Memorandum by the Adviser on International Economic Affairs (Feis)
Sir Herbert Marler, Canadian Minister at Washington, telephoned me from Montreal to inform the Department that he had talked over with the Canadian Prime Minister and Minister of Finance and various other officials the tax matters he had previously discussed with the State and Treasury Departments.
He wanted us to know at the first possible moment that he was now authorized to give this Government the fullest assurances (which would be given in written form upon his return): (1) that the Canadian [Page 181] Government was disposed to extend to the American Government “the closest possible cooperation” in the handling of the tax evasion situation (meaning both the evasion now encountered on the part of non-resident aliens and also the evasion by American taxpayers through the device of Canadian holding companies and the like), (2) if the Canadian-American tax treaty were ratified the Canadian Government would be ready to enter into negotiation with the American Government, at the convenience of the American Government, looking towards the supplementation of the treaty in such a way as to provide for the full fiscal cooperation, and for the working out of measures for applying the agreed-on rates, and even to consider the question of revision of rate (the underlying idea previously discussed with the Minister was that a low withholding rate would be retained for the thousands of Canadians whose revenues from American securities were very small in amount and that based on full cooperation between the two Treasuries, the Canadians who receive large revenues in the United States would file returns and pay the same rates as Americans).
I told the Minister that I appreciated the promptness of this report and would convey it at once to the Secretary of State and the Acting Secretary of the Treasury. I reaffirmed the fact that both Departments were trying to expedite the ratification of the tax treaty.
He said this was the first important move and that even though the American Congress should pass no legislation this session modifying the withholding tax rate, for the United States not to ratify this treaty would have an unfortunate effect in Canada. Furthermore, he stated that in his judgment an exceptional opportunity would be missed to build up the fiscal cooperation between the two countries which would be beneficial in the way of revenue to both countries, and furthermore to bring into existence a relationship in this tax field which might well serve as a most useful model in dealing with other countries.