercises his employment as, for example, an insurance
salesman while aboard a ship or aircraft is not covered by this
paragraph.
However, services performed by an individual as a
member of a regular complement of a ship operated in international
traffic by a Swedish enterprise may be taxed in Sweden.
The comparable provision in the OECD Model provides a
different rule with respect to operations by a United states
enterprise. Under paragraph ~ in .the OECD Model ~uch incom~ may. be
taxed (on a non-exclusive bas~s) ~n the Contract~ng state 1n wh1ch
-33-
the place of effective management of the employing enterprise is
situated. The united states does not use this rule in many other
treaties, because under U.S. law, a taxing right over an employee
of an enterprise managed in the united states (or an employee of a
u.s. resident) cannot be exercised with respect to non-U.S. source
income unless the employee is also a u.s. citizen or resident.
If a u.s. citizen who is resident in Sweden performs dependent
services in the United states and meets the conditions of paragraph
2, or is a crew member on a Swedish ship or airline, and would,
therefore, be exempt from U.S. tax were he not a U.S. citizen, he
is nevertheless taxable in the United States on his remuneration by
virtue of the saving clause of paragraph 4 of Article 1 (Personal
scope), subject to the special foreign tax credit rule of paragraph
3 of Article 23 (Relief from double taxation).
Article 16 - DIRECTORS' FEES
This Article provides that one of the States may tax the fees
paid by a company which is a resident of that State for services
performed by a resident of the other State in his capacity as a
director of the company.
Only the State of residence of the
director, however, may tax any portion of the remuneration that is
derived in respect of services performed in that State.
This rule is an exception to the more general rules of Article
14 (Independent personal services) and Article 15 (Dependent
personal services).
Thus, for example, in determining whether a
non-employee director's fee is subject to tax in the country of
residence of the corporation, whether the fee is attributable to a
fixed base is not relevant.
This Article is subject to the saving clause of paragraph 4 of
Article 1 (Personal scope).
ThUS, if a u.s. citizen who is a
Swedish resident is a director of a U.S. corporation, the United
States may tax his full remuneration regardless of the place of
performance of his services, subject, however, to the special
foreign tax credit provisions of paragraph 3 of Article 23 (Relief
from double taxation).
The prior convention contains no special rule dealing with
corporate directors.
They are subj ect to the normal rules
regarding the taxation of persons performing personal services.
Articl. 17 - LIMITATION ON BENEFITS
Article 17 addres~es the pro~lem of "treaty shopping" by
limiting the source bas1s tax benef1ts of the Convention to those
residents of the other Contracting State that have a substantial
ne~s,wit~, or otherwise have a ,significant business purpose for
res1d1ng 1n, ,the other,Contract1ng ~tate.
In a typical case of
treaty shopp1ng, a res1dent of a th1rd State might establish an
-34-
~ntity
resident in a Contracting state for the purpose of deriving
the other contr~cting State and claiming treaty
respect to that ~ncome. Article 17 limits the abuse
of the Convention by limiting the benefits of the Convention to
those persons whose residence in a Contracting state is not
considered to have been motivated by the existence of the
con,:,ention.
Absen~ Article 17, the entity generally would be
ent~tled
to benef~ts under the treaty as a resident of a
contracting State, although the enti ty might be denied those
benefits as a result of limitations (~, business purpose,
substance-over-form, step transaction or conduit principles or
other anti-avoidance rules) applicable to a particular transaction
or arrangement. Article 17 and the general anti-abuse provisions
complement each other, as Article 17 generally determines whether
an entity has a sufficient nexus to the contracting State to be
treated as a resident for treaty purposes, while general anti-abuse
provisions determine whether a particular transaction should be
recast in accordance with the substance of the transaction.
~ncom~
fr~m
benef~ts w1th
The structure of Article 17 is as follows: Paragraph 1 lists
a series of attributes of a resident of a contracting state, the
presence of anyone of which will entitle that person to benefits
of the Convention in the other Contracting state.
Several of
these, which will be discussed first, are purely objective tests.
One, in subparagraph (c), is more subjective, and requires some
elaboration and interpretation. Paragraph 2 provides that benefits
may be granted even to a person not entitled to benefits under the
tests of paragraph 1, if the competent authority of the source
State so determines.
Paragraph 3 defines the term "recognized
stock exchange" as used in paragraph 1. Paragraph 4 authorizes the
competent authorities to develop agreed appl ications of the Article
and to exchange information necessary for carrying out the
provisions of the Article.
Two categories of persons eligible for benefits from the other
contracting State under subparagraphs (a) and (b) of paragraph 1
are (1) individual residents of a Contracting state and (2) the
Contracting states, political subdivisions or local authorities
thereof.
It is most unlikely that persons falling into these two
categories can be used to derive treaty benefitted income, as the
beneficial owner of the income, on behalf of a third-country
person.
If an individual is. receiving ~ncom~ as a no~inee, on
behalf of a third-country res~dent, benef1ts w1ll be den~ed w1th
respect to those items of inc::ome under the articl,es of t~e
Convention which grant the benef1t, because of the requ1rements ~n
those articles that the beneficial owner of the income be a
resident of a contracting State.
Subparagraph (d) provides ~ two-part test, the ow~ership and
base erosion tests, both of wh1ch must be met for ent1tl~ment.to
benefits under this subparagraph. Under these tests, benef1ts w~ll
be granted to a resident of a Contracting state other than an
-35-
individual, if both (1) more than 50 percent of the beneficial
interest in the person (or, in the case of a corporation, more than
50 percent of each class of its shares) is owned, directly or
indirectly, by persons who are themselves entitled to benefits
under the other tests of paragraph 1 (other than subparagraph (c»,
or by U. S. citizens, and (2) not more than 50 percent of the
person' s gross income is used, directly or indirectly, to make
deductible payments to persons·, other than persons who are
themselves eligible for benefits under the other tests of paragraph
1 (other than subparagraph (c», or to u. S . citizens.
It is
understood that the term "gross income" is to be interpreted as in
u.s. law. Thus, in general, the term should be understood to mean
gross receipts less cost of goods sold.
The rationale for this two-part test is that since treaty
benefits can be indirectly enjoyed not only by equity holders of an
entity, but also by that entity's various classes of obligees (such
as lenders, licensors, service providers, insurers and reinsurers)
it is not enough merely to require substantial ownership of the
entity by treaty country residents or their equivalent. In order
to prevent treaty benefits from inuring to third-country residents,
it is also necessary to require that the entity' s deductible
payments be made in substantial part to such treaty country
residents or their equivalents.
For example, a third-country
resident could lend funds to a Swedish-owned Swedish corporation to
be reloaned to a resident of the united states that is related to
the third-country resident. In the absence of a treaty between the
Uni ted states and the third country, the interest if earned
directly by the third-country resident would be subject to a 30
percent withholding tax in the United States.
The U. S. source
interest income of the Swedish corporation, however, would be
exempt from u.s. withholding tax under Article 11 (Interest) of the
Convention.
While the Swedish corporation would be subject to
Swedish corporation income tax, its taxable income could be reduced
to near zero by the deductible interest paid to the third-country
resident.
If, under a Convention between Sweden and the third
country, that interest is exempt from Swedish tax, the U.S. treaty
benefit with respect to the u.S. source interest income will have
flo~ed to the third-country resident.
Under subparagraph (e), a corporation that is a resident of a
Contracting State is entitled to treaty benefits from the other
Contracting ~tate if. th~re is substantial and regular trading in
the corporat10n's pr1nc1pal class of shares on a recognized stock
exchange.
The term "recognized stock exchange II is defined in
paragraph 3 of the Article to mean, in the United States, the
NASDAQ System and any stock exchange which is registered as a
national securities exchange with the Securities and Exchange
Commission,
and, .. in Sweden,
the Stockholm Stock Exchange
(Stockholms Fondbors).
Paragraph 3 also provides that the
competent
authorities may,
by mutual
agreement
recognize
additional exchanges for purposes of subparagraph l(e).
-36-
,.
Sw:>paragraph ,(f) provides that a not-for-profit organization
(~n,?lud~ng a pens~on f,und and a private foundation) which is a
res~dent of a Contract~ng state is entitled to benefits from the
other contracting state if it satisfies two conditions: (1) It must
be generally exempt from tax in its state of residence by virtue of
its not-for-profit status, and (2) more than half of the
benef iciaries, members or participants, if any, in the organization
must be persons
entitled, under this Article , to the benefits of
,
the Convent~on. A pension fund is entitled to the benefits of the
~onven~ion if the organization sponsoring the fund, trust or entity
~s ent~tled to the Convention's benefits under Article 17.
Thus,
one need not determine that more than half of the beneficiaries of
a Swedish pension plan are residents of Sweden in deciding whether
the pl~n is entitled to U.S. treaty benefits in respect of its
income so long as the Swedish corporation sponsoring the fund is
entitled to benefits under Article 17, because, for example, it is
publicly traded on the Stockholm Stock Exchange. If, however, the
sponsoring organization is not entitled to benefits, the tests of
subparagraph l(f) must be met.
Subparagraph l(c) of Article 17 provides a test for eligibility for benefits for residents of a Contracting State that are
not qualifying persons under any of the other tests of this
paragraph. This is the so-called "active trade or business" test.
Unlike the other tests of paragraph 1, it looks not solely at
objective characteristics of the person deriving the income, but at
the nature of the activity engaged in by that person and the
connection between the income and that activity. Under the active
trade or business test, a resident of one State deriving an item of
income from the other State is entitled to benefits with respect to
that income if that person (or a person related to that person) is
engaged in an active trade or business in the first-mentioned State
and the income in question is derived in connection with, or is
incidental to, that trade or business.
Income that is derived in connection with, or is incidental
to, the business of making or managing investments will n?t qualify
for benefits under this provision, unless those ~nvestment
activities are banking or insurance activities carried on by a bank
or insurance company.
Income is considered derived "in connection" with an active
trade or business in a Contracting State if, for example, the
income-generating activity in that State is "upstream," "downstream," or parallel to that going on ~n the other State. Thus',if
the U.S. activity consisted of sell~ng the outpu~ of a Swed~sh
manufacturer or providing inputs to the manufactur1ng process, or
of selling in the United States the same so~ts of,products that
were being sold by the Swedish trade or bus~ness .~n Sweden, t~e
income generated by that,activity would ~e treated as earned 1n
connection with the Swed~sh trade ~r bus~ness.
