The three Scandinavian countries, Sweden, Norway and Denmark, some time
ago appointed commissions, one in each country, for the purpose of
revising existing treaties with foreign countries, and of making
suggestions with regard to new treaties. A close cooperation has taken
place between the three commissions and a Joint Committee was appointed
by them, including members from all three commissions. Among the
questions which have been discussed at meetings both in Stockholm,
Christiania and Copenhagen, is the question of taxation of Scandinavian
shipowners by foreign countries.
This question has been the subject of very careful investigation and of
earnest consideration and as a result the said Joint Committee drew up a
Memorandum dealing with the principles involved, of which the
Undersigned Danish Minister to the United States on behalf of his
Government begs to forward a translation into English under this
cover.
In submitting the said document the Undersigned ventures to ask that the
United States Government will give due consideration to the arguments
therein contained with a view to relieving a situation which would
otherwise threaten the shipping interests of all countries
concerned.
[Enclosure—Translation]
Memorandum by the Joint Committee of the Three
Scandinavian Treaty Commissions
During later years we have seen a great tendency in various countries
of taxing all trades and industries carried on in the country, no
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matter whether they
are exercised by persons who are subjects of the country or not, and
irrespective of their being resident in the country or not. It may
be anticipated that this propensity, owing to the heavy financial
burdens under which the nations are labouring will show a further
development during coming years, as the states will endeavour to
utilize all means of finding incomes and values which may come into
the reach of an Income Tax Act.
In the same way must also be explained the attempts which have been
made during the war at introducing without any warning a new
taxation of foreign shipping, attempts which have caused
considerable uneasiness and anxiety among shipowners, not only for
fear of being charged with incalculable and heavy taxes which would
increase the already burdensome taxation at home, but also by reason
of the grave consequences to the international shipping, which the
general introduction of such a fiscal policy of necessity will
entail.
It ought to be in the interest of all nations that the shipping
trade, the free expansion and development of which is of the
greatest importance to the international trade and commerce, is not
unnecessarily hampered or annoyed. This taxation resorted to by the
States of their own or foreign shipping, must therefore bring them
such gains as are large enough to make up for the drawbacks of such
a system.
Taxation of foreign shipping must be on the assumption that the
person liable to pay the tax carries on a trade within the country
which is suitable for taxation, and the question is then, to what
extent this may be said to be the case.
The profits of shipping result from the exercise of a carrying trade
which broadly speaking may be said to consist of the following
single parts: Engagement of cargo and passengers, loading and
discharge and the transport itself.
Of these operations only that part of the engagement of cargo and
passengers which takes place in the country in question, the loading
and discharge in ports of the country as well as that part of the
transport which is done within the territorial limits of the country
may with some reason be said to be a trade exercised in the country
in question.
With reference to the engagement of cargo and passengers then this is
a work generally carried out by persons residing in the country
where this trade takes place, and when the income of these persons
from this trade is taxed, this as far as we can see should be
sufficient.
As regards the trade which consists in the discharge or loading of
goods, this of course is the business of a stevedore, and the firms
who carry on this business are taxed on the income derived therefrom
in
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the country in
question, and so far the assessment of this part of the trade must
be at an end.
What remains is only that part of the transport which takes place in
waters within the territorial limits of the country in question,
while the rest of the trade, viz. the transport of the high seas and
the business of the Owners themselves, which is carried on where
they are domiciled and where the dispositions are made, takes place
outside the limits of the country in question, and therefore alone
for this reason cannot with any justification and equity be
assessed.
As will also clearly appear from the regulation issued by the
different countries aiming at an assessment of foreign shipping, a
great uncertainty prevails on the part of the Authorities as to the
proper course to be pursued. It goes without saying that in the case
of shipping it is altogether out of the question to show how large a
portion of the profits of the sailing between two countries refers
to each particular country, and it will also be impossible to show
what portion of the profits relates to the sailing in the waters
within the territorial limits of the country. As a further
illustration of this point we will suppose that on a single voyage
cargo is loaded in two, three or even more countries, and that the
cargo is discharged in just as many different countries. If under
these circumstances a general assessment of foreign shipping should
be carried out strictly, this would lead to the fact of the Owner
being compelled every year to make a return to the Revenue
Authorities in all the countries where his vessels had been to
during the year. He would for all his vessels have to answer a
multitude of questions contained in modern assessment papers printed
in a language which was not his own and which he is not supposed to
understand fully without the assistance of a linguist, a lawyer or
an expert accountant. According to the rules of taxation in his own
country he would probably be entitled to claim those taxes he is to
pay abroad deducted from the taxable amount of his income, but this
of course will be impossible, when he is unable in time to ascertain
the exact amount of such taxes.
