USCIB Letter on Tax Implications of the Euro

February 10, 1998

Mr. Joseph Guttentag

Deputy Assistant Secretary, International Tax Affairs

U.S. Treasury Department

1500 Pennsylvania Ave., N.W., Room 1334

Washington, D.C. 20220

Dear Mr. Guttentag:

We are writing on behalf of the United States Council for International Business to share with you some of our potential concerns regarding the tax implications of the adoption of the Euro. The United States Council for International Business advances the global interests of American business both at home and abroad.  It is the American affiliate of the International Chamber of Commerce (ICC), the Business and Industry Advisory Committee (BIAC) to the OECD, and the International Organisation of Employers (IOE).  As such, it officially represents U.S. business positions in the main intergovernmental bodies, and vis-ŕ-vis foreign business and their governments.

As you know, the adoption of the Euro by certain members of the European Union to replace their existing currencies, which process commences on  January 1, 1999, could have far reaching effects on all U.S. businesses with European activities, whether conducted through branches or subsidiaries.  We are concerned that a literal reading of certain provisions in the Internal Revenue Code might interpret this compulsory conversion as triggering unexpected and inappropriate US tax results.  Specifically, this conversion, over which business has no control, might be treated as giving rise to the recognition of gain when, in fact, no economic benefit will arise, as the gain is unrealized on the business assets and liabilities that remain substantially unchanged.

We believe that it is both necessary for, and within the authority of, the US Treasury to publish guidance assuring businesses that this compulsory conversion will not constitute such a triggering event, but rather will prescribe the need for careful basis record keeping, so that foreign currency, and the underlying gains and/or losses, can be properly accounted for upon the occurrence of a later, real triggering event when one occurs.

This occasion is neither a time for the U.S. government nor US businesses to seek some short-term inappropriate windfall.  It is essential that the US government work with the US international business community to assure the continued competitiveness of US business operations within the strengthened European Union. We would very much appreciate the

opportunity to consider this matter with you, and we will telephone you in due course to fix a date convenient to us both on which we would come to Washington, D.C. to meet with you.

Richard M. Hammer                                                      

International Tax Counsel

Joseph E. McCole

Chair, Working Group on Tax Implications of EMU

cc: Philip West, International Tax Counsel, U.S. Treasury