In~ome w~uld be
considered "incidental" to the Swed1sh trade or bus~ness 1f, for
-37-
example, it were interest income earned from the short-term
investment of working capital of the Swedish resident in U. S.
securities.
An item of income will be considered to be earned in connection with or to be incidental to an active trade or business in
Sweden if the income is derived by the resident of Sweden claiming
the benefits directly or indirectly through one or more other
persons that are residents of the united States.
Thus, for
example, a Swedish resident could claim benefits with respect to an
item of income earned by a u.S. operating subsidiary but derived by
the Swedish resident indirectly through aU. S. holding company
interposed between it and the operating subsidiary.
It is expected that, in order for an item of income to be
considered derived in connection with an active trade or business
under subparagraph l(c), the business activity in the residence
State will be substantial in relation to the income generating
activity in the source State. For example, the trade or business
in Sweden must be substantial in relation to the activity in the
Uni ted States that gave rise to the income in respect of which
treaty benefits are being claimed. Given the relative sizes of the
u.S. and Swedish economies, it is not necessary that the Swedish
trade or business be as large as the U. S. income-generating
activity. The Swedish trade or business cannot, however, in terms
of income, assets, or similar measures, be only a very small percentage of the size of the u.s. activity.
The substantiality requirement is intended to prevent certain
types of treaty-shopping abuses.
For example, a third-country
resident may want to acquire aU. S. company that manufactures
television sets for worldwide markets; however, since its country
of residence has no tax treaty with the United States, any
dividends generated by the investment would be subject to a U.S.
withholding tax of 30 percent. Absent a substantiality test, the
investor could set up a Swedish corporation that would operate a
small outlet in Sweden to sell a few of the television sets
manufactured by the u.S. company. That Swedish corporation would
then acquire the u.S. manufacturer with capital provided by the
third-country resident.
It might be argued that the U.S. source
income is generated from business activities in the United States
related to the television sales activity of the Swedish parent and
that the dividend income should be subject to U.S. tax at the 5
percent rate provided by Article 10 (Dividends).
However, the
substantial i ty test would not be met in this example, so the
dividends would remain subject to withholding in the United States
at a rate of 30 percent.
In general, it is expected that if a person qualifies for
b 7nefits under. the othe: ~ubp~ragraphs of paragraph 1, no inquiry
w1ll be made 1~tO qu~11f1cat10n for benefits under subparagraph
l(c). Upon sat1sfact1on of any of the other tests of paragraph 1,
-38-
any income derived by the beneficial owner from the other
Contracting state is entitled to treaty benefits.
Under
subparag:aph l(c), however, the test is applied separately for each
item of lncome.
It is int~nded that the provisions of subparagraph l(c) will
be self exe:c~tlng. Un~ ike the provisions of paragraph 2, discussed
below, clalm1ng beneflts under this subparagraph does not require
advanc 7 ,competent authority ruling or approval.
The tax
auth?rltles may! of course, on review determine that the taxpayer
has lmproperly lnterpreted the subparagraph and is not entitled to
the benefits claimed.
Paragraph 2 provides that a resident of a Contracting State
that derives income from the other Contracting state and is not
entitled to the benefits of the Convention under any of the
provisions of paragraph 1, may, nevertheless, be granted benefits
at the discretion of the competent authority of the Contracting
state in which the income arises.
Paragraph 2 itself provides no guidance to competent
authorities or taxpayers as to how the discretionary authority is
to be exercised.
It is understood, however, that in making
determinations under paragraph 2, the competent authorities will
take into account all relevant facts and circumstances.
The
factual criteria that the competent authorities are expected to
take into account include the existence of a clear business purpose
for the structure and location of the income earning entity in
question; the conduct of an active trade or business (as opposed to
a mere investment activity) by such entity; and a valid business
nexus between that entity and the activity giving rise to the
income.
For purposes of implementing paragraph 2, a taxpayer will be
permitted to present his case to his competent authority for an
advance determination based on the facts, and will not be required
to wait until the tax authorities of one of the Contracting States
have determined that benefits are denied under one of the other
provisions of the Article.
It also is expected that if the
competent authority determines that benefits are to be allowed,
they will be allowed retroactively to the time of entry into force
of the relevant treaty provision or the establishment of the
structure in question, whichever is later.
It is contemplated that under paragraph 2 the Competent
Authority of the United states ~ill grant t~eat~ benefits to the
Nobel Foundation, a Swedish charltable organlzatlon.
Paragraph 4 provides that the competent authorities of the
United states and Sweden will consult together to develop a
commonly agreed application of th~S Article.
In accordance.w~th
Article 26 (Exchange of informatlon), the competent authorltles
-39-
will exchange information necessary to carry out this Article and
to safeguard the application of domestic laws.
Article 18 - ARTISTES AND ATHLETES
This Article deals with the taxation by one state of artistes
(i.e., performing artists and entertainers) and athletes resident
in the other state from the performance of their services as such.
The Article applies both to the income of an entertainer or athlete
who performs services on his own behalf and one who performs his
services on behalf of another person, either as an employee of that
person, or pursuant to any other arrangement.
The rules of this
Article take precedence over those of Articles 14 (Independent
personal services) and 15 (Dependent personal services).
This
Article applies, however, only with respect to the income of
performing artists and athletes. Others involved in a performance
or athletic event, such as producers, directors, technicians,
managers, coaches, etc., remain subject to the provisions of
Articles 14 and 15.
Paragraph 1 describes the circumstances in which one state may
tax the performance income of an entertainer or athlete who is a
resident of the other state.
Income derived by a resident of one
State from his personal activities as an entertainer or athlete
exercised in the other State may be taxed in that other State if
the amount of the gross receipts derived by the individual for any
twelve month period exceeds $6,000 (or its equivalent in Swedish
kronor). The $6,000 includes expenses reimbursed to the individual
or borne on his behalf.
If the gross receipts exceed $6,000, the
full amount, not just the excess, may be taxed in the State of
performance.
The OECD Model provides for taxation by the country of
performance of the remuneration of entertainers or athletes with no
dollar or time threshold. The United States introduces the dollar
threshold test in its treaties to distinguish between two groups of
entertainers and athletes -- those who are paid very large sums of
money for very short periods of service, and who would, therefore,
normally be exempt from host country tax under the standard
personal services income rules, and those who earn only modest
amounts and are, therefore, not clearly distinguishable from those
who earn other types of personal service income.
Paragraph 1 applies notwithstanding the provisions of Articles
14 (Independent p,ersona,l ~e~ices) or 15 (Dependent personal
serv1ces). Thus, 1f an 1nd1v1dual Would otherwise be exempt from
tax under those Articles, but is subject to tax under this Article
he may be taxed in accordance with Article 18. An entertainer o~
athlete who receives less than the $6,000 threshold amount and who
is, therefore, not subject to tax under the provisions' of this
Article, ~ay, nevertheles 7, be subject to tax in the host country
under Art1cles 14 or 15 1f the tests for taxability under those
-40-
~rticles
are
met.
For example, if an entertainer· who is an
earns only $5,500 of income for a 12 month
per1od, but the 1ncome is attributable to a fixed base regularly
available to him in the State of performance (such as a cocktail
~ounge in which, he regularly performs), that State may tax his
1ncome under Art1cle 14.
1nd~pendent cont~actor
,
Inc~me derived from one state by an entertainer or athlete who
1S a res1dent of the other in connection with his activities as
such, but from other than actual performance, such as royalties
from record sales and payments for product endorsements . is not
covered by ~his Article, but by other articles of the co;vention,
as appropr1ate, such as Article 12 (Royal ties) or Article 14
(Ind 7pendent pers~nal services).
For example, if an entertainer
rece1ves royalty 1ncome from the sale of recordings of a concert
given in a State, the royalty income would be exempt from source
country tax under Article 12, even if the remuneration from the
concert itself may have been covered by this Article.
Paragraph 2 is intended to eliminate the potential for abuse
when income from a performance by an entertainer or athlete does
not accrue to the performer himself, but to another person.
Foreign entertainers commonly perform in the United states as
employees of, or under contract with, a company or other person.
The relationship may truly be one of employee and employer, with no
abuse of the tax system either intended or realized. On the other
hand, the "employer" may, for example, be a company established and
owned by the performer, which is merely acting as the nominal
income recipient
in respect of the remuneration for the
entertainer's performance.
The entertainer may be acting as an
"employee", receiving a modest salary, and arranging to receive the
remainder of the income from his performance in another form or at
a later time. In such case, absent the provisions of paragraph 2,
the company providing the entertainer's services could attempt to
escape host country tax because it earns business profits but has
no permanent establishment in that country.
The entertainer may
largely or entirely escape host country tax by receiving only a
small salary in the year the services are performed, perhaps small
enough to place him below the dollar threshold in paragraph 1. He
would arrange to receive further payments in a later year, when he
is not subject to host country tax, perhaps as salary payments,
dividends or liquidating distributions.
Paragraph 2 seeks to prevent this type of abuse while at the
same time protecting the taxpayer's right to the benefits of the
Convention
when
there
is
a
legitimate
employee-employer
relationship between the performer and the person providing his
services. Under paragraph 2, when the income accrues to a person
other than the performer, and t~e ~erformer,(or persons, related to
him) participate, directly or 1nd1rectly! 1n the prof1t~ of that
other person the income may be taxed 1n the Contract1ng State
where the performer's services are exercised, without regard to the
-41-
provisions of the Convention concerning business profits (Artic~e
7) or independent personal services (Article 14) .. Thus, e~en 1f
the "employer" has no permanent establishment or f1xed base 1n the
host country, its income may be subj ect to tax there .un~er the
provisions of paragraph 2. Taxation under paragraph 2 1S 1mposed
on the person providing the services of the entertainer or athle~e.
This paragraph does not affect the rules of paragraph 1, wh1ch
apply to the entertainer or athlete himself.
To the extent of
salary payments to the performer, which are treated under paragraph
1, the income taxable by virtue of paragraph 2 to the person
providing his services is reduced.
For purposes of paragraph 2, income is deemed to accrue to
another person (i.e., the person providing the services of the
entertainer or athlete) if the entertainer or athlete has control
over, or the right to receive, gross income in respect of the
services of the entertainer or athlete.
Direct or indirect
participation in the profits of a person may include, but is not
limited to, the accrual or receipt of deferred remuneration,
bonuses, fees, dividends, partnership income or other income or
distributions.
