The Secretary of State to the British Ambassador ( Howard )
Excellency: I have the honor to refer to your note No. 159 dated February 13, 1925, concerning the arrangement for the reciprocal exemption of shipping profits from income tax and to state that a communication has now been received from the appropriate authority of this Government in which it is stated that careful consideration has been given to the Order in Council dated November 7, 1924, and to the statements contained in your note above mentioned, and that it has been decided that Great Britain satisfies the equivalent exemption provisions of Section 213 (b) (8) of the Revenue Act of 1921. Reference is also made to the Act of Congress approved June 2, 1924, known as the Revenue Act of 1924, which contains the provision relating to taxation for 1924 and subsequent years. The provisions of Section 213 (b) (8) of the Revenue Act of 1924 are identical in terms with the corresponding section of the Revenue Act of [Page 273] 1921. It is therefore held that Great Britain satisfies the equivalent exemption provisions of Section 213 (b) (8) of the Revenue Act of 1924.
It has also been determined that the exemption from Federal tax under this holding shall be deemed to be effective from May 1, 1923, the date stipulated by your Government as the date from which the exemption applies under British laws to the income of American citizens not resident in the United Kingdom and corporations organized in the United States, derived from the operation of ships documented under the laws of the United States.
Reference is also made to the last paragraph of Mr. Grew’s note dated August 11, 1924, setting forth the construction to be placed upon Section 213 (b) (8). In the last paragraph of your note No. 1106 dated November 18, 1924, you stated that “the Irish Free State in common with the other British Dominions” was not to be considered as affected by the Order in Council. Accordingly the exemption from Federal taxation in the United States will be applied on the basis of this understanding.