3M URGES TAX TREATY WITH MALAYSIA.

Menssen also offers several proposals for treaty provisions. He believes that the treaty's withholding rates should be no higher than the rates included in Malaysia's treaties with other countries. If the treaty will include some withholding on royalties, Menssen supports a split withholding rate for services versus technology. He believes royalty treatment for tax purposes is not appropriate for business income from the performance of services.

We appreciate the opportunity to provide comments on the current treaty discussions between the United States and Malaysia. It is our hope that these discussions will lead to a meaningful tax treaty between the two countries.

As a corporation that has operations in 52 countries throughout the world, 3M Company strongly supports the development of bilateral income tax treaties. We believe that a strong international tax treaty network promotes international trade and investment by reducing tax impediments. At the same time, we are concerned about the current effectiveness of the U.S. treaty network. Delays in negotiating treaties and congressional overrides minimize the benefits available from tax treaties. In addition, the changes in U.S. tax laws since 1986 have reduced the ability of U.S. companies to minimize double taxation and obtain a U.S. tax credit for foreign withholding taxes. These factors make it more difficult for U.S. firms to compete in foreign countries.

The lack of a tax treaty between the U.S. and Malaysia certainly creates impediments in the conduct of business between the two countries. More than 30 nations currently have double taxation agreements with Malaysia. The continuing lack of a U.S. treaty with Malaysia makes it more difficult for U.S. sellers of goods and services to compete equally in the Malaysian market.

We have several concerns over the lack of a tax treaty with Malaysia and would appreciate your consideration of the following proposals as the treaty discussions continue.

We believe that low withholding rates on dividends, interest and royalties promote the flow of funds and provide flexibility to subsidiaries in obtaining financing from their parent companies. We believe that the treaty withholding rates should be as low as possible, and certainly no higher than the rates included in current tax treaties between Malaysia and other countries. This would include the nil rate of withholding on dividends included in all Malaysian tax treaties.

If the negotiations require some amount of withholding tax on royalties, we would strongly support a split withholding rate for services versus technology. We believe royalty treatment for tax purposes is not appropriate for business income from the performance of services, and can often result in withholding rates that are higher than the profit margins related to the performance of such services.

A strong tax treaty network is important in order for U.S. businesses to remain competitive on a global basis. We hope that a tax treaty between the U.S. and Malaysia can be developed in order to put Americans on the same tax basis as its foreign competition doing business in or with Malaysia.

Very truly yours,