The paragraph 2 override of the protection of Articles 7
(Business profits) and 14 (Independent personal services) does not
apply if it is established that neither the entertainer or athlete,
nor any persons related to the entertainer or athlete, participate
directly or indirectly in the profits of the person providing the
services of the entertainer or athlete. Thus, for example, assume
that a circus owned by a u.s. corporation performs in Stockholm,
and the Swedish promoters of the performance pay the circus, which,
in turn, pays salaries to the clowns. The circus has no permanent
establishment in Sweden.
Since the clowns do not participate in
the profits of the circus, but merely receive their salaries out of
the circus' gross receipts, the circus is protected by Article 7
and its income is not subject to Swedish tax. Whether the salaries
of the clowns are subject to Swedish tax depends on whether they
exceed the $6,000 threshold in paragraph 1, and, if not, whether
they are taxable under Article 15 (Dependent personal services).
This exception to the paragraph 2 override of the Articles 7
and 14 protection of persons providing the services of entertainers
and athletes for non-abusive cases is not found in the OECD Model.
The OECD Model language applies to non-abusive situations, i.e.,
where the performer does not participate in the profits of the
person providing the services.
Paragraph 2 of this Convention,
however, applies only if the performer participates in the profits
of the venture. Therefore, paragraph 2 does not apply unless the
ar:angement is .a pote~tially ~busive situation.
The language of
th1s paragraph 1S cons1stent w1th the U.S. reservation to paragraph
2 of the OECD Model.
-42-
This Article is subject to the provisions of the saving clause
of paragraph 4 of Article 1 (Personal scope).
Thus, if an
entertainer or athlete who is resident in Sweden is a citizen of
the United States, the United states may tax all of his income from
performances in the United states without regard to the provisions
of this Article, subject, however, to the special foreign tax
credit provisions of paragraph 3 of Article 23 (Relief from double
taxation).
The prior Convention contains no special rules for the
taxation of the income of entertainers and athletes. Such income
is subj ect to the general rules for the taxation of personal
service income.
Article 19 - PENSIONS AND ANNUITIES
Article 19 deals with the taxation of private (i.e.,
non-government) pensions, annuities, social security, and similar
benefits.
Paragraph 1 provides that private pensions and other similar
remuneration derived and beneficially owned by a resident of a
contracting state in consideration of past employment are generally
taxable only in the State of residence of the recipient.
The
paragraph also provides for exclusive residence country taxation of
annuities. The rules of this paragraph do not apply to items of
income which are dealt with in Article 20 (Government service),
including pensions in respect of government service, or to social
security benefits which are dealt with in paragraph 2 of Article
19.
The term "annuity" as used in this Article is defined in
paragraph 3 to mean a stated sum paid periodically at stated times
during life or during a specified or ascertainable number of years
under an obligation to make the payment in return for adequate and
full consideration other than services rendered or to be rendered.
Paragraph 2 provides that pensions (including the Swedish
"allman tillaggspension") and other payments made by one of the
states under the provisions of its social security system or
similar legislation paid to a resident of the other State or to a
citizen of the United States ~ill be taxable only in the paying
State.
Pensions in respect of government service under the
provisions of a social security system as described in this
paragraph are covered by this rule, and not by the rule of
paragraph 2 of Article 20 (Government service).
"Similar
legislation" is defined in paragraph 2 of the notes exchanged at
the time of the signing of the Convention to refer to United states
tier 1 Railroad Retirement benefits.
The reference to u.s.
citizens is necessary to ensure that a social security payment by
Sweden to a U.S. citizen not resident in the United States will not
be taxable by the United states.
-43-
Paragraph 4 permits a resident of Sweden or the united states
who is not a national of that country to deduct contributions paid
by or on behalf of that individual to a pension or other retirement
arrangement that is established and maintained and recognized for
tax purposes in the other country to the same extent that
deductions would be permitted in the first-mentioned country. The
contributions are only deductible, however, if the competent
authority of the State permitting the deduction agrees that the
pension scheme or other retirement arrangement of the other State
generally corresponds to a pension scheme or other retirement
arrangement recognized for that purpose in the first state.
In
either contracting State, a pension or other retirement arrangement
will qualify as "recognized for tax purposes" in that state if
contributions to the arrangement would qualify for tax relief in
that State.
Paragraph 2 is one of the exceptions listed in paragraph 5(a)
of Article 1 (Personal scope) to the saving clause of paragraph 4
of that Article.
Thus, the United States will not tax social
security benefits paid by Sweden to a u.S. citizen who is a
resident of Sweden. The provisions of this Article (except those
of paragraph 2 dealing with social security benefits) are subject
to the saving clause of paragraph 4 of Article 1 (Personal scope).
Thus, for example, a periodic pension or annuity payment received
by a resident of Sweden who is a u.S. citizen may be taxed by the
united States, regardless of the provision for exclusive residence
taxation for those classes of income.
Article 20 -
GOVERNMENT SERVICE
Article 20 deals with the taxation
pensions) from governmental employment.
of
income
(including
Subparagraphs (a) and (b) of paragraph 1 deal with the
taxation of government compensation (other than a pension).
Subparagraph (a) provides that wages, salaries, and similar
compensation paid by one of the States or by its political
subdivisions or local authorities to any individual are generally
exempt from tax by the other St~te. Under subparagraph (b), such
payments are, however, taxable ~n the other State and only in that
State, if the services are rendered in that other State and the
individual is a resident of that State who is either a citizen of
that State or a person who did not become resident of that State
solely for purposes of rendering the services. Thus, an individual
who, after establishing u.S. residence, is hired by the Swedish
Embassy in Washington, would be subject to U.S. (and not Swedish)
tax on his Swedish salary.
Paragraph 2 deals with the taxation of a pension paid by, or
out of funds created by, one of the States or a political
subdivision or a local authority thereof to an individual in
respect of services rendered to that State or SUbdivision or
-44-
authority.
Subparagraph (a) provides that such a pension is
taxable ~nly in that sta~e. ~ubparagraph (b) provides an exception
unde~ w~1.c:h such, a pens1.~n 1.S taxable only in the other State if
the 1.nd1.v1.dual 1.S a res1dent of, and a citizen of that other
State. Pensions paid to retired civilian and military' employees of
a Government of either State are intended to be covered under
P?ragraph 2.
Paragraphs 1 and 2 are similar to paragraphs 1 and 2 of
Article 19 (G?vernment service) of the OECD Model Treaty. These
paragraphs dl.ffer from many U.S. treaties under which such
remuneration, including a pension, is taxable only in the
Contracting State that pays it.
Paragraph 3 provides that the prOV1.S10nS of Articles 14
(Independent personal services), 15 (Dependent personal services),
16 (Directors' fees), 18 (Artistes and athletes), and 19 (Pensions
and annuities) shall apply to remuneration and pensions in respect
of services rendered in connection with a business carried on by
one of the States or a political subdivision or a local authority
thereof. This treatment is consistent with the OECD Models which
excludes payments in respect of services rendered in connection
with a business carried on by the governmental entity paying the
compensation or pension.
Under paragraph 5(b) of Article 1 (Personal scope), the saving
clause (paragraph 4 of Article 1) does not apply to the benefits
conferred by one of the States under Article 20 if the recipient of
the benefits is neither a citizen of that state, nor, in the case
of the United States, is a lawful permanent· resident (i. e., a
"green card" holder). Thus, for example, a Swedish resident who
receives a pension paid by Sweden in respect of services rendered
to the Government of Sweden shall be taxable on this pension only
in Sweden unless the individual is a U.S. citizen or acquires a
U.S. green card.
Article 21 - STUDENTS AND TRAINEES
Article 21 deals with visiting students,
business trainees.
apprentices,
and
An individual who is a resident of one of the Contracting
states and who visits the other contracting state for the purpose
of full-time education or training, will not be taxed by that other
State on amounts received from abroad to cover his expenses. The
reference to "full-time" is not intended to exclude full-time
students who, in accordance with their visas, may hold part-time
jobs.
The exempt ion, however , ~oes not extend ~o any amounts
received as compensation for serv1ces rendered, whl.ch are covered
under Article 14 {Independent personal services} or Article 15
(Dependent personal services). The exemption also does not apply
-45-
to any grant provided from within the host state, which is taxable
in accordance with the domestic laws of that state.
Under paragraph 5(b) of Article 1 (Personal scope), Article 21
is an exception to the saving clause of paragraph 4 of Article 1
for individuals who are not citizens of the united states or green
card holders but are residents of the united states under the
physical presence tests of Code section 7701(b).
Article 22 -
OTHER INCOME
This Article provides the rules for the taxation of items of
income not dealt with in the other articles of the Convention. An
item of income is "dealt with" in an article when an item in the
same category is a subject of the article, whether or not any
treaty benefit is granted to that item of income.
This Article
deals both with classes of income that are not dealt with
elsewhere, such as lottery winnings, and with income of the same
class as income dealt with in another article of the Convention,
but from sources in third states, and, therefore, not a subject of
the other Article if that article deals only with items of that
class of income from sources within one of the States.
Paragraph 1 contains the
income derived by a resident of
only in the State of residence.
applies irrespective of whether
right to tax the income covered
general rule that such items of
one of the states will be taxable
This exclusive right of taxation
the residence state exercises its
by the Article.
Paragraph 2 contains an exception to the general rule of
paragraph 1 for income, other than income from real property, that
is attributable to a permanent establishment or fixed base
maintained in a Contracting state by a resident of the other
Contracting State. The taxation of such income is governed by the
provisions of Articles 7 (Business profits) and 14 (Independent
personal services). Thus, in general, third-country income which
is attributable to a permanent establishment maintained in the
Uni ted States by a resident of Sweden would be taxable by the
united States. There is an exception to this rule for income from
real property, as defined in paragraph 2 of Article 6 (Income from
real property). If, for example, a Swedish resident derives income
from real property located outside the United States which is
attributable to the resident's permanent establishment or fixed
base in the United States, only Sweden and not the United states
may tax t~at inc,ome.
T~is special rule for foreign-situs real
property 1S cons1stent w1th the general rule, also reflected in
Article 6, that only the situs and residence States may tax real
property income. Even if such property is part of the property of
a permanent establ~shment or ,fixed, base in a Contracting state,
that State may not 1mpose tax 1f ne1ther the situs of the property
nor the residence of the owner is in that State.
-46-
The
of Article 7 (Business profits)
and expenses of a permanent
es-t;:abl~shment or f~xed base appl~es to this Article.
Thus, income,
ga~n. or expense that is from third-country sources and that is
attr~butable to a permanent establishment or fixed base
but is
deferred until after the permanent establishment or fixed base no
longer exists, may nevertheless be taxed or deducted, as the case
may be, in the state in which the permanent establishment or fixed
base was located.
dealin~
rule
with
in paragraph
de~erred
9
~ncome.
