811.512342 Shipping/14
The Secretary of State to the Canadian Minister (Massey)
Sir: I have the honor to refer to your note No. 86, of May 8 and my acknowledgment of May 16, 1928,1 in regard to the matter of the [Page 2] proposed exemption from taxation of the income of vessels of foreign registry granted in the United States and in Canada.
A communication on this subject has now been received from the Treasury Department.3 It is stated that under Sections 210 and 211 of the Revenue Acts of 1924 and 1926 and under Sections 11 and 12 of the Revenue Act of 1928, citizens of Canada who are residents of the United States are liable to income tax upon their income received from all sources, both from sources within and sources without the United States. There is no provision of law which would permit the Government of the United States to enter into an agreement with the Canadian Government, the effect of which would be to waive the requirements of the Sections of the Statutes referred to with respect to income derived by citizens of Canada residing in the United States from the operation of ships in Canadian waters.
The Treasury Department has considered the amendment of March 30, 1928, to the Canadian Income War Tax Act and has asked me to obtain the following information from you:
- 1)
- Whether it is the opinion of the Canadian Government that the provision of Section 213(b) (8) of the Revenue Act of 1926 is fairly reciprocal to the exemption provided in the above mentioned Statute of the Canadian Government.
- 2)
- If the answer to the preceding question is in the affirmative, whether the Canadian Government will give effect to the exemption from January 1, 1924, the effective date of Section 213(b) (8) of the Revenue Act of 1924.
- 3)
- If the answer to the preceding question is in the affirmative, whether it can be stated that from January 1, 1924, the Canadian Government has not imposed any income, war-profits or excess-profits tax upon the income of a citizen of the United States, nonresident as to Canada, or of a corporation organized under the laws of the United States, which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of the United States.
I shall be grateful if you will bring these inquiries to the attention of your Government and furnish me with your Government’s replies.
For your convenience it may be stated that the provisions of Section 213(b) (8) of the Revenue Acts of 1924 and 1926 are as follows:
“(b) The term ‘gross income’ does not include the following items, which shall be exempt from taxation under this title:
(8) The income of a non-resident alien or foreign corporation which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States:”
The Revenue Act of 1928 provides for such exemption by Sections 212(b) and 231(b) as follows:
Section 212.
“(b) Ships under foreign flag.—The income of a non-resident alien individual which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States, shall not be included in gross income and shall be exempt from taxation under this title.”
Section 231.
“(b) Ships under foreign flag.—The income of a foreign corporation, which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States, shall not be included in gross income and shall be exempt from taxation under this title.”
In the Department’s note to you of April 28, 1927,4 information was requested concerning the ferries operated on the Great Lakes which are being taxed and the reason why a distinction is made between these and other ferries which are not taxed. Your note in reply, dated October 24, 1927,4 did not include this information and, at the request of the Treasury Department, I beg leave to renew my inquiry in this regard.
Accept [etc.]