811.5034/170
The Swiss Minister (Peter) to the Secretary of State
Sir: I have the honor to refer to our previous Correspondence regarding the 5% tax on dividends imposed by Section 213 of the National Industrial Recovery Act of June 16, 1933, and particularly [Page 796] to your note of January 3, 1934, expressing the Department’s views with regard to the interpretation of the meaning of the word “citizen” as included in Article II, paragraph 2, of the Convention of friendship and commerce between the Swiss Confederation and the United States of America signed November 25, 1850. You stated that, in the opinion of the American Government, an examination of the language of the 1850 treaty clearly showed that the above mentioned provision applied only to physical persons but did not include corporations.
The Swiss Government has given its full attention to the considerations regarding the interpretation of the treaty contained in your note and pursued the examination of the matter, even though the immediate reason leading [me?] to address to you my note of October 21, 1933, had ceased to exist, the tax in question being, since the 1st of January 1934, no longer applied, in conformity with Section 217 (a) and (c) of the Act of June 16, 193357 and the proclamation of the President of the United States of December 5, 1933.58
Your answer of January 3, 1934, is indeed apt to give to the convention a considerably different and much more limited comprehension than the one my Government and the Courts in Switzerland have given it up to now. To start with, my Government holds that the question of whether or not corporations are mentioned in the treaty of 1850 is not decisive. It is clear that the only reason for their omission must have been the fact that corporations did not yet play any important part in the economic life of the time. But there was certainly no intention of depriving citizens of both parties of their treaty rights in such cases where they do not act personally but through the means of a corporation. It is to be admitted that the treaty contains various provisions which by the circumstances they involve apply only to physical persons; but there are, besides, other provisions concerning in the first place property rights where the entitled parties may be physical persons as well as corporations. The language of the treaty, in consequence, does not appear opposed to its application to corporations, insofar as their legal capacity allows it. It may be added, as a matter of course, that my Government does not want to contend that the corporations have in every case, on basis of the treaty, a right to receive the same treatment as physical persons. The application of the treaty to the corporations can only take place by analogy, mainly in the sense that the basic principle of the equal treatment provided for in the treaty applies to them as well, with the [Page 797] understanding that the corporations of one of the parties under equal conditions are not to be treated more unfavorably on the territory of the other party than its own corporations. This principle would, for example, allow one of the States of the Union to grant to a Swiss corporation only such status as it accords to a corporation whose principal seat is located in some other State of the Union.
It seems to my Government, therefore, that if the above interpretation goes further than the strict language of the treaty, it has on the other hand the advantage to take the spirit of the treaty into better account.
In the years 1897 to 1899, my predecessor, Minister Pioda, has at various occasions undertaken steps at the Department of State with regard to the differential treatment of Swiss insurance companies. Secretaries of State Sherman and Hay both saw their way to send remonstrances to the Governors of various States (Alabama, Delaware, Iowa, Kansas, Minnesota, Nebraska, New York, Ohio and Wisconsin) pointing out more than by incidental references the provisions of the treaty between the two countries with a view to obtain the eradication of such discriminatory measures as were complained of. As an illustration, the following passages may be quoted from a note of Secretary of State Sherman of July 2, 1897,59 concerning a proposed tax on the income of Swiss (European) insurance companies greater than the one on American companies, to Minister of Switzerland J. B. Pioda: “I shall have pleasure in communicating to the Governor of Pennsylvania the representation orally made by you to Mr. Day that the proposed action is against the treaty rights of Swiss citizens, with the request that the bearing of the reported pending measure upon Article II of the Treaty of 1850 between the United States and Switzerland may be duly taken into account.… As your communication refers also to similar discriminatory taxation said to have been imposed by recent legislation in the State of Iowa, I shall have pleasure in addressing the Governor of that State in the same sense.” In another note of July 13, 1897,59 Secretary of State Sherman wrote to Mr. Pioda: “I have the honor to inform you that the Department has received a letter from the Governor of the above-named State (Pennsylvania), from which it appears that the proposed objectionable legislation in regard to foreign insurance companies which you brought to the notice of the Department, has been completely defeated.”
[Page 798]In a series of notes exchanged between the State Department and the British Embassy in the Spring of 1899 (see Papers relating to the Foreign Relations of the United States, transmitted to Congress December 5, 1899; Washington, Government Printing Office 1901, pages 345/348), the British Government suggested negotiation of a treaty between the United States and Great Britain on the subject, with the the view of averting the injury with which British insurance companies were threatened by discriminatory legislation on the part of several States of the Union. Secretary of State John Hay wrote to Mr. Tower, on July 19, 1899: “The fact that such treaties were made with Switzerland and Belgium could hardly be considered as a precedent for such enactment of law in the form of a treaty with nations having the great commercial interests of Great Britain”. It may apparently be inferred from the above quotation that the Secretary of State at the time did admit that the provisions of the treaty with Switzerland concerning the equality of treatment of citizens of both States in the matter of imposts applied also to insurance companies, i. e. to corporations.
An examination of the correspondence exchanged during these years leads to the admission that, at the time, the interpretation of the Swiss and American Governments was identical and that the Department of State has abandoned this interpretation only recently.
It may be further added, as a matter of analogy, that, if my information is correct, in the case of General Claims: Conventions concluded by the United States, even where the protocol was confined to “citizens” or “subjects”, it has been held to include also corporations duly organized under the laws of the claimant Government.
Accept [etc.]