. This Article is subject to the saving clause of paragraph 4 of
1 (Personal scope).
Thus, the United states may tax the
income of a Swedish resident not deal t with elsewhere in the
convention, if that Swedish resident is a citizen of the united
states, subject, however, to the special foreign tax credit
provisions of paragraph 3 of Article 23 (Relief from double
taxation).
Art~cle
As with any benefit of the Convention, a resident of one of
the States claiming the benefit of this Article must be entitled to
the benefit under the provisions of Article 17 (Limitation on
benefits).
Article 23 - RELIEF FROM DOUBLE TAXATION
Article 23 describes the manner in which each Contracting
state undertakes to relieve double taxation.
The United states
uses the foreign tax credit method exclusively.
Sweden uses a
combination of foreign tax credit and exemption methods, depending
on the nature of the income involved.
In paragraph 1, the united states agrees to allow to its
citizens and residents a credit against u.s. tax for income taxes
paid or accrued to Sweden.
The credit under the Convention is
allowed in accordance with the provisions and subject to the
limitations of u.s. law, as that law may be amended over time, so
long as the general principle of this Article (i.e., the allowance
of a credit) is retained. Thus, although the Convention provides
for a foreign tax credit, the terms of the credit are determined by
the provisions of U.s. law at the time a credit is given.
paragraph 1 also provides for a deemed-paid c~edi~, consistent
with section 902 of the Code, to a u.s. corporat~on ~n respect of
dividends received from a Swedish corporation in which the U.S.
corporation owns at least 10 percent of ~he voting s~ock.
This
credit is for the tax paid by the Swed~sh corporat10n on the
earnings out of which the dividends are considered paid.
As indicated the U.S. credit under the Convention is subject
to the limitation~ of U.S. law, which generally limit the credit
against u.S. tax to the amount of u.s. tax due with. respect to n~t
foreign source income within the relevant fore~gn tax cred~t
-47-
limitation category (see Code section 904 (a» •
Nothing in ~he
Convention prevents the limitation of the U.S. credit from be1ng
applied on a per-country or overall basis or on some variation
thereof.
In general, where source rules are provided in the
Convention for purposes of determining the taxing rights of the
Contracting States, these are consistent with the Code source rules
for foreign tax credit and other purposes. Where, however, there
is an inconsistency between Convention and Code source rules, the
Code source rules (~, Code section 904 (g»
will be used to
determine the limits for the allowance of a credit under the
Convention.
(Paragraph 3 of the Article provides an exception to
this general rule with respect to certain u.s. source income of
u.s. citizens resident in Sweden.)
Paragraph 1 also provides that the Swedish income taxes
specified in subparagraph l(b) and paragraph 2 of Article 2 (Taxes
covered) are to be treated as income taxes for purposes of allowing
a credit under the Convention.
However, the Swedish capital tax
(specified in Article 2 (1) (b) (v»
and the Swedish excise tax
imposed on insurance premiums paid to foreign insurers (specified
in Article 2(1) (b) (vi» are not considered income taxes. It is not
U. S. pol icy to allow credit by treaty for taxes Which are not
creditable under the Code, and it was the understanding of the
negotiators that each of the Swedish income taxes for which credit
is allowed under Article 23 are creditable taxes under the Code.
If, however, it should be the case that a credit is being allowed
under the Convention for a Swedish tax which is not a creditable
income tax under the Code, the credit shall be 1 imi ted on a
per-country basis (i.e., only allowed to offset net Swedish source
income within the relevant foreign tax credit limitation category
under Code section 904(a».
Paragraph 2 of the Article provides the rules by which Sweden,
in imposing tax on its residents, provides relief for U.S. taxes
paid by those residents. Subparagraph 2(a) specified that where a
resident of Sweden derives income which is subject to U.S. tax
under this Convention (other than income taxed in accordance with
the saving clause of Article 1 (4) ), Sweden will allow as a
deduction from Swedish tax an amount equal to the income tax paid
in the United States. The amount of this deduction is subject to
the provisions of Swedish law, as it may be amended from time to
time without changing the general principle of the Article (i.e.,
the allowance of a credit). This paragraph also applies to Swedish
taxation pursuant to Article 13(7) of certain individuals who had
been residents of Sweden but who have become residents of the
United States.
Under subparagraph 2 (b), when a resident of Sweden earns
only taxab~e in the Unite~ ~tates pursuant to paragraph 2 of
Art1cle 19 (Pens1ons and annu1t1es) or Article 20 (Government
service), Sweden may compute the exemption with progression. That
is, in determining the rate of tax applicable under a progressive
inc~me
-48-
rate structure to the income which is not exempt, Sweden may take
the exempt income into account.
subparagraph 2(c) specifies that dividends paid by a U.s.
resident company to a Swedish resident company will be exempt from
Swedish tax to the extent that the dividend would have been exempt
under Swedish law if both companies had been Swedish companies
(e. g., the company receiving the dividends owns at least a 25
percent interest in the company 'paying the dividends).
The
exemption only applies if the profits out of which the U.S.
resident paid the dividends have been subjected to normal U.S.
corporate tax.
Pa.ragraph 3 modifies the rules in paragraphs 1 and 2 for
certain types of income derived from U.S. sources by U.S. citizens
who are resident in Sweden. Since U.S. citizens are subject to
united States tax at ordinary progressive rates on their worldwide
income, the U.S. tax on the U.S. source income of a U.s. citizen
resident in Sweden will often exceed the U.S. tax allowable under
the Convention on an item of U. S. source income derived by a
resident of Sweden who is not a U.S. citizen.
Subparagraph 3(a) provides special Swedish tax rules for the
taxation of U.S. citizens residing in Sweden. In this case, Sweden
will allow as a deduction from Swedish tax U.S. income taxes paid
on U.S. source income. The amount of this deduction is subject to
the provisions of Swedish law, as it may be amended from time to
time without changing the general principles thereof. In allowing
the deduction, Sweden will not allow a bigger deduction than the
amount of tax that would have been paid to the united States if the
resident were not a u.S. citizen.
Subparagraph 3(b) deals with the potential for double taxation
which can arise as a result of the absence of a full Swedish
foreign tax credit, because of subparagraph 3(a), for the U.S. tax
imposed on its citizens resident in Sweden.
The subparagraph
provides that the United States will credit the Swedish income tax
paid, after allowance of the credit provided for in subparagraph
3(a). The credit allowed by the United States is subject to the
limitations of the law of the United States, as it may be amended
from time to time without ~hanging the general principles hereof.
It further provides that in allowing the credit, the United States
will not reduce its tax below the amount which is allowed as a
creditable tax in Sweden under subparagraph 3(a).
Since the income which is dealt with in paragraph 3 is U.S.
source income, special rules are required to resource some of the
income as Swedish source in order for the United States to be able
to credit the Swedish tax.
This resourcing is provided for in
subparagraph 3(c), which deems the items of income referred to in
subparagraph 3(a) to be from Swedish sources to the extent
necessary to avoid double taxation under subparagraph 3(b).
-49-
Paragraph 4 provides rules to determine source of income to
ensure that double tax is avoided under this convention. The rules
of this paragraph are subject to source rules in.t~e domestic l~ws
of the Contracting states.
Paragraph 4 spe.c1f1es two spec1~l
source rules.
First, income derived by a res1dent of a state 1S
deemed to be from sources in the other state if it may be taxed by
the other state in accordance with this Convention. This rule does
not apply to income taxed by the other state exclusively by reason
of citizenship (Article 1(4)} or former residency (Article 13(7)}.
Second, income derived by a resident of a State which may not be
taxed under this Convention by the other State is deemed to be from
sources in the first-mentioned state. paragraph 4 does not apply
in determining u.s. foreign tax credits for taxes other than the
taxes referred to in paragraphs l(b} and 2 of Article 2 (Taxes
covered) .
As specified in paragraph 5(a} of Article 1 (Personal scope),
Article 23 is not subject to the saving clause of paragraph 4 of
Article 1.
Thus, the united states will allow a credit to its
citizens and residents in accordance with the Article, even if such
credit were to provide a benefit not available under the Code.
Article 24 - NON-DISCRIMINATION
Article 24 assures that citizens of a Contracting State or
entities deriving their status in a state (paragraph 1), and
residents of a Contracting State (paragraphs 2 through 5), will not
be subject to discriminatory taxation in the other state. For this
purpose, non-discrimination means providing national treatment.
Paragraph 1 provides that a citizen of one of the States or a
legal person, partnership or association deriving its status as
such from the laws of one of the states may not be subj ect to
taxation or connected requirements in the other Contracting state
that are other or more burdensome than the taxes and connected
requirements imposed upon a citizen or entity of that other
Contracting state in the same circumstances.
These persons are
afforded protection under this paragraph even if they are not
residents of either state. Thus, a u.s. citizen who is resident in
a third country is entitled, under this paragraph, to the same
treatment by Sweden as a Swedish citizen who is in similar
circumstances (i.e., who is resident in a third country).
Paragraph 1 clarifies that this paragraph does not obligate
the united states to apply the same taxing regime to a Swedish
citizen who is not resident in the United States and a u.s. citizen
who is not.r~sident in the United states .. Paragraph 1 applies only
when the c1t1zens of the two States are 1n the same circumstances.
United states citizens who are not residents of the United States
but who are, nevertheless, subject to United States tax on their
worldwide income, are not in the same circumstances with respect to
United states taxation as citizens of Sweden who are not United
-50-
states residents.
Therefore, Article 24 would not entitle a
Swedi~h citizen not resident in the United States to the net basis
taxat10n of u.s. source dividends or other investment income that
applies to a u.s. citizen not resident in the United states.
Paragraph 2 provides that a permanent establishment in one of
the States of an enterprise of the other Contracting state may not
be less favorably taxed in the first-mentioned State than an
enterpri~e .o~ tha~ first-~entioned State that is carrying on the
same actl.Vl.tl.es 1n the fl.rst-mentioned State.
This provision,
how 7ver, does not obligate a Contracting State to grant to a
resl.de~t of the other any personal allowances, reliefs, and other
red~ct10ns for taxation purposes, that it grants to its own
res1dents
on
account
of
their
civil
status
or
family
responsibilities. Thus, if an individual resident in Sweden owns
a Swedish enterprise that has a permanent establishment in the
United States, in assessing income tax on the profits attributable
to the permanent establishment, the United States is not obligated
to allow to the Swedish resident the personal allowances for
himself and his family that would be permitted if the permanent
establishment were a sole proprietorship owned and operated by a
U.S. resident.
