811.512 Boats/—
The German Embassy to the Department of State
Memorandum
Section 702 of the “Revenue Act of 1926” enacted by the United States Government provides for the levying of a special tax upon the use of certain foreign built boats. For the purpose of administering the tax provisions referred to, the Commissioner of Internal Revenue in Washington, D. C, with the approval of the Secretary of the Treasury of the United States has, on August 28, 1926, promulgated “Regulations 72 relating to the Special Tax upon the Use of Foreign Built Boats under Section 702 of the Revenue Act of 1926.”
According to the definitions contained in these regulations the liability for the tax in question is not based on the ownership but rather exclusively on the use of certain boats and this liability begins on the first day of the month in which the taxable boat is placed in use. According to Art. 6 of these regulations every owner, lessee or charterer of a foreign built boat of a certain tonnage and length in use is liable for the tax. The following article states that liability for taxes is imposed on the use of all foreign built yachts, pleasure boats, power boats, motor boats and sailing boats of over 5 net tons and of over 32 feet length. According to these same regulations, liability to tax is also based on the use of similar foreign built boats which are foreign registered and used in the United States, and furthermore, on the use of similar boats owned by nonresident aliens navigating in United States waters.
Art. 8 of these regulations enumerates certain classes of boats, the use of which will not create any liability for the tax provided for in [Page 939] Section 702 of the Revenue Act of 1926. Among the exceptions cited in Art. 8 there is, however, no mention that the use of boats which are built in Germany, is exempt from this special tax in question, as the provisions of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, demand. There is no other section of the law, nor article of the regulations promulgated in pursuance thereof which exempts the use of German built boats from this special tax.
German builders interested in the construction and exportation of yachts, pleasure boats, power boats, motor boats or sailing boats to the United States have drawn the attention of the German Government to the fact, that their products, when exported to the United States, are subjected to the special tax provided in Section 702 of the Revenue Act of 1926 mentioned above, and that as a consequence thereof their boats are practically excluded from the American market. They have further informed the German Government that their protests against the levying of this special tax on boats built in Germany, which were based on Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, have been rejected by the competent American authorities, who, on the one hand, argue that the special tax provided by Section 702 of the Revenue Act of 1926 does not represent a tax on the ownership of boats built in Germany but rather on the use of such boats and does not, therefore, violate the provisions of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights of December 8, 1923; while these same authorities on the other hand, are said to have contended that a boat is no longer to be considered as “merchandise” within the meaning of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, when it is sold by the builder or dealer and is being used.
The German Government, after a careful study of the practical and legal questions involved, cannot agree with the opinion of these American authorities, as set forth. It believes, on the contrary, that the special tax imposed on boats built in Germany is incompatible with the provisions of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, since these provisions, in respect to internal taxation, guarantee the same treatment to German merchandise, as is accorded to goods produced in the United States.
The fact, that the liability to the special tax is not based on the ownership but on the use of the boats cannot, in the opinion of the German Government, exclude the application of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and [Page 940] Consular Rights of December 8, 1923, because any discrimination against a German product will have the same effect, whether it is directed against such product in the hands of the consumer or while it is still the property of the producer or dealer. Any interpretation of these treaty provisions which would in effect allow any discrimination against products which have been transferred to the consumer, or whose utilization has begun, would, in the opinion of the German Government, render entirely negative any application of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923.
The German Government, furthermore, cannot agree with the opinion that a boat should not longer be regarded as “merchandise” within the meaning of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, when it has been sold by the builder or dealer, and has passed to the purchaser, or is otherwise in use. The German Government, on the contrary, is rather of the opinion that any product, which has already left the trade and is subjected to special taxation solely because of its origin, by that very fact necessarily must be held to be “merchandise” within the meaning of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923. In other words, under the above mentioned provisions of the Treaty boats built in Germany can only be regarded as “merchandise” because the liability to tax their use is based on their foreign origin solely, as provided under Section 702 of the Revenue Act of 1926.
Thus, for the reasons set forth above, the German Government would appreciate if the Government of the United States, in order to preserve the legal status provided by Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, would take the necessary action to secure the abrogation of Section 702 of the Revenue Act of 1926, in so far as it affects German built boats.
In this connection the German Government desires to bring the following to the attention of the Government of the United States:
In a police ordinance relating to the traffic of taxicabs issued in Hamburg on February 17, 1927,—“Hamburgisches Gesetz—und Verordnungsblatt Nr. 18 of February 18, 1927, Page 99”—the following provision was inserted: “Only German motor taxicabs can be licensed.” Upon instruction by the Commercial Attaché of the American Embassy in Berlin, the American Trade Commissioner in Hamburg, Mr. James T. Scott, on April 21, 1927, orally protested against this provision to the police authorities of Hamburg, contending it was contrary to the provisions of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, [Page 941] of December 8, 1923. The German Government stands ready and is prepared to bring about the abolition of this ordinance issued in Hamburg, but it cannot effectively exercise its influence in that direction as long as the United States maintains its present position regarding Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, and has not taken action to restore the legal status provided by this Article by way of abolishing the special tax now imposed on boats built in Germany.
It would also be impossible for the German Government to prevent other German states from issuing similar ordinances, prior to the abolishment of the special tax on German built boats, since the licensing of a taxicab takes place only after its sale by the builder or dealer to the operator, when under the opinion of the American authorities with respect to boats built in Germany, the taxicab would no longer be considered as “merchandise” within the meaning of Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923.
In this connection it may also be pointed out that under the interpretation which the American authorities have placed upon Art. VIII of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, with regard to the taxation of merchandise, the German Government would be at liberty to enact a law amending the present German law relative to the German tax on automobiles—which law taxes solely the use of all automobiles, similar to the American special tax on foreign built boats—, providing higher rates on the use of foreign built automobiles than those imposed on vehicles of domestic manufacture. The effect of such a law is apparent, i. e., it would reduce the German market for foreign built automobiles which would principally affect the sales possibilities of the American automobile industry.
The German Government desires to observe the provisions of the Treaty between Germany and the United States, of Friendship, Commerce and Consular Rights, of December 8, 1923, not only in a literal sense but also according to its liberal interpretation and it does not intend, in individual cases, to restrict its terms to a narrow and strict meaning. However, it must always be mindful of the fact that it has a responsibility towards its own industries which makes it imperative to see that no interpretation of the treaty is made which is more favorable to American merchandise in Germany than German merchandise is enjoying in the United States.
The German Government, therefore, is hopeful that the Government of the United States will consider favorably the request contained herein that the special tax on German built boats be abolished.