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Coca-Cola Renews Call for Renegotiation of U.S.-Japan Tax Treaty

NOV. 6, 1998

Coca-Cola Renews Call for Renegotiation of U.S.-Japan Tax Treaty

DATED NOV. 6, 1998
DOCUMENT ATTRIBUTES
  • Authors
    Ivester, M. Douglas
  • Institutional Authors
    Coca-Cola Co.
  • Subject Area/Tax Topics
  • Index Terms
    tax treaties
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 98-33511 (1 page)
  • Tax Analysts Electronic Citation
    98 TNT 223-26
====== SUMMARY ======

M. Douglas Ivester of The Coca-Cola Co., Atlanta, has sent Treasury copies of its annual report and interim report, as well as copies of letters from several U.S. companies, urging Treasury to renegotiate the U.S.-Japan tax treaty. As the letters indicate, Ivester says, U.S. companies are very interested in seeing President Clinton raise the issue of treaty renegotiation during his upcoming visit to Japan.

====== FULL TEXT ======

November 6, 1998

The Honorable Lawrence H. Summers

 

Deputy Secretary of the Treasury

 

Room 3326

 

Department of the Treasury

 

1500 Pennsylvania Avenue, NW

 

Washington, DC 20220

Dear Larry:

[1] I very much enjoyed having dinner with you last night at the Grocery Manufacturers of America board dinner.

[2] As promised, enclosed are several items; first, a copy of our annual report and interim report. In addition to my letter to Secretary Rubin on the subject of renegotiation of the U.S.-Japan Income Tax Treaty and the response I received from Mr. Joseph Guttentag, enclosed are some of the other letters sent to Secretary Rubin on the subject.

[3] As you can see, it is an impressive list of U.S. companies who would be very interested in seeing that this issue is raised during the President's upcoming trip to Japan.

[4] If I can provide any other information, please do not hesitate to contact me. Again, I enjoyed your comments immensely, and I wish you the best of success.

Warmest regards,

M. Douglas Ivester

 

Chairman of the Board & CEO

 

The Coca-Cola Company

 

Atlanta, Georgia

Enclosures

* * * * *

June 17, 1998

The Honorable Robert E. Rubin

 

Secretary of the Treasury

 

U.S. Department of Treasury

 

1500 Pennsylvania Avenue, N.W.

 

Room 3330

 

Washington, D.C. 20220

RE: Renegotiation of U.S.-Japan Income Tax Treaty

Dear Mr. Secretary:

[5] We urge the renegotiation of the U.S.-Japan income tax convention, a tax treaty that underpins one of the world's most important bilateral economic relationships. The Treaty has not been amended since it became effective in 1971; and, it is inconsistent with the U.S. model treaty and the model treaty of the Organisation for Economic Co-operation and Development.

[6] The principal provisions of the Treaty that most significantly affect our companies are those that provide high rates of withholding tax on royalties, interest, and dividend payments as well as the Competent Authority process provisions, which have led to much frustration for those of us with pricing disputes with Japan. Particularly in view of the major technological changes since 1971 in areas such as information processing, communications, biotechnology, branded consumer goods, and software, the Treaty is clearly out-of- date and represents a barrier to trade and investment between the United States and Japan. Our Company has substantial business operations in Japan. Because of the high corporate tax rates in Japan, additional Japanese withholding taxes and difficulties in tax dispute resolution with the Japanese NTA, we are exposed to the possibility of serious economic international double taxation.

[7] Mr. Secretary, you would be taking a giant step forward in reducing the economic barriers to trade and investment with Japan if you would initiate the renegotiation of the Treaty to bring it closer in line with the U.S. model treaty and the OCED model treaty, which represent well-established U.S. Treasury policy. We certainly pledge our assistance to you in this endeavor.

[8] Thank you for your consideration.

Sincerely,

Mr. M. Douglas Ivester

 

Chairman of the Board & CEO

 

The Coca-Cola Company

 

Atlanta, Georgia

* * * * *

September 3, 1998

Mr. M. Douglas Ivester

 

Chairman of the Board & CEO

 

The Coca-Cola-Company

 

P.O. Drawer 1734

 

Atlanta, GA 30301

Dear Mr. Ivester:

[9] Thank you for your letter to Secretary Rubin regarding the need to renegotiate the United States tax convention with Japan. We agree with you as to the particular importance of this convention, and that there have been many changes in the economies, tax laws and tax policies of both countries since it was negotiated.

[10] We also recognize that the current treaty fails to reflect certain provisions of the current U.S. model treaty and the OECD model treaty. Neither of these documents, however, is anything more than a model and, as we explained when our model was issued, we expect deviations with every country. Moreover, although our current treaty with Japan is inconsistent with these models, including the model provisions exempting royalties from withholding tax, Japan has entered a reservation to the royalty tax exemption provision of the OECD model and has insisted, in all of its treaties to date, on a 10% rate on royalties, which is the rate provided in our current treaty. Conversely, the current treaty rate of 10% on interest is consistent with the OECD model and current Japanese treaty policy, but not U.S. policy as reflected in our Model.

[11] Treasury takes into account many considerations in determining whether a treaty should be negotiated or renegotiated. These factors include, but are not limited to the importance of the bilateral economic relationships, the impact of a treaty or a renegotiated treaty on the business community as well as the relevant fiscs, the receptivity of the other country to the institution of negotiations, and the likelihood that the negotiations would be successful in obtaining an agreement consistent with our treaty policy. The Office of Tax Policy has had informal discussions with their Japanese counterparts and taking into account all of the factors, we have concluded that the time is not ripe for the initiation of formal negotiations. We have also been monitoring treaty administration procedures, which are delegated to the Internal Revenue Service. We believe that issues we are seeing are capable of being resolved under the provisions of the current treaty.

[12] My staff has had several meetings on this subject with the business community, including the American Chamber of Commerce in Japan, and we do appreciate hearing your views on the need for a renegotiation and how we might achieve the objectives which we both desire.

[13] Thank you again for writing.

Sincerely,

Joseph H. Guttentag

 

Deputy Assistant Secretary

 

(International Tax Affairs)
DOCUMENT ATTRIBUTES
  • Authors
    Ivester, M. Douglas
  • Institutional Authors
    Coca-Cola Co.
  • Subject Area/Tax Topics
  • Index Terms
    tax treaties
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 98-33511 (1 page)
  • Tax Analysts Electronic Citation
    98 TNT 223-26
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