of Denmark and the United States to facilitate the effectiveness of the convention. Each country reserves the liberty of taxing its own citizens, residents, and corporations irrespective of the provisions of the convention, subject to the application of credit allowances. Articles III and IV relate to business income of an enterprise of one country having a permanent establishment in the other country. Other provisions of the convention deal with business income, permanent business establishments, intercorporate relationship, income from real property, taxes on the remuneration of teachers and students, wages and salaries, pensions and annuities, labor and personal services, and shipping and aircraft profits. It is provided that the convention shall remain in force for a minimum period of 5 years. 3. SUPPORT FOR THE CONVENTION In the course of its consideration of the proposed convention, the subcommittee has been advised by representatives of the National Foreign Trade Council; of the Committee on Taxation, United States Associates, of the International Chamber of Commerce; and of other American business interests concerned that the groups they represent unanimously approve the convention as being in the interests of American trade and generally advantageous to American business. In this regard the dispositions recently reached before the subcommittee with respect to the tax convention and protocol between the United States and France, and the reciprocal administrative cooperation. provisions thereof, have facilitated agreement by the persons interested in the proposed convention with Denmark. The committee has had the benefit of views of the staff of the Joint Committee on Internal Revenue Taxation as well as of the Treasury Department on the convention. The proposed convention as well as that with the Netherlands commends itself also because of its contribution to the European recovery program and its tendency toward stimulation of American foreign trade. 4. TAXATION OF CAPITAL GAINS The committee, however, in its consideration of the convention, has been aware of the pendency in Congress of the question of amending existing provisions of the Internal Revenue Code relating to the taxation of capital gains derived by nonresident aliens or by foreign corporations from sources within the United States, and of the effect thereon of provisions of existing tax conventions containing articles relating to capital gains. The proposed convention, in article XII, would exempt from United States income tax the capital gains of nonresident aliens who are residents of Denmark and Danish corporations, if such alien or corporation is not engaged in trade or business within the United States. The committee feels that it is untimely to freeze by tax conventions the provisions of existing law in that respect pending further legislative consideration of the question. 5. RESERVATION APPROVEL BY THE COMMITTEE The committee, therefore, recommends that article XII of the convention be not accepted and accordingly has agreed upon the following reservation, which meets with the approval of the executive branch: The Government of the United States of America does not accept article XII of the convention relating to gains derived from the sale or exchange of capital assets. It will, therefore, be necessary for the Government of the United States, before ratifying the convention, to approach the Government of Denmark in order to obtain the acquiescence of that Government in such reservation. 6. CONCLUSION The committee believes that the terms of the convention are advantageous to the United States and that the convention should be ratified subject to the reservation cited above. |