Section 1446 of the Code imposes on any partnership with
income that is effectively connected with a U.S. trade or business
the obligation to withhold tax on amounts allocable to a foreign
partner. In the context of the Convention, this obligation applies
with respect to a Swedish resident partner's share of the
partnership income attributable to a U.s. permanent establishment.
There is no similar obligation with respect to the distributive
shares of u.S. resident partners. It is understood, however, that
this distinction is not a form of discrimination within the meaning
of paragraph 2.
No distinction is made between u.s. and Swedish
partnerships, since the law requires that partnerships of both
domiciles withhold tax in respect of the partnership shares of
non-U. S. partners.
In distinguishing between U. S. and Swedish
partners, the requirement to withhold on the Swedish but not the
U.s. partner 1 s share is not discriminatory taxation, but, like
other withholding on nonresident aliens, is merely a reasonable
method for the collection of tax from persons who are not
continually present in the United States, and as to whom it
otherwise may be difficult for the United States to enforce its tax
jurisdiction. If tax has been overwithheld, the partner can, as in
other cases of overwithholding, file for a refund.
(The
relationship between paragraph 2 and the imposition of the branch
tax is dealt with below in the discussion of paragraph 5.)
Paragraph 3 prohibits discrimination in the allowance of
deductions. When an enterprise of one of the States pays interest,
royalties or other disbursements to a reside~t of the other State,
the first-mentioned State must allow a deductl.on for those payments
in computing the taxable profits of the enterprise under the same
-51-
conditions as if the payment had been made to a resident of the
first-mentioned state. An exception to this rule is provided for
cases where the provisions of paragraph 1 of Article 9 (Associated
enterprises), paragraph 5 of Article 11 (Interest) or paragraph 4
of Article 12 (Royalties) apply, because these provisions permit
the denial of deductions in certain circumstances in respect of
transactions
between
related
persons.
The
term
"other
disbursements" is understood to include a reasonable allocation of
executive and general administrative expenses,
research and
development expenses and other'expenses incurred for the benefit of
a group of related persons which includes the person incurring the
expense.
The rules under section 163 (j) of the Code relating to
earnings-stripping are not discriminatory within the meaning of
paragraph 3.
First, section 163 (j) applies equally to interest
paid to domestic or foreign related parties, as interest paid to
all domestic tax-exempt entities related to the payor corporation
(under a greater than 50% ownership test) is subject to the
provision. Second, as noted above, paragraph 3 does not apply to
payments falling under Article 9(1) or 11(5), relating to
transactions not conducted in accordance with the arm I s length
standard. Paragraph 3 reflects the negotiators I understanding that
Article 9 applies to issues relating to thin capitalization, and
that adjustments to the amount of a deduction for interest must be
consistent with the arm I s length principles of paragraph 1 of
Article 9 as those principles are examined and explained in OECD
publications regarding thin capitalization. The approach taken by
section 163(j) is consistent with this description.
Paragraph 4 requires that a Contracting state not impose other
or more burdensome taxation or connected requirements on an
enterprise of that state which is wholly or partly owned or
controlled, directly or indirectly, by residents of the other
State, than the taxation or connected requirements which it imposes
on other similar enterprises of that first-mentioned State.
The Tax Reform Act of 1986 ("TRA") introduced section
367(e) (2) of the Code which changed the rules for taxing
corporations on certain distributions they make in liquidation.
Prior to the TRA, corporations were not taxed on distributions of
appreciated property in complete liquidation, although nonliquidating distributions of the same property, with several
exceptions, resulted in corporate-level tax. In part to eliminate
this disparity, the law now generally taxes corporations on the
liquidating distribution of appreciated property.
The Code
provides an exceptio~ i? t~e case of ,distributions by 80 percent or
more controlled subs1d1ar1es to the1r parent corporations on the
theory that the buil t,-in ~ain in the asset will be recogni~ed when
the parent sells or d1str1butes the asset. This exception does not
applY,to ~istributions to parent corporations that are tax-exempt
organ1zat10ns or, except to the extent provided in regulations,
-52-
foreign corporations. The policy of the legislation is to collect
one corporate-level tax on the liquidating distribution of
appreciated property; if and only if that tax can be collected on
a subse~ent sale or distribution does the legislation defer the
tax. It ~s u~der~too~ that the in~pplicability of the exception to
the t~x on.d~str~but~ons to fore1gn parent corporations does not
confl1ct w1th paragraph 4 of the Article.
While a liquidating
distributio~ to a.u.s. parent will not be taxed, and, except to the
extent prov1ded 1n regulations, a liquidating distribution to a
f~rei~n.par~nt will, paragraph 4 of the Article merely prohibits
d1scr~m1nat10n among corporate taxpayers on the basis of u.s. or
foreign stock ownership. Eligibility for the exception to the tax
on liquidating distributions for distributions to non-exempt, u.s.
corporate parents is not based upon the nationality of the owners
of the distributing corporation, but is based upon whether such
owners would be subject to corporate tax if they subsequently sold
or distributed the same property.
Thus, the exception does not
apply to distributions to persons which would not be so subject -not only foreign corporations, but also tax-exempt organizations.
For the reasons given above in connection with the discussion
of paragraph 2 of the Article, it is also understood that the
provision in section 1446 of the Code for withholding of tax on
non-U.S. partners does not violate paragraph 4 of the Article.
It is further understood that the ineligibility of a u.s.
corporation with nonresident alien shareholders to make an election
to be an "s" corporation does not violate paragraph 4 of the
Article. If a corporation elects to be an S corporation (requiring
35 or fewer shareholders), it is generally not subject to income
tax and the shareholders take into account their pro-rata shares of
the corporation's items of income, loss, deduction or credit. (The
purpose of the provision is to allow an individual or small group
of individuals to conduct business in corporate form while paying
taxes at individual rates as if the business were conducted
directly.)
A nonresident alien does not pay u.s. tax on a net
basis and, thus, does not generally take into account items of
loss, 'deduction or credit. Thus, the S corporation provisions do
not exclude corporations with nonresident alien shareholders
because such shareholders are foreign, but only because they are
not net basis taxpayers. The provisions also exclude corporations
with other types of shareholders where the purpose of the
provisions cannot be fulfilled or their mechanics implemented. For
example
corporations with corporate shareholders are excluded
because' the purpose of the provisions to permit individuals to
conduct a business in corporate form at individual tax rates would
not be furthered by their inclusion.
Paragraph 5 of the Article specif~es that no prov~sion . of the
Article will prevent either Contract1ng Sta~e from 1m~0~1ng the
branch tax described in paragraph 8 of Art1cle 10 (D1v1dends).
Thus, even if the branch tax were judged to violate the provisions
-53-
of paragraphs 2 or 4 of the Article, neither contracting state
would be constrained from imposing the tax.
As noted above, notwithstanding the specification of taxes
covered by the Convention in Article 2 (Taxes covered), for
purposes of providing nondiscrimination protection this Article
applies to taxes of every kind and description imposed by one of
the States or a political subdivision or local authority thereof.
customs duties are not considered to be taxes for this purpose.
The saving clause of paragraph 4 of Article 1 (Personal scope)
does not apply to this Article, by virtue of the exceptions in
subparagraph 5(a). Thus, a U.S. citizen who is resident in Sweden
may claim benefits in the united States under this Article.
Article 25 -
MUTUAL AGREEMENT PROCEDURE
Article 25 provides for cooperation between the competent
authorities of the States to resolve disputes that may arise under
the Convention and to resolve cases of double taxation not provided
for in the Convention. The competent authorities of the two States
are identified in subparagraph lee) of Article 3 (General
definitions).
Paragraph 1 provides that when a resident of one of the States
considers that the actions of one or both States will result for
him in taxation that is not in accordance with the Convention, he
may present his case to the competent authority of the state of
which he is a resident or citizen.
It is not necessary for a
person first to have exhausted the remedies provided under the
national laws of the States before presenting a case to the
competent authorities.
Paragraph 2 provides that if the competent authority of the
State to which the case is presented judges the case to have merit,
and cannot reach a unilateral solution, it shall seek agreement
with the competent authority of the other State such that taxation
not in accordance with the Convention will be avoided.
If
agreement is reached under this provision, it is to be implemented
even if implementation is otherwise barred by the statute of
limitations or by some other procedural limitation, such as a
closing agreement. Since subparagraph 2(a) of Article 1 (Personal
scope) provides that the Convention cannot operate to increase a
taxpayer's liability, time or other procedural limitations can be
overridden under this paragraph only for the purpose of making
refunds and not to impose additional tax.
Paragraph 3 authorizes the competent authorities to seek to
resolve difficulties or doubts that may arise as to the application
or interpretation of the Convention.
The paragraph includes a
non-exhaustive list of examples of the kinds of matters about which
the competent authorities may reach agreement. They may agree to
-')4-
the same attribution of income, deductions credits or allowances
between an enterprise in one state and its ~ermanent establishment
in the other state
(subparagraph
(a»
or between persons
(subparagraph (b». These allocations are to be made in accordance
with th~ arm's-lengt~ principles of Article 7 (Business profits)
and Art1cle 9 (Assoc1ated enterprises).
.
The
compet~nt
authorities also may agree to resolve
b1laterally.a var1ety of other possible conflicting applications of
the Convent10n. They may agree to a common characterization of an
item of income (subparagraph (c», to a common application of
source rules with respect to a particular item of income
(subparagraph (d», and to a common meaning of a term (subparagraph
(e» .
Paragraph 3 also authorizes the competent authori ties to
consult for the purpose of eliminating double taxation in cases not
provided for in the Convention. An example of such a case might be
double taxation arising from a transfer pricing adjustment between
two permanent establishments of a third-country resident, one in
the United states and one in Sweden. Since no resident of one of
the States is involved in the case, the Convention does not, by its
terms, apply, but the competent authorities may use the authority
of the Convention to seek to prevent any double taxation.
Paragraph 4 provides that the competent authorities may communicate
with each other directly to reach agreements in the sense of this
Article.
By virtue of the exceptions in paragraph 5(a) of Article 1
(Personal scope), this Article is not subject to the saving clause
of paragraph 4 of that Article.
Thus, rules, definitions,
procedures, etc., that are agreed upon by the competent authorities
under this Article, may be applied by the States with respect to
their citizens and residents even if they differ from the
comparable internal law provisions. Similarly, as indicated above,
internal law may be overridden by a state to provide refunds of tax
to its citizens or residents under this Article.
