CONGRESSIONAL RECORD - HOUSE.

method of taxation which present law

provides for regulated investment companies. The effect would be to exclude

from the corporate tax all but a small

margin of retained earnings of real-estate trusts.

While the bill assumes a similarity between real-estate trusts and regulated

investment companies, there are important differences between the two situations. The income of regulated investment companies is generally derived

from the securities of corporations which

are fully subject to the corporate income

tax. In the case of regulated investment

companies, therefore, the conduit treatment merely avoids an additional level

of corporate taxation, which for dividend income consists of the tax on the

portion of dividends remaining after the

85 percent intercorporate dividends deduction. By contrast, the conduit

treatment proposed for real-estate

trusts would entirely remove the cor- porate income tax from much of the

income originating in their real-estate

operations.

It is by no means clear how far a new provision of this sort might be applied.

Though intended to be applicable only

to a small number of trusts, it could,

and might well become, available to

many real-estate companies which were

originally organized and have always

carried on their activities as fully taxable corporations.

For these reasons, I am constrained

to withhold my approval of the bill.

DWIGHT D. EISENHOWER.

THE WHITE HOUSE, August 10, 1956.

TAXES, ROYALTIES ON PATENTS AND COPYRIGHTS

H. R. 7643. I am withholding my approval of H. R. 7643, "An act to amend

the Internal Revenue Code of 1939 and

the Internal Revenue Code of 1954 with

respect to foreign tax credit for United

Kingdom income tax paid with respect

to royalties and other like amounts."

This bill would extend to firms with a

permanent establishment in the United

Kingdom that receive royalties there a

credit for taxes imposed by the United

Kingdom on the payer of the royalties.

This provision would be retroactive to

1950.

Under the income tax convention with

the United Kingdom royalties received

by a United States licensor are not subject to tax in the United Kingdom if the

recipient has no permanent establishment there. If it does have a permanent

establishment, the royalty is subject to

British taxation. The American recipient reports the net amount of royalties

from British sources and receives no

United States tax credit for the British

tax paid. This treatment under United

States law arises from two court decisions (Trico Products Corp. (46 BTA

346, affirmed 137 F. (2d) 424, cert. den.

320 U. S. 799, reh. den. 321 U. S 801);

Irving Air Chute Co. Inc. (1 T. C. 880,

affirmed 143 F. (2d) 256, cert. den. 323

U. S. 773)).

The combined effect of the United

States income tax law and the income

tax convention with the United Kingdom is to produce a different combination of British and United States taxes on the royalties paid some American re- cipients than on others. However, the

United States tax law is not the cause of this difference in treatment. It is

caused by the provisions in the conven- tion itself. The appropriate way to cor- rect the situation would be modification

of the convention. The Treasury Department currently is conducting discussions on the convention with the British

and will add this problem to the agenda.

The present status of royalty payments from the United Kingdom to the

United States has been well known to

interested parties at least since the con- vention was adopted in 1945. Many ar- rangements between licensees and licen- sors have reflected existing law and the

burden of British tax may not rest on United States licensors in such cases. Consequently, to allow the British tax as a credit against the United States tax on a retroactive basis would give a windfall gain to some American licensors.

The proposed change would single out

for special relief a small group of taxpayers whose need for relief has not been

demonstrated. Tax relief should not be

given in this way.

For these reasons, I am constrained to

withhold my approval of the bill.

DWIGHT D. EISENHOWER.

THE WHITE HOUSE, August 10, 1956.

PUBLIC WORKS, RIVER AND HARBOR PROJECTS

H. R. 12080. I have withheld my approval of H. R. 12080, which would au- thorize appropriations totaling about

$1.6 billion for 99 projects or project

modifications and 14 river-basin authorizations involving improvements for

navigation, shore protection, flood con- trol, and related purposes. I regret that

this action is necessary, because I believe

that the periodic enactment of river and

harbor and flood-control legislation is an important step in the formulation of a sound Federal program for the wise development of the Nation's water re- sources. This bill does not appropriate funds.

It only authorizes certain projects or project modifications, so that the next

Congress can consider them for appro- priation. So my action on the bill need cause no delay in starting the many

worthwhile projects in the bill.

While the majority of the projects

which this bill would authorize have been

given adequate study and review within

the executive branch and by the affected

States, there are still a large number

which have not been reviewed in accord- ance with the orderly procedures set

forth in the applicable laws. Therefore,

it is not possible at this time for me to

determine whether their authorization

would be in the public interest. Still

others have, after review, been found not

to be in the public interest.

Existing law requires that before a report of the Chief of Engineers recom- mending authorization of a project is

submitted to the Congress the affected

States be afforded an opportunity to

comment on the proposal. In addition,

procedures for review consistent with

other statutory requirements have been

established under Executive Order 9384.

These procedures provide for review of

project reports within the executive

branch before they are submitted to the

Congress. For 32 of the projects which

the bill would authorize, involving financial commitments of over $530 million,

all of these requirements have not been

met. Without such review, the Congress

must necessarily have acted on the basis

of incomplete information. Some of

these projects have not even been studied

and reported on by the Chief of Engineers, and in a few cases field studies

have not yet been completed.

Section 202 of the River and Harbor

and Flood Control Act of 1954 declares it

to be the policy of Congress that:

No project or any modification not authorized, of a project for flood control or rivers

and harbors, shall be authorized by the Congress unless a report for such project or modification has been previously submitted by the

Chief of Engineers, United States Army, in

conformity with existing law.

I regard this as being a wise policy, and

I believe that it is very unfortunate that

this traditional statement was not followed in H. R. 12080.

In various messages to the Congress I

have clearly stated my view that our vital

water resources can best be conserved

and utilized in the public interest if the

Federal Government cooperates with

State and local governments and with

private interests in the development of

those resources, and does not undertake

such development as though It were a

matter of exclusive Federal interest. In

order to carry out such a policy properly

and effectively, it is necessary that the

views of affected States be given adequate consideration in formulating proposas for water resources projects. This

has not been accomplished for a number

of projects included in this bill.

In addition, other projects in this bill

would be authorized on a basis which

would result in a lesser degree of local

participation than was agreed to by the

local interests and recommended by the

executive branch. I believe that authorization of water resources projects on

such terms would represent a serious

backward step in the desirable development of the Nation's water resources, and

would result in the loss of the best test

yet devised for insuring that a project

is sound-the willingness of local people

to invest their own money in a joint enterprise with the Federal Government.

In the weeks before the Congress convenes a careful, orderly review will be

undertaken of those projects and other

provisions of the bill which have not been

fully studied or reviewed at the present

time. This should enable the Congress to

base its action on a full knowledge of all

the facts Involved. I believe that the

people of the United States are entitled

to expect that these procedures will be

followed before new water resources

projects, involving large future financial

commitments, are authorized in law.

DWIGHT D. EISENHOWER.

THE WHITE HOUSE, August 10, 1956.

1956 15305