U.S. companies stand to lose millions of dollars in lost business if the Senate fails to ratify a tax treaty with China by the end of the year, according to the American Chamber of Commerce here.
President Reagan signed the proposed tax treaty during his visit to Peking in April 1984, and transmitted it to the Senate the following August. The Senate Foreign Relations Committee recently approved the treaty, but Sen. Jesse Helms (R-N.C.) has delayed a vote by the full Senate.
[Committee staffers in Washington said Helms was concerned that the treaty did not contain a clause that is in most tax pacts that would stop companies from jumping from country to country to gain the greatest tax advantages. Helms is concerned that if it doesn't prevent "treaty shopping," China could become a haven for firms trying to avoid U.S. taxes, they said.]
The treaty goes into effect only in the calendar year after its approval date. Thus, unless ratified in the next two weeks, it won't take effect before 1987.
Along with other provisions, the treaty prevents double taxation of American corporations.
In a position paper prepared this week by its board of governors for transmission to senators and others interested in the tax treaty, the American Chamber of Commerce in China said that if the treaty is not ratified this year, it will cost not only millions in lost business, but also hundreds of thousands of extra tax dollars paid by U.S. companies to the Chinese government.
Some 200 American companies have offices in Peking, and the number is expected to grow as China continues to open up to foreign trade and investment. Chamber officials say that those hardest hit by a delay in the treaty's ratification would be companies that want to sell technology to the Chinese and U.S. oil and construction companies.
"This is going to have horrendous ramifications for companies involved in technology transfer," said Sally A. Harpole, an attorney and president of the American Chamber of Commerce here.
In their two-page position paper, the directors of the chamber say that without the treaty, technology contracts of U.S. companies operating in China are subject to a 20 percent withholding tax. In contrast, they say, competitors from Japan, Britain, West Germany, France and Belgium -- all of which have tax treaties with China -- are subject to only a 10 percent withholding tax, and in some cases only a 7 percent tax.
"This not only places heavy foreign tax burdens on U.S. business, but also forces U.S. companies into uncompetitive price brackets," the chamber said.
The chamber further argues that without the treaty, U.S. residents become subject to Chinese taxes on their personal income after 90 days here, whereas the treaty provides that U.S. residents pay income taxes only after 183 days. The failure to ratify, the chamber said, would give other countries' companies an advantage in lower costs for employe taxes and would work particularly to the disadvantage of U.S. petroleum companies, construction companies and other businesses with long-term projects in China.
The chamber said that without the treaty, U.S. companies have no resort other than the Chinese government itself to resolve "the many ambiguities which exist under China's brand-new laws," many of which have been enacted only over the past five years.
With the treaty, the chamber asserted, U.S. companies would "enjoy many favorable interpretations and clarifications and could resort to both the U.S. and Chinese enforcers of the treaty for further clarifications of Chinese laws."
The chamber said that its members see no disadvantage in the treaty for American interests and fully support it.
Harpole said that more than half of the members of the long-term U.S. business community here belong to the chamber .
The tax treaty is based on model income tax treaties developed by the U.S. Treasury Department, the Organization for Economic Cooperation and Development and the United Nations. Treasury officials engaged in a series of negotiations with the Chinese for more than a year before reaching agreement on the treaty.