Article 26 - EXCHANGE OF INFORMATION
Article 26 provides for the exchange of information between
the competent authorities of the contracting States.
The
information to be exchanged is that necessary for carrying out the
provisions of the Convention or the domestic laws of the United
states or Sweden concerning the taxes covered by the Convention.
This article covers all taxes imposed by the two Contracting
States.
Exchange of information with respect to do~estic ~aw is
authorized insofar as the taxation under those domest1c laws 1S not
contrary to the Convention. Thus, for exampl~, information ~ay be
exchanged with respect to a covered tax, even 1f t~e transact~on ~o
which the information relates is a purely domest1c transact10n 1n
-55-
the requesting state and, therefore, the exchange is not made for
the purpose of carrying out the Convention.
Paragraph 1 states that information exchange is not restricted
by Article 1 (Personal scope). This means that information may be
requested and provided under this Article with respect to perso~s
who are not residents of either Contracting state. For example, 1f
a third-country resident has a permanent establishment in sw 7den
which engages in transactions with a u.s. enterprise, the Un1ted
states could request information with respect to that permanent
establishment, even though it is not a resident of either
Contracting state.
Similarly,
if a third-country resident
maintains a bank account in Sweden, and the Internal Revenue
Service has reason to believe that funds in that account should
have been reported for U. s. tax purposes but have not been so
reported, information can be requested from Sweden with respect to
that person's account.
Paragraph 1 also provides assurances that any information
exchanged will be treated as secret, subject to the same disclosure
constraints as information obtained under the laws of the
requesting State.
Information received may be disclosed only to
persons, including courts and administrative bodies, concerned with
the assessment, collection, enforcement or prosecution in respect
of the taxes to which the information relates, or to persons
concerned with the administration of these taxes. The information
must be used by these persons in connection with these designated
functions. Persons concerned with the administration of taxes, in
the United States, include legislative bodies, such as the
tax-wri ting committees of Congress and the General Accounting
Office.
Information received by these bodies is for use in the
performance of their role in overseeing the administration of u.s.
tax laws.
Information received may be disclosed in public court
proceedings or in judicial decisions.
It is contemplated that the Contracting states will utilize
Article 26 to exchange information on a routine basis, on request
in relation to a specific case, or spontaneously.
Paragraph 2 explains that the obligations undertaken in
paragraph 1 to exchange information do not require a Contracting
state to carry out administrative measures which are at variance
with the laws or administrative practice of either State. Nor does
that paragraph require a Contracting State to supply information
not obtainable under the laws or administrative practice of either
state, or to disclose trade secrets or other information
the
disclosure of which would be contrary to public policy ('ordre
public)
However, either Contracting State may, subject to the
~imitati~ns Of. thi~ paragraph a~d its internal law,
provide
1nformat1on Wh1Ch 1t is not obl1gated to provide under this
Article.
-56-
par~graph
3 pr~vides that when information is requested by a
state ~n accordance with this Article
the other
contracting state is obligated to obtain the requested information
~s if the tax in questi~n were the tax of the requested state, even
~f that state has no d~rect tax interest in the case to which the
request. relates.
The. paragraph further provides that the
request~ng state may spec~fy the form in which information is to be
provi~e~ (~, depositions of witnesses and authenticated copies
of or~g~nal documents) so that the information can be usable in the
judicial proceedings of the requesting state. The requested state
should, if possible, provide the information in the form requested
to the same extent that it can obtain information in that form
under its own laws and administrative practices with respect to its
own taxes.
Contract~ng
Paragraph 4 clarifies that the competent authorities may
settle the mode of application of this Article.
Types of
information exchange that may be used include spontaneous and
industry-wide exchanges of information, information exchanges on
request, and simultaneous tax examinations.
Paragraph 5 provides that the competent authorities may
exchange information concerning every tax imposed by a contracting
state, not just the taxes listed in Article 2 (Taxes covered).
Article 27 - ADMINISTRATIVE ASSISTANCE
Article 27 deals with administrative assistance
contracting states in the collection of taxes.
between
Paragraphs 1, 2, and 3 are similar to Article XVII of the
prior Convention. Under these paragraphs, the states agree to lend
assistance in collection of the taxes that are the subject of the
Convention, along with interest, costs, and additions to the taxes.
The taxes to be collected must be finally determined in the
requesting state, as established by documents accompanying the
request. A revenue claim is finally determined when the applicant
state has the right under its internal law to collect the revenue
claim, and all administrative and judicial rights of the taxpayer
to restrain collection in the applicant state have lapsed or been
exhausted.
The requested state will use the procedures that it
uses in the collection of its own taxes.
Paragraph 4 provides that a~sistance will not b 7 ~ranted with
respect to citizens, corporat~ons or other ent~t1es of the
requested state, except to the extent necessary to insure ~hat the
benefits of the Convention are enjoyed only by persons ent1tled to
those benefits under the terms of the Convention.
Under this
paragraph, assistance will be provided in those cases where an
exemption or reduced rate of tax at source granted under the
Convention by that other state has been enjoyed by persons not
entitled to those benefits.
-57-
Paragraph 5 makes clear that the contracting state asked to
collect the tax is not obligated, in the process, to carry out
administrative measures that are different from those used in the
collection of its own taxes, or that would be contrary to its
sovereignty, security or public policy.
Article 28 - DIPLOMATIC AGENTS AND CONSULAR OFFICERS
Article 28 confirms that any fiscal privileges to which
diplomatic agents or consular officials are entitled under general
provisions of international law or under special agreements will
apply notwithstanding any provisions to the contrary in the
Convention.
This provision also applies to residents of both
Contracting States, provided that they are not citizens of the
other state and, if the United states is the other State, are not
green card holders (see paragraph 5 (b) of Article 1 (Personal'
scope) ) .
Article 29 - ENTRY INTO FORCE
The Convention is subject to ratification.
Instruments of
ratification will be exchanged at Washington, D.C.
The Convention enters into force on the date on which the
instruments of ratification are exchanged.
Its provisions with
respect to United States withholding taxes will have effect for
amounts paid or credited on or after January 1 following the date
on which the Convention enters into force. with respect to other
united States taxes, the provisions will have effect for taxable
years beginning on or after that same date.
The Convention IS
provisions with respect to Swedish taxes on income will have effect
for income derived on or after January 1 of the year following the
year that the Convention enters into force.
with respect to
Swedish capital taxes, the provisions will have effect for taxes
assessed in or after the second calendar year following the year
the Convention enters into force.
Thus, for example, if
instruments of ratification are exchanged in July 1995, the
provisions of the Convention will take effect as of January 1, 1996
for United States withholding taxes, for taxable years beginning on
or after January 1, 1996 for other United states taxes, January 1,
1996 for Swedish taxes on income, and for taxable years taxes
assessed in or after January 1, 1997 for Swedish capital taxes.
The coming into effect of the Convention will terminate the
Convention of March 23, 1939, and the Supplementary Convention of
October 22, 1963.
The provisions of the Prior Convention will
cease to have effect when the comparable provisions of the
Convention become effective. The 1939 Convention will be applied
to Swedish capital taxes until the first year after the year in
which the Convention enters into force.
-58-
Article 30 - TERMINATION
The Convention shall remain in force indefinitely unless
terminated by one of the Contracting states.
Ei ther State may
terminate the Convention after five years from the date on which it
enters into force by giving at least six months prior notice
through diplomatic channels.
In that event, the Convention will
cease to have effect with respect to United states taxes withheld
at the source for amounts paid or credited on or after January 1
following the expiration of the six-month period, with respect to
other United states taxes for taxable periods beginning on or after
January 1 following the expiration of the six-month period, with
respect to Swedish taxes on income for income derived on or after
~anuary 1 following the expiration of the six-month period, and
Wi th respect to Swedish capital taxes for taxes assessed in or
after the second calendar year following the expiration of the sixmonth period.
-59-
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TREASURY DEPARTMENT TECHNICAL EXPLANATION OF THE
CONVENTION AND PROTOCOL BETWEEN THE
UNITED STATES OF AMERICA AND THE PORTUGUESE REPUBLIC
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO
TAXES ON INCOME SIGNED AT WASHINGTON
ON SEPTEMBER 6, 1994
INTRODUCTION
This is a technical explanation of the Convention between
the United states and Portugal signed on September 6, 1994 (the
"Convention"). The Convention is based on the u.s. Treasury
Department's former draft Model Income Tax Convention, published
on June 16, 1981, the Model Tax Convention on Income and Capital
published by the OECD in 1992 (the "OECD Model"), and recent U.S.
and Portuguese income tax conventions. Although the former u.s.
Model has been withdrawn pending development of a new model, it
was relevant at the time during which much of the Convention was
negotiated.
The Technical Explanation is an official guide to the
Convention.
It reflects the policies behind particular
Convention provisions, as well as understandings reached with
respect to the application and interpretation of the Convention.
The terms "he" or "his" should be read to mean also "she" or
"her."
Article 1.
GENERAL SCOPE
This article provides that the Convention is applicable to
residents of the united States or Portugal except where the terms
of the Convention provide otherwise. Under Article 4 (Resident),
a person is treated as a resident of a Contracting state if that
person is, under the laws of that State, liable to tax therein.by
reason of domicile or other similar criteria, subject to certaln
limitations.
If a person is, under those criteria, a resident of
both Contracting states, a single state of residence (or no state
of residence) is assigned under Article 4.
These rules govern
for all purposes of the Convention.
certain provisions of the
Convention are also applicable, however, to persons who may not
be residents of either Contracting State.
Examples include
Articles 26 (Non-Discrimination) and 28 (Exchange of
Information) .
Paragraph 1 of the Protocol contains the other provisions
normally included in the General Scope Article of U.s. income tax
treaties.
Subparagraph l(a) (i) of the Protocol explains that the
Convention may not restrict any exclusion, exemption, deduction,
credit, or other benefit accorded by the tax laws of the
Contracting states.
In effect, subparagraph l(a) (i) provides
that the Convention may not increase the overall tax burden on a
resident of a contracting state beyond the burden imposed under
domestic law. Thus, a right to tax granted by the Convention to
a contracting state cannot be exercised unless the domestic law
of that state also provides for such taxation.
Under the principle of subparagraph l(a) (i), a taxpayer's
U.s. tax liability need not be determined under the Convention if
the Internal Revenue Code would produce a more favorable result.
