811.5034/157
The Acting Secretary of State to the Swiss Minister (Peter)
Sir: I have the honor to refer again to your note of October 21, 1933, (H. 10/1) regarding the five percent tax on dividends imposed by section 213 of the National Industrial Recovery Act of June 16, [Page 793] 1933. The question whether the imposition of this tax on dividends received by Swiss insurance companies from American stocks owned by them contravenes Article II, Paragraph 2 of the Convention of Friendship and Commerce between the United States of America and the Swiss Confederation signed November 25, 1850, has been given consideration by the authorities of this Government. It is the view of this Government that the provision of the treaty referred to above has no application to corporations. Consequently, no conflict may arise between the tax imposed by Section 213 of the National Industrial Recovery Act and the provisions of the treaty.
It is not believed that such incidental references to the treaty as those made in the correspondence of Minister Pioda and in the Instant Index Corporation case, to which you refer in your note, are determinative of the question whether the provisions of the treaty of 1850 have application to corporations.
The scope and effect of the treaty are to be determined first by its language. If the language is ambiguous, it is then permissible to resort to rules of interpretation. The intent of the framers of a treaty must be collected primarily from a view of the whole instrument and from the words used by them to express their intention.
An examination of the language of the 1850 treaty clearly shows that the use of the word “citizen” did not contemplate that the term should include corporations. For example, in Article I of the treaty the word “citizen” is used as follows:
“The citizens of the United States and the citizens of Switzerland, as well as the members of their families …”
Citizens are given the liberty to “exercise their profession”. The privileges conferred on citizens by Article I “shall not extend to the exercise of political rights”.
Article II of the treaty provides in the first paragraph that “the citizens of one of the two countries, residing or established in the other, shall be free from personal military service”.
Obviously, these references to “citizens” in Articles I and II are to natural persons and they could have no application to corporations. The term “citizens” as used in Articles III, IV and V could apply only to natural persons.
It would indeed be a strained interpretation to contend that the term “citizens” has a different and broader meaning in the second paragraph of Article II than it obviously has in Articles I, III, IV and V and in the first paragraph of Article II.
It is believed to be clear from the language of the treaty that corporations are not included within the scope of the term “citizens” which appears in the second paragraph of Article II. Since the question has been raised, however, as to the manner in which treaties [Page 794] should be interpreted, it may be observed that specific reference is hot made to corporations in Article II of the treaty. An examination of the correspondence leading to the conclusion of the treaty fails to reveal any reference to corporations. Until comparatively recent years American interests in foreign countries and foreign interests in the United States were almost wholly those of natural persons rather than of corporations. In the middle of the Nineteenth Century it was not the practice to incorporate provisions regarding corporations in treaties concluded by the United States with foreign governments.
A number of treaties entered into by the United States in recent years contain limited provisions regarding corporations. Under these treaties, corporations are regarded as having only such privileges as are specifically prescribed for them. They are not regarded as deriving from these treaties privileges granted to citizens generally.
For example, in the Treaty of Friendship, Commerce and Consular Rights between the United States and Germany, signed December 8, 1923,53 provisions regarding corporations have been dealt with under separate articles, rather than assimilating corporate treaty rights to those of natural persons. Reference is made to Articles XII and XIII of the treaty with Germany.
It has been deemed inadvisable to grant in treaties the same privileges to corporations as are granted to natural persons, because it is within the power of the several states in the United States to prescribe the conditions on which foreign corporations may do business within the states. It has not generally been considered desirable to limit the powers of the state in such matters by treaty.
The opinion of the Supreme Court of the United States mentioned in your note doubtless has reference to the case of Hauenstein v. Lynham (1879) 100 U. S. 483. It is not believed that the general statement of the court in that opinion, regarding the liberal interpretation of treaties, has any application to the question under discussion.
An examination of the opinions of the Supreme Court reveals that it has been the practice of that court to first ascertain the intent of the parties before undertaking to apply a treaty to a specific case. If the intent is not clear from the text of the document, an examination is made of the negotiations leading up to the conclusion of the treaty. Once the Supreme Court has ascertained the intent of the parties, it has been the practice of that court to construe treaties liberally to effectuate their purposes. The liberality of construction applies only to the carrying out of the intent of the parties and not to the enlargement of the obligations of the treaty, irrespective of such intent.
[Page 795]As bearing on rules of interpretation of treaties, it is pertinent to refer to a recent arbitration between the United States of America and the Kingdom of Sweden, under the Special Agreement concluded on December 17, 1930.54 In this case it was contended on behalf of the United States that treaty provisions, which impose limitations on the sovereignty of the parties, should be strictly construed. This case involved the interpretation of the treaties between the United States and Sweden, of April 3, 1783,55 and July 4, 1827.56 The Arbitrator, in rendering his decision in this case, sustained the position taken by the United States in the following language.
“On the other hand it must be observed that, considering the natural state of liberty and independence which is inherent in sovereign states, they are not to be presumed to have abandoned any part thereof, the consequence being that the high contracting Parties to a Treaty are to be considered as bound only within the limits of what can be clearly and unequivocally found in the provisions agreed to and that those provisions, in case of doubt, are to be interpreted in favor of the natural liberty and independence of the Party concerned.”
Other statements similar in effect were made elsewhere in the Arbitrator’s opinion.
While the treaty of 1850 between the United States and Switzerland has no application to corporations, you will nevertheless appreciate that foreign corporations enjoy many rights in this country under the laws of the several states and of the United States. Upon compliance with the laws of the several states, foreign corporations may do business therein. Where they are permitted to transact business and to enter into contracts, they enjoy the right of action in the State and Federal courts to enforce the performance of such contracts. It is a well settled principle of the common law that foreign corporations may sue in jurisdictions other than those of their creation, provided there is nothing in the suit or cause of action on which it is based repugnant to its character or the laws and policy of the domestic state.
Accept [etc.]
- Foreign Relations, 1923, vol. ii, p. 29.↩
- Foreign Relations, 1930, vol. iii, p. 842.↩
- Miller, Treaties, vol. 2, p. 123.↩
- Ibid., vol. 3, p. 283.↩