Opinion ID: 683244
Heading Depth: 2
Heading Rank: 2

Heading: The Negotiation History

Text: 36 The Senate Report that accompanied the Treaty when it was presented for ratification in 1978 stated that the United States agrees that it will continue to allow its U.S. citizens and residents to claim ... the indirect foreign tax credit (Code sec. 902). S.Exec.Rep. No. 95-18 at 32, reprinted in 1980-81 C.B. at 426. The Report explained that a reason for renegotiation of the existing treaty was to ensure that the ACT would be credited by the IRS: 37 There is, therefore, a reasonable possibility that the ACT would not be viewed by the IRS as a creditable tax in the absence of the proposed treaty. 38 S.Exec.Rep. No. 95-18 at 34, reprinted in 1980-81 C.B. at 427. The Report explained that in the absence of the new treaty provisions, the ACT that was paid by the foreign corporation might not be creditable to the United States taxpayer until some later year in which United Kingdom mainstream tax liability was offset by the ACT: 39 However, notwithstanding these technical difficulties [that ACT did not fit the IRS criteria for a creditable foreign tax], the ACT could be treated as a creditable income tax to the extent that it is allowed as an offset against the U.K. mainstream corporate tax, which is a creditable income tax. Under this treatment, in situations where the ACT is offset against a mainstream tax accruing in years subsequent to the dividend payment, no foreign tax credit would be allowed in the absence of the treaty until that later year in which the mainstream liability is offset. 40 S.Exec.Rep. No. 95-18 at 34, reprinted in 1980-81 C.B. at 427. Thus the position here taken by the government against Xerox was foreseen as occurring in the absence of the proposed treaty, id., and its remedy was a stated purpose of the Treaty. 41 Affidavits of negotiators for both sides were in accord with each other and with this purpose. Robert J. Patrick, Jr., International Tax Counsel for the Treasury and a principal negotiator for the United States, averred that the assumption during the negotiations was that under the Treaty the U.S. foreign tax credit [for ACT paid to the U.K.] resulted in the resulting U.S. tax credits going to the U.S. corporate shareholders in the year the dividend was paid, rather than revenues going to the U.S. Treasury. He and David S. Foster of the Treasury, who succeeded Patrick as International Tax Counsel, and Paul W. Oosterhuis of the Senate Joint Committee on Taxation, averred that Article 23 was not viewed during the negotiations as providing a provisional or interim credit for ACT: the theory on which the IRS withdrew, in 1980, the ACT credit it had allowed in 1974. Mr. Patrick averred that [t]o the best of my knowledge, this interpretation of the Treaty has never previously been set forth by the United States, the United Kingdom, or anyone else. Mr. Oosterhuis averred that [t]o the best of my recollection, the Treasury Department never presented to the Senate in its ratification procedure any explanation that the ACT is creditable under Article 23(1)(a) or that the credit for ACT under Article 23(1)(c) is an interim credit. 42 These statements are consistent with the clear text of the treaty and its purpose of avoiding double taxation of dividends. A provisional or interim credit, defeasible by actions of the distributing corporation six years later inside the United Kingdom, is in bold conflict with that plain meaning. 43 The negotiators for the United Kingdom testified to similar effect, and responded to the government's statements in the Claims Court that they had accepted the proposed interpretation. Lord Rees, the responsible Minister of the United Kingdom Government for this Treaty and the Minister of State at the British Treasury from 1979 to 1981, averred: 44 As I stated in comments delivered to the House of Commons in January 1977 and again on 18th February 1980, a fair balance had to be struck between United States and United Kingdom portfolio and direct investors.... Developing a fair balance for the United States direct investor was more difficult but was eventually accomplished by the United Kingdom giving an immediate 50 percent refund (subject to a 5 percent withholding tax which was currently creditable against United States tax liability) and the United States giving an indirect foreign tax credit for the other 50 percent under Article 23(1)(c). To strike the intended fair balance with United Kingdom shareholders, this indirect foreign tax credit had to be currently creditable. Therefore, to the extent that the United States Treasury Technical Explanation denies a current indirect foreign tax credit, it frustrates the policy underlying these provisions of the Treaty. Consequently, had the United States Government interpretation of Article 23(1) been brought to my attention as the responsible Minister of the United Kingdom Government, I would have raised objections to its interpretation of the Treaty as being in conflict with the policy underlying the Treaty. 45 (Emphases added, citations to exhibits omitted.) The affidavit of the Rt. Hon. Denzil Davies, Minister of State at the Treasury from 1975 to 1979, was to the same effect, and equally strongly stated. 46 The government argues that there is no reason to give any weight to affidavits that were drafted after the Treaty entered into force. It is correct that post facto statements of legislators interpreting a statute are usually not accorded much weight, see Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 116-18 & n. 13, 100 S.Ct. 2051, 2060-61 & n. 13, 64 L.Ed.2d 766 (1980), for it is seldom easy to reconstruct all of the legislative interests. Similar reasoning well applies to treaties. However, one need not ignore the identity and statute of the affiants, or the nature of their involvement, particularly when the affiants simply but strongly reinforce the plain meaning of the text of the treaty. When the recollections of the persons principally involved are fully consistent with the clear text of the treaty, and when no substantial contrary evidence has been proffered, these affidavits add weight to the wisdom expressed in Rocca v. Thompson, 223 U.S. 317, 332, 32 S.Ct. 207, 210, 56 L.Ed. 453 (1912), that had the signatories intended the purpose now urged, it would have been very easy to have declared that purpose in unmistakable terms.