The Extension of U.S. Tax Treaties to U.S. Territories, as Illustrated by the Example of Guam

Abstract

THE EXTENSION OF U.S. TAX TREATIES TO U.S. TERRITORIES, AS ILLUSTRATED BY THE EXAMPLE OF GUAM Samuel J. Cohent In 1901, Justice Brown, writing for a majority of the U.S. Supreme Court in Downes v. Bidwell concluded that to apply the U.S. internal revenue system to U.S. territories' would prove an intolerable burden. ' 2 Nevertheless, in 1951, the U.S. Congress im- posed a mirror image of the Internal Revenue Code (the Code ) upon the territory of Guam. 3 Congress not only burdened Guam with a precise replicate of the Code, but it also excluded Guam from benefits of U.S. tax treaties with foreign nations. 4 Thus, while foreign investment within the U.S. receives favorable tax treatment, comparable investment in Guam faces a far greater tax burden. 5 Because Congress burdens territories such as Guam with tax sys- tems similar to the Code, it should alleviate this onus by allowing those territories to profit from U.S. tax treaties. This Article analyzes existing U.S. tax treaties with foreign na- tions and the application of those treaties to Guam. First, the legal status and the tax systems of U.S. territories are examined. Second, t J.D., University of Minnesota School of Law; LL.M. (Taxation), New York University School of Law; Senior Associate, Carlsmith Ball Wichman Murray Case Mukai & Ichiki, Agana, Guam. I wish to extend special thanks to Professor Kees Van Raad and Professor Law- rence Lokken for their guidance and insightful comments, and acknowledge that I alone am responsible for any errors the Article may contain. 1. See infra note 6 and accompanying text. 2. Downes v. Bidwell, 182 U.S. 244, 284 (1901). 3. See infra notes 25-28, 108 and accompanying text. According to history, Fer- dinand Magellan discovered Guam on March 6, 1521. PAUL CARANO & PEDRO C. SANCHEZ, COMPLETE HISTORY OF GUAM 41 (1964). However, doubt exists as to whether Magellan sighted Guam or the nearby island of Rota. Id. Guam, approxi- mately 225 square miles in area, is about 30 miles long and four to nine miles wide. Id. at 2. Guam lies 1,353 miles south of Yokohama, Japan; 1,506 miles east of Manila, Philippines; and 3,337 miles west of Honolulu, Hawaii. LAURA THOMPSON, GUAM AND ITS PEOPLE 20 (chart paraphrase) (3d ed. 1947). 4. See infra notes 72-100 and accompanying text. 5. See infra notes 62-133, 135 and accompanying text.