The mere loading or discharge yields no profits to the Owner. The
remuneration is attached to the performance of the whole transport,
it being impossible to dissolve the same into the different
component parts so that a fixed part of the freight should be earned
when the goods have come on board, another part at the termination
of the transport, and the last portion at the discharge and the
delivery of the goods. Of course the law may contain arbitrary
provisions for the computation of the income, but their operation
will easily be unjust and the introduction of this system will
sooner or later lead to the Owners protecting themselves with
suitable clauses in the freight contracts through which it will be
the shippers of the
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goods
and not the Owners who will have to pay the tax. Under these
circumstances it will not be the shipping trade which is taxed, but
the export or the import [trade] of the country provided the tax is
also levied at the discharge of the goods. Moreover such a
collection of tax will in most cases act particularly unjust, not
only because the voyage—even under normal conditions—may bring the
Owner loss instead of gain, but also because detention and damage
during the voyage or the loss of the vessel may altogether upset any
estimate as to the result of the voyage.
It is the timecharter [time charterer] who
bears the loss of the voyage or receives the profit of the same, and
it is he who recharters the vessel and to whom the freight for the
voyage is due. The same applies in reality to every time the loading
of goods takes place for the charters [charterer’s] account, this is more frequently the case
where a vessel is fixed for a lumpsum and thereupon is placed by the
charterer along the quay for loading a general cargo which is booked
with the charterer or his agents.
The merchant who gets goods from abroad and sells them at home pays
taxes in his native country on the full income of his business. It
would be impossible to separate that part of the income earned
abroad from the portion earned at home. Nor is such a division or
separation possible as far as the Owners are concerned. If it is
contended that that part of the voyage which is performed in foreign
waters is a profitable trade carried on aboard [abroad?], and that therefore a corresponding part of the
freight must be looked upon as earned abroad and liable to
assessment there, we must bear in mind that the income which might
thus be due to the foreign State would be small in comparison with
the drawbacks and the difficulties which would be caused, if the
Owner and the Revenue Authorities thus for every voyage made within
the territorial limits of the country were to keep accounts or
control the amount of income which computed according to the
duration and distance is attachable to this part of the voyage
compared with the whole voyage.
It is true that some Governments also before the war in accordance
with their Laws have to a certain extent introduced rating of
foreign Shipping Companies who carry on regular lines. Of course
such taxation of regular steamship lines will not entail so many
drawbacks and difficulties as an all round taxation of foreign
shipping, but even in the case of liners wellfounded objections may
be brought forward against an assessment which rests on the illusion
that it is possible to make rules for a division of the taxable
income for the different countries the vessel is calling at on the
way. If it is intended to tax the income said to be derived from
trade and business in foreign countries, how are we then to draw the
line? Is it the place where
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the freight contracts are made that settles the question, or does
it depend upon where the goods are shipped or perhaps where they are
discharged? Or shall the liability to pay taxes be dependent on
whether the freight is paid in the foreign country to which the
vessels of the line are trading? It is also difficult to give a
definition of Ruteskibsfart (regular service) so exact and clear
that it cannot give rise to doubt and disputes.
We think it will be obvious from the above that the rating of foreign
shipping is a problem which contains just as great difficulties to
the Authorities as inconvenience to the receivers. The economical
gain that may be derived from the taxation of foreign shipping will
prove delusive on closer investigation, while the burdens, the
drawbacks and the difficulties caused thereby may be rather
perceptible.
Such an assessment is sure to create disaffection and bitterness, and
will undoubtedly lead to retaliatory measures wherever it is
possible. Even if the taxation is kept within such bounds that it
cannot reasonably be objected to, we must be prepared that rating in
one country will cause a corresponding rating in the other. What is
gained at home will therefore easily be lost abroad. Whether the
experiment will be in favor of the one country or the other will
depend upon the size and movements of the mercantile marine, but
broadly speaking we may take it that loss and gain in the long run
will balance each other, leaving only a lot of trouble both for the
taxpayers and the Revenue Authorities, to say nothing of the heavy
costs of the assessment and collection of the tax.
For these reasons it would be very desirable if the question of
taxing foreign shipping could form the subject of further
investigation before passing final legislation in the different
countries with reference hereto. The best plan would be if attempts
were made at arriving at an international arrangement, by which the
States mutually bound themselves not to place any obstacles in the
way of foreign shipping by taxing the profits of the same, no matter
whether the tax refers to Municipalities or to States.
We believe the question of such an international arrangement would
more especially adopt itself for discussion at an international
conference, and if such a conference were to be proposed by one of
the leading sea-faring nations we would consider it to the advantage
of all parties interested in the shipping trade.
