824.512/71
The Minister in Bolivia ( Feely ) to the Secretary of State
[Received September 7.]
Sir: I have the honor to refer to my Despatch No. 525 of January 25, 1933, and the Department’s reply thereto, telegram No. 4 of February 18, 1 p.m., in reference to the extraordinary war taxes created by the Law of September 30, 1932, and the concrete case of the Patiño Mines and Enterprises, Inc., a Delaware corporation, controlled by Bolivian capital.
When the attorney for this company consulted the Legation in January of this year as to the incidence of these extraordinary taxes on alien citizens and corporations, I suggested that, while there was some question as to the status of American individuals and corporations under our Treaty with Bolivia, the Company should refuse to pay the taxes until a definite decision had been made by the Bolivian Government as the result of the negotiations then being carried on by the Legation.
[Page 7]The attorney for the Company, Doctor Manuel Carrasco, informed his principals of this conversation, but was subsequently instructed by the President of the Company, Mr. Simón I. Patiño, not to make any attempt to evade the tax, first because the amount was not great, and secondly because he, being a Bolivian, was desirous of assisting the Bolivian Government in the difficult financial situation caused by the conflict with Paraguay.7 In accordance with Mr. Patiño’s instructions, the local representative of the company, without informing the Legation, paid the extraordinary tax for the current year without question, thereby establishing a precedent which may be prejudicial to the interests of other American companies in the future.
As reported in my Despatch No. 525, the capital investment of the corporation in the mining industry proper was not involved, since the Patiño interests had already agreed, as a member of the Association of Miners, to pay an extraordinary tax of Bs. 100 per ton of tin exported, in lieu of the ⅕ of 1% capital tax set up by Law of September 30, 1932. What was affected was the company’s investment of approximately Bs. 13,000,000 in the Machacamarca Uncia Railway which it owns and operates. The total amount of the tax payable by the Railway was Bs. 260,000 for the ten years, but the Executive has now submitted to Congress a bill providing for two additional loans totalling Bs. 55,000,000 for the national defense, and extending the extraordinary taxes for a period of five additional years, and it seems likely that the period will be prolonged indefinitely as further loans become necessary.
This is the only concrete case of an American company that has come to the Legation’s attention.
In pursuance of the Department’s instructions, however, the Legation, by Note No. 164 of March 9 to the Foreign Office, formally requested the exemption of American citizens and companies from the payment of the extraordinary taxes for military purposes, under the terms of the Treaty of 1858, Article 3. In the same note it was requested that the matter of the payment thereof by such persons be held in abeyance while the question of their rights under the 1858 Treaty was under discussion.
The Bolivian Minister of Foreign Affairs acknowledged receipt of this note on March 22, informing the Legation that the question had been referred to the Minister of Finance for attention, but the Legation has never been advised of the Minister’s decision. Inasmuch as no case other than that of the Patiño Mines and Enterprises has arisen, the Legation has considered it advisable not to press the issue.
The British and German Legations, however, whose nationals have large capital investments in Bolivia, have continued their negotiations with the Government and on August 1 the Foreign Office addressed a [Page 8] note to the British Minister in La Paz, transcribing the decision of the Minister of Finance, in the sense that under the British Treaty of June [August] 1, 1911, British citizens and subjects were exempt from the obligation of paying the direct taxes, established by the Law of September 30, 1932, but that they must satisfy the indirect taxes thereby created, the incidence of which it would be impossible to define. Enclosure No. 1.10
This decision seemed to be a reasonable one, but, in its second part, (b), the Minister of Finance held that “legal persons such as corporations, which are not comprised in the British Treaty, must pay all of the taxes (both direct and indirect) because the exemption granted by the Treaty applies exclusively to ‘citizens or subjects’ and not to entities established in the country, which are considered as national and therefore subject to the sovereignty, the laws, and the authorities of the nation under the terms of Amendment No. 2, Paragraph 2 of the National Referendum of 1931.[”]
Inasmuch as the only really important British cases are those of corporations domiciled in Great Britain, the Minister’s interpretation of the words “citizens and subjects” under the terms of the National Referendum, makes such “legal persons”, as opposed to “natural persons”, liable to the direct as well as the indirect taxes. Enclosure No. 1 (b).10
The pertinent part of the National Referendum on which the Minister of Finance backs his decision, is Constitutional Amendment 2, Paragraph 2, which reads as follows:
“All companies established in the country for purposes of exploitation, elaboration, or business, shall be considered as national, and shall be subject to the sovereignty, the laws and the authorities of the Nation.”
The British Legation has merely acknowledged receipt of the Foreign Office note, and it would seem that the next step would be to bring a test case before the Supreme Court in demand of an interpretation of the words “Citizens and Subjects” and the applicability of the Referendum of 1931, as opposed to the language of an international treaty.
In this connection, I have the honor to transmit herewith, Enclosure No. 2,10 the opinion of Bolivia’s most eminent lawyer, Doctor Carlos Calvo, in the sense that legal persons as well as natural persons are exempt under the terms of the Treaty of 1911 with Great Britain, and that the Minister of Finance is in error in attempting to set up a distinction between the two classes of persons.
[Page 9]This is the status of the question at the present time, insofar as the British Government is concerned.
If then, the Bolivian Government holds that American citizens are exempt under our Treaty, individual American citizens will not be obliged to pay the direct taxes. As to American corporations, their status will depend upon the legal interpretation of the word “citizens” and the applicability to them of the terms of the 1931 Referendum.
Respectfully yours,
[No further representations were made by the United States in this matter. On May 12, 1935, the Bolivian Internal Revenue Administration issued a circular in which it was stated that “taxpayers of British, French, German, Italian, Spanish and North American nationality are required to pay the normal tax only, in virtue of existing treaties exempting subjects of those nations from all war contributions”. (824.512/81)]
- See vol. iv, pp. 241 ff.↩
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