TIME TO CONSIDER TAX TREATY WITH CROATIA

UNCLAS ZAGREB 001488 SIPDIS SIPDIS TREASURY FOR DEPUTY SECRETARY KIMMITT FROM AMBASSADOR BRADTKE E.O. 12958: N/A TAGS: EFIN HR SUBJECT: TIME TO CONSIDER TAX TREATY WITH CROATIA Bob, In March of this year the Government of Croatia made a formal request to negotiate a tax treaty with the United States. The question of negotiating a tax treaty with Croatia has come up in the past and so far been deferred to a time when American economic interests are greater. I believe that time has now arrived and that we should make this a priority. Several things have changed here that merit our attention to this issue. One of these is the recent purchase of Croatia's largest pharmaceutical company Pliva by U.S. Barr Laboratories in a deal valued at 2.5 billion dollars. Barr has already begun to ramp up its presence here and COO Paul Bisaro has let me know that the absence of an agreement on double taxation between the U.S. and Croatia is a problem for the company. The Barr investment is the largest to date in Croatia and, I believe, will act as a catalyst for further U.S. investment here. Helping attract investment to Croatia furthers our foreign policy goals for the wider region, as we seek to consolidate stability and prosperity in this part of Europe. Croatia also has a large diaspora in the United States, many of whom have been very successful and wish to bring their capital and know-how back to Croatia. I believe we should welcome this, as it helps build the economy here and also represents a significant reservoir of good will towards the United States. Unfortunately, however, the absence of a tax treaty creates a disincentive to return and investment. Recently a dual citizen went so far as to renounce his U.S. citizenship after years of paying taxes to both governments. Finally, I believe that moving ahead with this agreement would be a tangible indication of the improved relations between the U.S. and Croatia following Prime Minister Sanader's October 17 meeting in Washington with President Bush. The President's strong statement of support for Croatian membership in NATO and the EU has been extremely well received here and has opened the door to new areas of political and economic cooperation. I know Croatia is a small country and that Treasury has a large queue of countries that hope to conclude tax treaties with the United States. However, I believe that the circumstances here warrant our giving priority to the Croatian request. Best regards, BRADTKE