This does not mean, however, that a taxpayer may pick and choose
among Code and Convention provisions in an inconsistent manner in
order to minimize tax.
For example, suppose a Portuguese
resident has three separate businesses in the United states.
One
is a profitable permanent establishment and the other two are
trades or businesses that earn taxable income under the Code but
do not meet the permanent establishment threshold tests of the
Convention.
One trade or business is profitable, and the other
incurs a loss.
Under the Convention, the income of the permanent
establishment would be taxable, and both the profit and the loss
of the other two businesses would be ignored. Under the Code,
all three would be taxable and the loss would be offset against
the profits of the two profitable ventures.
In this situation
the taxpayer may not invoke the Convention to exclude the profits
of the profitable trade or business and invoke the Code to claim
the loss of the loss trade or business against the profit of the
permanent establ~shment.
(See Rev. Rul. 84-17, 1984-1 C.B. 308.)
If the taxpayer lnvokes the Code for the taxation of all three
venture~, ho~ever, he would not be precluded from invoking the
Conventl0n wlth respect, for example, to any dividend income he
may receive from the United States that is not effectively
-3-
connected with any of his business activities in the United
states.
Subparagraph l(a) (i) of the Protocol also provides that the
Convention does not override any benefit provided under other
bilateral agreements that were in force as of the date on which
the Convention was signed (September 6, 1994).
Subparagraph l(a) (ii) of the Protocol affects obligations
undertaken by the Contracting states under other agreements.
Subparagraph l(a) (ii) of the Protocol provides that,
notwithstanding any other agreement to which the contracting
states may be parties, a dispute concerning whether a measure is
within the scope of this Convention shall be considered only by
the competent authorities of the contracting states, as defined
in this Convention, and the procedures under this Convention
exclusively shall apply to the dispute. Thus, dispute resolution
procedures provided for in trade, investment, or other agreements
between the Contracting states shall not apply for the purpose of
determining the scope of the Convention.
Subparagraph lea) (iii) of the Protocol provides that, unless
the competent authorities agree that a taxation measure is not
within the scope of this convention, the nondiscrimination
obligations of this Convention exclusively shall apply with
respect to that measure, except for such national treatment or
most-favored-nation ("MFN") obligations as may apply to trade in
goods under the General Agreement on Tariffs and Trade ("GATT").
No national treatment or MFN obligation under any other agreement
shall apply with respect to that measure. Thus, any national
treatment and MFN obligations undertaken by the Contracting
States under agreements other than the Convention, with the
exception of GATT as applicable to trade in goods, shall not
apply to a taxation measure.
Subparagraph l(a) (iv) of the Protocol defines a "measure" as
a law, regulation, rule, procedure, decision, administrative
action, or any other form of measure.
Subparagraph l(b) of the Protocol contains the traditional
U.S. treaty "saving clause." Under this paragraph, each
Contracting state may tax its residents, and the United States
may tax its citizens, in accordance with its domestic law,
notwithstanding any Convention provision to the contrary. If,
for example, a Portuguese resident performs independent personal
services in the united states and the income from the services is
not attributable to a fixed base in the United States, Article 14
(Independent Personal Services) would normally prevent the United
states from taxing the income. If, however, the Portuguese
resident is also a citizen of the United States, the saving
clause permits the United States to include the remuneration in
the worldwide income of the citizen and subject it to tax under
-4-
normal Code rules (i.e., without regard to Code section 894(a».
Special foreign tax credit rules concerning u.S. taxation of
certain income of u.S. citizens resident in Portugal are provided
in paragraph 2 of Article 25 (Relief from Double Taxation) .
For purposes of the saving clause of paragraph l(b) of the
Protocol, residence is determined under Article 4 (Resident).
Subparagraph l(b) of the Protocol states that the term
"citizen" shall include a former citizen whose loss of
citizenship had as one of its principal purposes the avoidance of
tax, but only for the period of 10 years following such loss.
This permits the United States to apply the rules of Code section
877.
Subparagraph l(b) of the Protocol concludes by providing
that, upon request by the Portuguese competent authority, the
competent authorities will consult under Article 27 (Mutual
Agreement Procedure) on the purposes of such loss of citizenship.
Thus, if the united states taxes a former u.S. citizen who is a
resident of Portugal, the Portuguese competent authorities may
request a discussion with their u.S. counterparts of the
circumstances involved in the case.
Subparagraph l(c) of the Protocol lists several exceptions
to the saving clause, under which benefits granted by a
Contracting State under the Convention are extended to its
citizens and residents.
Under subparagraph l(c) (i), u.S.
residents and citizens are entitled to the following u.S.
benefits provided under the Convention: the corresponding
adjustments authorized by paragraph 2 of Article 9 (Associated
Enterprises); the provisions of paragraph 3 of Article 14
(Capital Gains) regarding gain from the alienation of certain
property; the exemption from u.S. tax of social security benefits
paid by Portugal that is provided in subparagraph l(b) of Article
20 (pensions, Annuities, Alimony, and Child Support); the
exemption from u.S. tax of child support payments paid by a
Portuguese resident that is provided in paragraph 4 of Article 20
(Pensions, Annuities, Alimony, and Child Support); the foreign
tax credit provisions of Article 25 (Relief from Double
Taxation); the nondiscrimination protection of Article 26 (NonDiscrimination); and the competent authority procedures of
Article 27 (Mutual Agreement Procedure).
Subparagraph l(c) (ii) of the Protocol provides additional
exceptions to the saving clause for individuals resident in a
Contracting State who are neither citizens of, nor have immigrant
status in, that state. These exceptions preserve the benefits
extended by the united States under the Convention to persons
other than u.S. citizens and "green card" holders who are:
employees of the Portuguese Government under Article 21
(Government Service); visiting teachers or researchers under
Article 22 (Teachers and Researchers); visiting students or
trainees under Article 23 (Students and Trainees); or members of
-5-
diplomatic or consular missions under Article 29 (Diplomatic
Agents and Consular Officers).
Article 2.
TAXES COVERED
This Article identifies the U.S. and Portuguese taxes to
which all articles of the Convention apply. certain provisions
of the Convention and the Protocol are also applicable, however,
with respect to certain taxes in addition to those specified in
Article 2.
For example, Article 26 (Non-Discrimination) applies
with respect to all taxes imposed at all levels of gqvernment,
including state and local governments. Article 28 (Exchange of
Information) applies with respect to all taxes imposed by a
Contracting State (i.e., at the national level).
Paragraph 8 of
the Protocol applies with respect to the substitute gift and
inheritance tax (Imposto sobre Sucessoes e Doacoes por Avenca)
imposed by Portugal.
In the case of Portugal, the Convention generally applies to
the personal income tax (Imposto sobre 0 Rendimento das Pessoas
Singulares-IRS), the corporate income tax (Imposto sobre 0
Rendimento das Pessoas Colectivas-IRC), and the local surtax on
corporate income tax (Derrama). As noted above, other
provisions, such as Articles 26 (Non-Discrimination) and 28
(Exchange of Information) of the Convention and paragraph 8 of
the Protocol, apply to certain additional taxes.
In the case of the United states, the Convention generally
applies to the Federal income taxes imposed by the Internal
Revenue Code.
The Convention applies to the excise taxes imposed
with respect to the investment income of private foundations
under Code sections 4940 et ~, but does not apply with respect
to the excise taxes imposed on insurance premiums paid on
policies issued by foreign insurers under Code section 4371. The
social security taxes provided in Code sections 1401, 3101, and
3111 are generally excluded from coverage.
However, as noted
above, certain other provisions of the convention, such as
Articles 26 (Non-Discrimination) and 28 (Exchange of
Information), apply to all taxes imposed by the United states,
including the insurance premiums excise taxes and the social
security taxes.
In addition, as in other U.s. treaties, Article
26 (Non-Discrimination) applies to taxes imposed by state and
local governments.
Under paragraph 2 of Article 2 (Taxes Covered), the
Convention will apply to any taxes that are identical or
substantially similar to those enumerated in paragraph 1 and that
are imposed in addition to, or in place of, the existing taxes
after September 6, 1994 (the date of signature of the
Convention).
Paragraph 2 also provides that the U.s. and
Portuguese competent authorities will notify each other of
changes in their taxation laws that are of significance to the
-6-
operation of the Convention. The competent authorities will also
notify each other of official published materials concerning the
application of the Convention.
Paragraph 2 of the Protocol provides additional information
regarding taxes that are and are not covered.
Paragraph 2(a) of
the Protocol clarifies that Article 2 does not apply to social
security contributions established under Portuguese law. These
amounts are not covered because, as under the U.S. system, they
are treated as contributions to Portugal's social security
system, not as taxes. As noted above, Article 2 itself makes
clear that U.S. social security contributions are not covered.
Subparagraph 2(b) of the Protocol limits the application of
the Convention with respect to the personal holding company tax
(Code section 541) and the accumulated earnings tax (Code section
531).
Subparagraph 2(b) (i) exempts a Portuguese company from
liability for the personal holding company tax only for taxable
years in which all of the Portuguese company's stock is owned by
individuals who are not residents or citizens of the United
States, in their capacity as individuals. Thus, if there is any
owner that is not an individual, or any owner that is a U.S.
citizen or U.S. resident, the Portuguese company may be liable
for the personal holding company tax. Under subparagraph
2(b) (ii) of the Protocol, Portuguese companies that are described
in paragraph l(c) of Article 17 (Limitation on Benefits), which
pertains to certain publicly traded companies, are exempt from
the accumulated earnings tax.
In general, this is intended to
relieve such a Portuguese company from any obligation to prove
that its earnings and profits have not accumulated beyond the
reasonable needs of the company.
It is understood that such
publicly traded companies are unlikely to be mere holding or
investment companies and that the interests of the shareholders
of such companies are likely to operate so as to prevent an
unreasonable accumulation of earnings and profits.
Article 3.
GENERAL DEFINITIONS
Paragraph 1 defines a number of basic terms used in the
Convention.
certain other terms are defined in other articles of
the Convention.
For example, the term "resident of a Contracting
State" is defined in Article 4 (Resident). The term "permanent
establishmen~".is define~ in Article 5 (Permanent Establishment).
The terms "dlvldends," "lnterest," and "royalties" are defined in
Article 7 10 (Divide~ds), 11 (Interest), and 12 (Royalties),
respectlvely. The lntroductory language makes clear that the
definitions specified in paragraph 1 apply for all purposes of
the Convention, unless the context otherwise requires.
