Letter of Submittal

                                     DEPARTMENT OF STATE,
                                     Washington, March 11, 1974.

The PRESIDENT,
The White House.

THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, the Convention between the Government of the United States of America and the Government of the Socialist Republic of Romania with Respect to Taxes on Income, signed at Washington on December 4, 1973.

The Convention deals mainly with Federal income taxes in the case of the United States and with generally equivalent income taxes specified in Article 1(1) (a) in the case of Romania. The provision relating to nondiscrimination applies, however, to taxes of every kind imposed at the national, state, or local level.

Largely because of Romania's extensive involvement in international commerce the Romanian tax system is relatively well developed with regard to foreign investors. The Romanian tax authorities are familiar with the concepts of income used in the United States and Western Europe and have had some experience in their application. It was, therefore, possible to conclude a convention which, 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, is similar in all substantive respects to the conventions recently concluded between the United States and Western European countries such as Belgium, France and Norway.

Romania imposes withholding taxes on dividends, interest, royalties, rentals and technical service fees. The Convention establishes the present Romanian tax rate of 10 percent on dividends as an upper limit to the tax so that in combination with any likely corporate tax (now 30 percent) the total of Romanian taxes on corporate profits would be fully creditable against the United States corporate tax. On the other items of income, the Convention provides for a reduction in Romanian withholding taxes- from 15 percent to 10 percent on interest (with exemption on interest paid on loans from, or guaranteed by, the Export-Import Bank or the Overseas Private Investment Corporation), and from 20 percent to 10 percent on copyright royalties, including films, and to 15 percent on industrial royalties. Under the Convention, the United States will observe the same limits with respect to withholding tax on dividends, interest and royalties. Moreover, equipment rentals are not to be subject to the Romanian withholding tax, but will be taxable only if connected with an office in Romania.

The Convention also eliminates a Romanian 25 percent tax on income derived by performers who will be treated under the personal services provisions of the Convention (Articles 14 and 15).

A technical memorandum explaining in detail the provisions and effect of the Convention is being prepared by the Department of the Treasury and will be submitted to the Senate Foreign Relations Committee for consideration in connection with the Convention.

Upon entry into force, this Convention will be effective from January 1, 1974, and will remain in force for a minimum period of five years. After the initial five-year period it will remain in force indefinitely until terminated by either State.

The Department of the Treasury, with the cooperation of the Department of State, was primarily responsible for the negotiation of this Convention. It has the approval of both Departments.

   Respectfully submitted,  
                                       HENRY A. KISSINGER.

Enclosure: Convention.

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