Act empowers the President and his designees to establish and maintain a regular information collection program with respect to foreign investment in the United States and U.S. investment abroad. It authorizes the appropriation of $1 million for the purpose for the fiscal year ending September 30, 1978, and a like amount for the fiscal year ending September 30, 1979.

Under section 2(a) of the Act, Congress finds and declares that

(1) the United States Government is presently authorized to collect limited amounts of information on United States investment abroad and foreign investment in the United States;

(2) international investment has increased rapidly within recent years;

(3) such investment significantly affects the economies of the United States and other nations;

(4) international efforts to obtain information on the activities of multinational enterprises and other international investors have accelerated recently;

(5) the potential consequences of international investment cannot be evaluated accurately because the United States Government lacks sufficient information on such investment and its actual or possible effects on the national security, commerce, employment, inflation, general welfare, and foreign policy of the United States; (6) accurate and comprehensive information on international investment is needed by the Congress to develop an informed United States policy on such investment; and

(7) existing estimates of international investment, collected under existing legal authority, are limited in scope and are based on outdated statistical bases, reports, and information which are insufficient for policy formulation and decisionmaking.

The report of the Committee on International Relations, House of Representatives (H. Rept. 94-1490), recommending enactment of the legislation summarized its provisions as follows:

S. 2839, as reported, which may be cited by its short title as the "International Investment Survey Act of 1976," requires the President to set up a regular and comprehensive data collection program to obtain current information on international investment questions, to publish such data on a regular and periodic basis, and to conduct "benchmark surveys" of foreign direct investment in the United States, of U.S. direct investment abroad, and of foreign portfolio investment in the United States at least once every 5 years. The President is also directed, not later than 5 years after enactment, to conduct a "benchmark survey" of U.S. portfolio investment abroad on a one-time basis and at his discretion thereafter. The President shall also conduct a study of the feasibility of establishing a system to monitor foreign direct investment in the United States in agricultural, rural, and urban real property, including the feasibility of establishing a nationwide multipurpose land data system, and he shall report his findings to Congress no later than 2 years after enactment of this bill.

The President or his designees are authorized to compel designated persons to keep records and to report relevant informa

tion to agencies administering the program. Civil, criminal, and injunctive procedures are provided for in support of the purposes of the legislation.

Information collected pursuant to the legislation shall not be divulged publicly in any way that might identify the company or individual making such report and such protection is extended to "customers" of those reporting under the bill.

Additional views by Congressman Jonathan B. Bingham, included in the report, state, in part:

While I support the provisions of S. 2839, I am concerned and disappointed that the legislation fails to provide for disclosure of multinational corporate investment data on a company-bycompany and country-by-country basis.

I continue to believe that information of the kind identified by S. 2839 for collection and analysis must be available to policymakers in more than just aggregate terms. Aggregate data alone is inadequate and can even be misleading in view of the size and dominance of a few large multinational firms in particular areas of trade and investment. With respect especially to such firms, some of which have budgets and resources greater than those of some of the major governments of the world, policymakers must have more detailed information identified at the level of individual firms in order fully to appreciate both the beneficial and possible undesirable effects such firms and their operations may have on the public.

It is especially unfortunate that the present legislation does not call for company-by-company disclosure of information on the investments and business activities of multinational firms in view of the fact that the United States has recently joined in an international declaration which clearly endorses and envisages such disclosure. I refer to the June 21, 1976, declaration of the member governments of the Organization for Economic Cooperation and Development (OECD). .

*

For the OECD declaration of June 21, 1976, see ante. this chapter, p. 519. For section-by-section analysis of the International Investment Survey Act of 1976, see H. Rept. 94-1490 and S. Rept. 94-834, 94th Cong., 2d Sess.

Securities Transactions

Straub v. Vaisman & Co., Inc., 540 F.2d 591 (1976), was an action. by foreign nationals who purchased stock abroad in an American corporation on the strength of recommendations by an American securities broker and its representative. They alleged violations of the antifraud provisions of the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). The U.S. District Court for the District of New Jersey entered judgment for the plaintiffs and awarded attorney fees. The defend

ants appealed.

The U.S. Court of Appeals for the Third Circuit held on June 15, 1976, that Federal jurisdiction was properly invoked and the evidence established that the corporate defendant was liable. It stated:

The fraudulent scheme was conceived in the United States by American citizens, involved stock in an American corporation traded on American over-the-counter exchange, and an American securities broker from his office in New Jersey was responsible for the wrongful omissions. Moreover, on policy grounds the interest of the United States in regulating the conduct of its broker-dealers in this country and enhancing world confidence in its securities market is ample justification for applying the securities laws. We conclude that Federal jurisdiction was properly invoked.

In view of the fact that the bad faith or vexatious conduct of defendants did not occur during the litigation process, the Appeals Court found that the award of attorney fees was improper.

Tax Treaties and Agreements

U.S.-Republic of Korea

On June 4, 1976, the United States and the Republic of Korea signed a convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and the encouragement of international trade and investment. The convention establishes maximum rates of withholding tax in the source country on income payments flowing between the two countries. The rate of withholding tax on portfolio dividends is limited to 15 percent, while on dividends paid by a subsidiary to a parent corporation the rate of tax may not exceed 10 percent. The maximum rate of withholding tax on interest is 12 percent except that interest derived by the government of one state or by its local authorities or instrumentalities is exempt from withholding at the source. Royalties are subject in general to a 15 percent maximum rate of tax. However, the tax on literary and artistic royalties, including motion picture royalties, is limited to 10 percent.

