I doubt whether Dr. Iriondo will have time to do much in the matter
himself, and it may well be necessary to visit the next Minister of
Finance who will presumably occupy himself solely with that Department.
However, as stated in my despatch No. 2172 of July 28, as the object is
indefinite postponement, a delay in making a reply should not prejudice
the case. I may add that I left a copy of my memorandum for the Minister
of Finance with the Minister for Foreign Affairs also.
The Dutch Legation is likewise making representations and I supplied some
data to it. The British have, I believe, an ample documentation on the
subject but seem reluctant to admit that they have any instructions from
their Foreign Office to protest. It was insinuated to me that perhaps
this matter is being discussed by the British in connection with the
Roca Agreement.56
Other Legations have expressed an interest but I do not so far know of
any action taken except by myself and the Dutch.
[Enclosure—Translation]
The American Chargé (White) to the Argentine Interim Minister of Finance (Iriondo)
Memorandum
As of date July 25 a memorandum was submitted to the Ministry for
Foreign Affairs in regard to the project (Law 11,582 of June 1932)
for imposing a tax of 7% on the premiums of insurance policies
issued abroad covering properties or goods situated in or destined
for the Argentine Republic.
[Page 788]
It is now desired to supplement that memorandum by additional
considerations.
The suspension of Law 11,582, insofar as it concerns the tax upon
insurance effected abroad on merchandise introduced into the
country, was effected by a decree of February 20, dossier
3571–E–1932. This states that “in view of the importance of this
question, within which interests of a world-wide nature are
involved, it is necessary to carefully study the matter for the
purpose of arriving at adequate regulations through the
collaboration of those public departments best informed in the
premises, together with the representatives of the commercial
interests at stake.”
It appears that there are three different classes of underwriting
institutions doing business in the Argentine. There are the
insurance companies incorporated under Argentine law as Argentine
companies. There are foreign insurance companies established in the
Argentine and carrying on business through one or more branches,
those branches having been registered in accordance with Argentine
law. There are also insurance or underwriting organizations in every
part of the world which insure their clients, the sellers of the
goods residing outside of the Argentine Republic, and covering the
shipments of merchandise destined to Argentina. These last-mentioned
outside-foreign underwriters transact insurance business freely in
every kind of risk and do not have any regular branch in Argentina.
They have carried on business with the Argentine for many years
unmolested. Upon the subject matter contemplated by the decree above
mentioned they have not had an opportunity to express their
views.
Insurance policies upon imported goods commence in general at the
time when the goods leave the factory in the foreign country and
covers the transit from the factory to the foreign port of shipment,
and thereafter the sea voyage to an Argentine port, and generally
also a short time in Argentina with the object of giving the buyer
time to make his arrangements as regards insuring the goods himself
within Argentine jurisdiction. This cover within Argentine
jursdiction is limited in many policies by what is known as the
“River Plate Clause,” which guarantees foreign underwriters free
from certain claims; fire, etc., in warehouses in Argentina.
It will therefore be seen that the proposed taxation covers insurance
upon a risk of which only a small part relates to Argentine
jurisdiction.
The business of marine insurance upon imported merchandise which is
intended to be taxed by the proposed regulation is not a business in
which the Argentine companies compete with the foreign
companies.
Practically the whole of the marine insurance upon imported
merchandise is effected by the sellers with underwriters in the
country of export, and it is worthy of note that the insurance
companies, both Argentine and foreign established companies,
carrying on business in
[Page 789]
Argentina, addressed on April 5, 1932, a petition to the Argentine
Congress pointing out that they were strongly against the taxation
of maritime insurance upon merchandise in transit to Argentina. The
local underwriters in their aforesaid petition to Congress pointed
out that such taxation would have “the absurd result that a person
purchasing goods abroad which are insured by the seller with foreign
underwriters against the risk of the voyage to Argentina will find
himself obliged to pay a tax for an unexplained reason upon the
goods whilst they are in transit outside of the Republic.”
In addition to the tax of 7% upon the premium there would be a stamp
duty of fifteen centavos per thousand pesos upon the total volume of
the policy.
When goods are dispatched from the foreign factory they are under the
jurisdiction of the country of origin until they reach the
sea-board, and thereafter they come under the jurisdiction of the
nation to which the carrying vessel belongs and it is only when the
vessel arrives in the River Plate that the merchandise, and
consequently the insurance policy covering the same, comes within
the jurisdiction of the Argentine Republic.
Under these circumstances it must be supposed that the Argentine
Government would not seek to impose taxation upon merchandise or
upon the insurance policies of merchandise before such merchandise should reach the River Plate, and
consequently the proposed tax could only reasonably be held to apply
to such part of the premium as corresponds to the risk within Argentine jurisdiction.