The
latter condition allows flexibility in interpretation of the
treaty in order to avoid results not intended by the treaty's
'I"IP(,H"lt-; ntors.
-7-
Subparagraph l(a) defines the term "Contracting State" to
mean the united states or Portugal, depending on the context in
which the term is used.
Subparagraph l(b) defines the term "Portugal" to mean the
Portuguese Republic. This includes the territory on the European
continent and the archipelagoes of AZores and Madeira, the
respective territorial seas and any other zone in which, in
accordance with the laws of Portugal and international law, the
Portuguese Republic has sovereign rights with respect to the
exploration and exploitation of the natural resources of the
seabed and subsoil and of the superjacent waters.
Subparagraph l(c) defines the term "united States" to mean
the united States of America. The term does not include Puerto
Rico or the Virgin Islands, Guam, or any other u.s. possession or
territory. When used in a geographical sense, the term "united
states" includes the States, the District of Columbia, the
territorial sea adjacent to those States, and any other zone
adjacent thereto over which, in accordance with the laws of the
united States and international law, the united states has
sovereign rights with respect to the exploration and exploitation
of the natural resources of the seabed and subsoil and of the
superjacent waters.
Subparagraph l(d) defines the term "person" to include an
individual, a company, and any other body of persons. This
definition is consistent which that used in the OECD Model and in
other u.s. treaties. Any person that qualifies as a "resident"
of a Contracting State under Article 4 (Resident) is entitled to
the benefits of the Convention, subject to the provisions of
Article 17 (Limitation on Benefits).
subparagraph l(e) defines the term "company" as any body
corporate or any entity treated as a body corporate for tax
purposes. In the case of the united States, the rules of Treas.
Reg. §301.770l-2 generally will apply to determine whether an
entity is an association taxable as a corporation, and thus is a
company, for purposes of the Convention. Similarly, in the case
of the united states, a publicly traded partnership that is
treated as a corporation under Code section 7704 will be treated
as a company for purposes of the Convention.
Subparagraph l(f) defines the terms "enterprise of a
Contracting state" and "enterprise of the other contracting
State" to mean an enterprise carried on by a resident of the
appropriate contracting State. Thus, an enterprise of a
Contracting state need not be carried on in that State. It may
be carried on in the other state or in a third state.
Subparagraph l(g) defines the term "national" to mean any
individual possessing the nationality of a Contracting state and
-8-
any legal person, association, or other entity deriving its
status as such from the laws in the force in a Contracting state.
This definition, which comes from the OECD Model, has been used
in other u.s. treaties.
In the case of the united states, the
term "national" means a u.s. citizen when applied to an
individual.
Subparagraph l(h) defines the term "international traffic"
to mean any transport by a ship or aircraft, except when such
transport is solely between places within a Contracting state.
The exclusion from international traffic of transport solely
between places within a Contracting state means, for example,
that the transport of goods or passengers solely between New York
and Chicago by a Portuguese carrier (if permitted) would not be
treated as international traffic.
If, however, goods or
passengers were carried by a Portuguese airline from Lisbon to
New York and then to Chicago, the entire trip would be considered
international traffic. This would be true even if a Portuguese
carrier transferred goods at the u.s. port of entry from a ship
or plane to a land vehicle, or if the overland portion of the
trip in the United states were handled by an independent carrier
under contract with the Portuguese carrier, so long as both parts
of the trip were reflected in the original bill of lading.
Subparagraph l(i) defines the term "competent authority."
The competent authorities of the Contracting states are charged
with administering the provisions of the Convention and with
attempting to resolve any doubts or difficulties that may arise
in interpreting its provisions. The U.S. competent authority is
the Secretary of the Treasury or his delegate.
The Secretary of
the Treasury has delegated the competent authority function to
the Commissioner of Internal Revenue, who has, in turn, delegated
the authority to the Assistant Commissioner (International).
With respect to interpretive issues, the Assistant Commissioner
acts with the concurrence of the Associate Chief Counsel
(International) of the Internal Revenue Service.
In Portugal,
the competent authority is the Minister of Finance, the Director
General of Taxation (Director Geral das Contribuicoes e
Impostos), or their authorized representative.
Paragraph 2 of Article 3 provides that, in the application
of the Convention, any term used but not defined in the
Convention will have the meaning that it has under the tax law of
the cont:acting State whose tax is b 7ing applied.
If, however,
the meanlng of a term cannot be readlly determined under the law
of a Contracting state, or if there is a conflict in meaning
under the laws of the two States that creates difficulties in the
application of the convention, the competent authorities may
pursuant to paragraph 3 of Article 27 (Mutual Agreement
'
Procedure), agree to a common meaning in order to prevent double
taxation or further any other purpose of the Convention.
Likewise, if the definition of a term under either paragraph 1 of
-9-
Article 3 or the tax law of a Contracting state would result in a
circumstance unintended by the treaty negotiators or by the
contracting states, the competent authorities may agree to a
common meaning of the term. This cornman meaning need not conform
to the meaning of the term under the laws of either contracting
state.
Article 4.
RESIDENT
This Article sets forth rules for determining whether a
person is a resident of a contracting State for purposes of the
Convention. As a general matter, only residents of the
contracting states may claim the benefits of the Convention.
However, the fact that a person is determined to be a resident of
a contracting state under Article 4 does not necessarily entitle
that person to the benefits of the Convention.
In addition to
being a resident, a person must qualify for benefits under
Article 17 (Limitation on Benefits).
Under paragraph 1, the determination of residence for
Convention purposes looks first to a person's liability to tax as
a resident under the taxation laws of the Contracting state
involved.
Thus, a person that is liable to tax under the laws of
a contracting State by reason of its domicile, residence, place
of management, place of incorporation, or any other similar
criterion is treated as a resident of that State. A person that,
under those laws, is a resident of one contracting State and not
of the other generally need look no further.
Paragraph 1 concludes with an exception to the general rule
of this paragraph. A person that is liable to tax in a
contracting state Qnly in respect of income from sources within
that state will not be treated as a resident of that Contracting
State for purposes of the Convention. Thus, for example, a
Portuguese consular official who is posted in the United States,
and who is subject to u.S. tax on U.s. source investment income
but not on non-U.S. source income, would not be considered a
resident of the United states for purposes of the Convention.
(In most cases, such an individual also would not be a U.s.
resident under the Code.)
Paragraph 2 provides a series of tie-breaker rules to
determine a single State of residence for an individual who,
under the laws of each Contracting State, and thus under
paragraph 1, is deemed to be a resident of both Contracting
states.
These rules, which are generally included in u.s.
treaties, come from the OECD Model. The first rule establishes
residence where the individual has a permanent home.
If that
test is inconclusive because the individual has a permanent home
available to him in both States, he will be considered to be a
resident of the Contracting state with which his personal and
economic relations are closest, i.e., the location of his "center
-10-
of vital interests." If this test is also inconclusive, or if he
does not have a permanent horne available to him in either state,
he will be treated as a resident of the contracting state where
he maintains an habitual abode.
If he has an habitual abode in
both states or in neither, he will be treated as a resident of
the Contracting state of which he is a citizen.
If he is a
citizen of both states or of neither, the competent authorities
are instructed to determine his residence by mutual agreement.
Paragraph 3 seeks to settle dual-residence issues for
persons other than individuals. A corporation is treated as a
resident in the united states if it is created or organized under
the laws of the United states or a political subdivision thereof.
In Portugal, a corporation is treated as a resident of portugal
if it is either incorporated there or managed and controlled
there.
Dual residence, therefore, can arise if a u.s.incorporated corporation is managed in Portugal.
Since neither
party was prepared to give up its test of corporate residence
under a tie-breaker rule, the paragraph provides that if a
corporation or other person, other than an individual, is
resident in both the United states and Portugal under paragraph
1, the competent authorities shall seek to determine a single
State of residence for that person for purposes of the
Convention.
If, however, they are unable to reach agreement,
that person shall not be considered to be a resident of either
the united States or Portugal for purposes of deriving any
benefits of the Convention. Since it is only for the purposes of
deriving treaty benefits that such dual residents are excluded
from the Convention, they may be treated as resident for other
purposes.
For example, if a dual resident corporation pays a
dividend to a resident of Portugal, the U.s. withholding agent
would be permitted to withhold on that dividend at the
appropriate treaty rate, since reduced withholding is a benefit
enjoyed by the resident of Portugal, not by the dual resident.
The dual resident corporation that pays the dividend would, for
this purpose, be treated as a resident of the United states under
the Convention.
Paragraph 3 of the Protocol provides fUrther guidance on the
issue of residence. Under subparagraph 3(a) of the Protocol a
partnership, similar pass-through entity, estate, or trust will
be treated as a resident of a Contracting state to the extent
that the income derived by the partnership, similar pass-through
entity, estate, or trust is subject to tax in that State as the
income of a resident, whether in the hands of the entity deriving
the income or in the hands of its partners, members
beneficiaries, or grantors. This rule is applied t; determine
the extent to wh~ch inco~e.received by or through an estate,
trust, partnership, or similar pass-through entity such as a U.S.
limited liability company, from the other Contracting State is
entitled to Convention benefits.
-11Und 7r,U.S. law, par~nerships (other than certain publicly
traded llmlted partnersh~ps and partnerships that are classified
as associations under Treas. Reg. § 301.7701-2) are never, and
estates " and trusts often are not, taxable entities.
Thus , for
Conventlon purposes, ~ncome received by a U.S. partnership
generally is treated as received by a U.S. resident only to the
extent that it is included in the distributive share of partners
who are u.s. residents (looking through any partnerships that are
themselves partners). Similarly, the treatment under the
Convention of income received by a U.S. trust or estate will be
determined by the residence for taxation purposes of the person
subject to tax on such income, which may be the grantor, the
beneficiaries, or the estate or trust itself, depending on the
circumstances.
Subparagraph 3(b) (i) of the Protocol confirms that the term
"resident of a Contracting statel1 includes any not-for-profit
organization constituted and maintained in that State, provided
that the laws of such State or of a political or administrative
subdivision thereof limit the use of the organization's
resources, both currently and upon the dissolution or liquidation
of such organization, to the accomplishment of the purposes that
serve as the basis for such organization's exemption from income
tax.
Subparagraph 3(b) (ii) of the Protocol similarly confirms
that a pension trust or any other organization or arrangement
that is constituted and operated exclusively to provide pension,
retirement, or employee benefits and that is established or
sponsored by a person that is otherwise a resident of a
Contracting State under Article 4 (Residence) is to be treated as
a resident of that State for purposes
@FedFRASER