An unusual provision permits a special exemption from U.S. social security taxes for Korean residents who are temporarily present in Guam. The Koreans believed that a similar exemption for Philippine residents temporarily present in Guam provided an unfair advantage to Philippine residents and the firms which hire them. The convention provides the exemption for Korean residents only so long as the statutory exemption is in effect for Philippine residents.

The convention was submitted to the Senate for advice and consent to ratification on September 3, 1976. It was not acted upon in the 94th Congress.

See S. Ex. P, 94th Cong., 2d Sess.

U.S.-Philippines

The United States and the Philippines, on October 1, 1976, signed a convention with respect to taxes on income, aimed at identifying clearly the tax interests of the two countries so as to avoid double taxation and make difficult the illegal evasion of taxation. It deals principally with Federal income taxes in the case of the United States and with generally equivalent income taxes in the case of the Philippines, although the nondiscrimination article applies to taxes of every kind imposed at the national, State, or local level.

The maximum rate of withholding tax under the treaty is 25 percent on portfolio dividends and 20 percent on dividends paid to a parent corporation owning 10 percent or more of the voting shares. The 20 percent limit applies as well to the additional Philippine tax on profits of U.S. corporations derived through Philippine branches. The treaty provides a maximum tax at the source of 15 percent on interest in general, 10 percent on public bond issues, and an exemption of interest paid to the Government of one of the contracting states or an instrumentality thereof, or interest on debt guaranteed or insured by that Government or instrumentality. In the case of royalties, the treaty provides a limit of 15 percent at the source for the United States. The Philippine tax at source is also limited to 15 percent provided that the paying corporation is registered with the Board of Investments and engages in preferred areas of activity. In other cases the Philippine tax is limited to 25 percent or to a lower rate if a lower rate applies on comparable payments to residents of third states.

The taxation of business profits derived by a resident of the other country is governed by the standard treaty concept that tax liability will arise only to the extent that the profits are attributable to a "permanent establishment" in the taxing country. There is not the usual reciprocal exemption of shipping and airline profits. The Philippines agreed to reduce their statutory tax from 2 1/2 to 1 1/2 percent of gross receipts on outbound traffic and to provide that the tax may not exceed the lower of the 1 1/2 percent rate or any lower tax agreed to with a third country. The United States accepted this provision with respect to shipping profits but excluded U.S. airlines from the provision at the request of the airlines.

Notes interpreting article 23 (2) of the treaty were signed on November 24, 1976. They extended U.S. approval to the Philippine practice of permitting a foreign tax deduction to Philippine citizens abroad, rather than a foreign tax credit, so long as the rates of tax currently in effect remain unchanged.

The treaty was submitted to the Senate on Jan. 19, 1977, for advice and consent to ratification (S. Ex. C, 95th Cong., 1st Sess.).

U.S.-Romania

A treaty with respect to taxes on income came into force between the United States and Romania on February 26, 1976 (TIAS 8228; 27 UST 165), effective with respect to income of calendar years or taxable years beginning on or after January 1, 1974. As to the basic provisions governing the taxation of business income, personal service income, and real property income, as well as the administrative provisions for exchanging tax information and resolving taxpayer complaints, the treaty is similar, in all substantive respects, to conventions recently concluded between the United States and Western European countries.

For additional information concerning the U.S.-Romania treaty, see the 1973 Digest, pp. 388-389, and S. Ex. B, 93d Cong., 2d Sess.

U.S.-United Kingdom

On April 13, 1976, the United States and the United Kingdom exchanged notes amending the income tax convention between the two countries signed on December 31, 1975 (see the 1975 Digest, p. 635), to extend certain benefits under the convention to dual resident corporations and to broaden the tax exemption for containers used in international traffic. The notes also restated provisions on associated enterprises and investment or holding companies. The convention as thus modified was transmitted to the Senate for advice and consent to ratification on June 24, 1976.

On August 26, 1976, the two countries signed a protocol of amendment designed principally to clarify the application of the convention to dual resident corporations. This was transmitted to the Senate on September 22, 1976. The Senate did not take action on the convention, as amended, during the 94th Congress.

See S. Ex. K and S. Ex. Q, 94th Cong., 2d Sess.

The Department of the Treasury announced on July 28, 1976, in response to inquiries, that the 1945 income tax convention between the United States and the United Kingdom (TIAS 1546; 60 Stat. 1377; 12 Bevans 671) was not applicable to Southern Rhodesia or to Yemen, It had been extended in 1959 to Southern Rhodesia (then part of the Federation of Rhodesia and Nyasaland) but had not applied to Southern Rhodesia since January 1, 1974. The extension of the treaty to Southern Rhodesia was terminated by the United States, effective January 1, 1974, by diplomatic note to the Government of the United Kingdom in accordance with the procedure established in the convention.

The U.S.-United Kingdom income tax treaty had been extended in 1959 to the People's Democratic Republic of Yemen (then part of