In view of the great varieties of insurance policies it is not
possible to lay down a definite rule, but in general terms it may be
stated that in respect of a policy upon goods imported into
Argentine from Europe or the United States not more than, let us
say, from one-tenth to one-fifth of the premium could correspond to
the risk within Argentine jurisdiction.
Latest statistics indicate that the value of the merchandise imported
into Argentina from foreign countries in the year 1932 was
approximately eight hundred and fifty million paper pesos, and
supposing that the whole of this were insured and that the average
premium thereon amounted to approximately one per cent, this would
give a total premium figure of about eight and a half millions.
Supposing for the sake of illustration that as much as one-fifth of
the total transit were reckoned as apertaining to Argentine
jurisdiction, then one-fifth of 8,500,000 paper pesos, that is to
say, 1,700,000 would be subject to Argentine taxation.
The 7% premium tax upon 1,700,000 paper pesos would thus yield, say
119,000 paper pesos, while the stamp duty upon the policies might be
calculated to yield about 127,500, making a total gross receipt of
less than 250,000 per annum in respect of the tax.
[Page 790]
The complete statistics for the year 1932 have not yet been published
so that allowances must be made in the above figures for subsequent
modifications, but even admitting a substantial margin for
variations, it will be seen that the Government’s income to be
expected from the tax under the new regulations would be more than
counterbalanced by the great disorganization of international
business which would be caused by the enforcement of this taxation
as can be demonstrated by a simple example.
The business of sale of goods to be exported from a foreign country
and imported into Argentina is in general carried out upon a basis
of C. I. F. (cost, insurance and freight) under which system the
foreign seller, having made his contract with a buyer in Argentina,
despatches the goods from his factory or his plant, and once the
goods leave the possession of the seller they travel for the account
and risk of the Argentine buyer.
Throughout the whole of the journey from the foreign factory to the
receiving warehouse in Argentina the risk of the goods is taken care
of by the insurance policy.
Supposing that a casualty should happen during the course of the
voyage, the Argentine buyer might refuse to take up the shipping
documents, and the only safeguard of the foreign seller would be the
insurance policy. For this reason, although theoretically under the
C. I. F. system the obligations of the foreign seller terminate when
he has despatched the goods from his own premises, yet in practice
he must depend upon the good faith and financial reliability of the
insurance company which covers the risk during the transit. For this
reason it is a certainty that the foreign sellers will not
relinquish the rights which are given to them under, the C. I. F.
system to insure the goods in a company of their own choosing.
Furthermore banks and other financial institutions are frequently
called upon to lend money upon the documents of title of goods in
transit and they equally require that the goods should be insured in
a company of international reputation.
This insurance of goods in transit is of an international character
and the Argentine insurance companies are not engaged in this class
of business and have expressly stated in their memorial of April 5,
1932 that they do not desire taxation to be imposed by the Argentine
Government upon marine insurance.
It is therefore clear that the tax leviable under the new proposed
regulations will not assist Argentine national insurance and will
not bring in any considerable amount of revenue to the Argentine
Government, whilst on the other hand it will seriously hamper
international business dealings in so far as concerns goods sold by
foreign countries to Argentina, as can be shown by a few simple
instances.
In many cases goods shipped to Argentina are insured by the exporter
under “floating policies” for large amounts on which shipments
[Page 791]
to all parts of the world
are declared seriatim by the assured. No policies are issued for the
individual shipments, but an insurance certificate is often employed
for banking purposes. The premium paid is seldom stated in such
certificates, and in very many cases it would entirely upset the
course of business dealings if a declaration of the premium were
required to be made.
In other cases where the goods are covered by a voyage policy,
business usages or Government regulations, make it desirable that
the original policy should be retained in the country of shipment
and a certificate transferable by endorsement goes forward with the
goods. In this case also the receiver in Argentina has no knowledge
of the premium paid nor of other particulars upon which he would be
required to give information to the Argentine authorities under the
new regulations before he could withdraw his goods from the customs
house.
The new regulations provide that the goods cannot be withdrawn from
the Argentine custom house until the duty has been paid, which means
a further complication of the customs house formalities, with the
result that goods will be delayed in the customs house and serious
disorganization will be caused.
Furthermore it will be difficult and perhaps impossible to arrive at
an agreement with the authorities as to the percentage of the
premium which relates to the risk within Argentine jurisdiction and
the percentage relating to the risk upon the high seas and in the
jurisdiction of the country of origin.
At the present time when the nations are endeavoring as far as
possible to eliminate the artificial barriers and difficulties which
have been created in hindrance of international trade, it would
appear particularly unfortunate were a new regulation such as this
to be brought into force, which would create a new and additional
impediment in disturbance of commercial communications between
Argentina and foreign countries.
In view of the foregoing and of the detriment likely to be caused to
insurance companies of the United States of America, the Washington
Government has directed me to express the hope that means may be
found to prevent the application of the pertinent portions of Law
11,582 of June 1932.
