Archive

Large scale document archive

1983 Aug 30 Tu
Archive (Reagan Library)

Economy: Thatcher letter to Reagan (unitary taxation) [summary declassified 2000]

Document type: Declassified documents
Document kind: Archive
Venue: 10 Downing Street
Source: Reagan Library: NSA Head of State File (Box 35)
Journalist: -
Editorial comments: Declassified 4 Apr 2000. MT's original letter remains closed. The President's reply rejected the proposal that the administration file a motion in the Container case (see Reagan letter to Thatcher, 23 Spt 1983).
Importance ranking: Major
Word count: 781 words
Themes: Taxation, Foreign policy (USA), Law & order

(1) Department of State briefing for the National Security Adviser, 8 Spt 1983:

Declassified F96-107#233
By SMF, NARA, Date 4/4/00

Confidential

United States Department of State

September 8, 1983

MEMORANDUM FOR MR. WILLIAM P. CLARK
THE WHITE HOUSE

Subject: Presidential Reply to Prime Minister Thatcher on Unitary Taxation

This memorandum transmits the proposed draft reply from the President to Prime Minister Thatcher’s letter which stresses her concern over state use of the Unitary Tax Method and urges him to support legislation to ban it. The Prime Minister points to pressure building in the UK business community and in Parliament to repeal UK tax credits for US parent companies. She also urges him to support a rehearing in the Container Corporation case before the Supreme Court, and to support legislation that would ban the use of the tax method by the states.

The Unitary Tax Method, which computes taxes based on the proportion of the corporate family’s worldwide earnings that is attributable to the state, is currently in use in approximately 13 states. Most of our major trading partners have protested strongly against state application of this tax method to foreign multinationals. Many US multinationals have also objected to this tax method.

In June, the Supreme Court upheld California’s use of this tax method as applied to US-controlled multinationals. In Congress, Senators Mathias and Rep. Conable have introduced bills to limit the states’ use of this tax method, but there is little likelihood of such legislation passing, particularly without administration support.

On September 6, the Cabinet Council on Economic Affairs (CCEA) recommended that the Administration support legislation to limit the application of this tax method to the water’s edge as well as to support Container Corp’s petition for a rehearing by the Supreme Court. (The British Embassy is aware of CCEA’s decision.) If the Administration accepts the CCEA’s recommendation, it has until the week of September 19 to support Container Corp’s petition.

Charles Hill, Executive Secretary

(2) National Security Adviser briefing for the President, 20 Spt 1983:

Confidential

MEMORANDUM FOR THE PRESIDENT
FROM: William P. Clark
SUBJECT: Reply to Mrs. Thatcher on Unitary Tax

Mrs. Thatcher has written to express British concern about state governments’ use of the unitary tax amd to urge you to support legislation to ban it. The unitary system permits a state government to tax the world-wide profits of companies located within its boundaries, including the profits of the company’s overseas affiliates. This system can result in double taxation. Our major trading partners, as well as many U.S. multinationals, have strenuously objected to this tax.

In June, the Supreme Court upheld California’s use of this tax method as applied to U.S. controlled multinationals. A bill has been introduced in Congress to limit states’ use of this tax. There is, however, little likelihood of such legislation passing without our support.

On September 6, the Cabinet Council on Economic Affairs, as you will recall, recommended that the Administration support legislation to limit the application of this tax method. Our treatment of this tax also has enormous domestic political overtones. Hence this matter has been remanded to the Cabinet Council for further review.

Your response to Mrs. Thatcher is an interim reply. It emphasizes the complexity of the issue and expresses the hope that you will be in a position to discuss unitary tax in more depth, when you meet with her at the end of the month.

RECOMMENDATION
That you sign the reply to Mrs. Thatcher at Tab A.
[Document unmarked by the President. Draft not sent in the form recommended by Clark.]

(3) Draft letter for President to send to Mrs. Thatcher (Tab A), undated:

Dear Margaret:

Thank you for your letter of September 2 expressing concern about state governments’ use of unitary taxation. Your clear and forthright explanation of your views is most helpful to our considerations. They will certainly be taken fully into account as we review the complex set of economic, legal, and political issues involved in unitary taxation.

My Cabinet Council on Economic Affairs has been examining our options in light of the Supreme Court decision and the proposed legislation to curtail states’ use of this type of taxation. We are giving careful and thorough consideration to all aspects of this question, including the international implications. I hope to be in a position to review this matter in more depth when we meet at the end of the month.

Thank you again for giving me the benefit of your views. I look forward to our meeting.

Sincerely,