811.512337 Shipping/2

The Ambassador in Cuba (Braden) to the Secretary of State

No. 1567

Sir: I have the honor to refer to the Department’s air mail instruction No. 754 of October 8, 1942 (file No. 800.512311 Shipping/2 [811.512337 Shipping/1]), regarding the apparently improper assessment and collection by the Cuban Government of taxes on revenues earned by vessels either owned by or chartered to the War Shipping [Page 260] Administration,23 and to the Department’s airgram A–293 of October 27, 1942, 7:30 p.m.24 on the general question of the exemption from taxation of all undertakings of our Government in Cuba.

There are enclosed copies of the Embassy’s notes to the Foreign Office No. 731 of October 15, 1942,24 requesting exemption from taxes collected on operations of vessels either owned by or chartered to the War Shipping Administration; No. 811 of November 2, 1942,24 claiming exemption from taxes on all undertakings of our Government in Cuba; and No. 847 of November 9, 1942, requesting specifically, in connection with the Embassy’s previous request, tax exemption for the operations here of the Metals Reserve Company.25 There are also Attached copies and translations of Foreign Office notes Nos. 1124 and 1125 of November 14, 1942,26 in reply thereto.

In Foreign Office note No. 1124, which deals with the Embassy’s request for tax exemption in the case of War Shipping Administration vessels, the Embassy’s attention is called to a letter from the Minister of Finance27 Attached thereto in which he expresses the opinion that as the taxes in question, namely, the 2.65 percent tax on the gross freight and passenger earnings and the 3.60 percent tax on gross income derived from freight and passenger charges, constitute important sources of revenue, it would not be advisable to suspend their collection. He also points out that of the 2.65 percent tax, 1.25 percent is pledged to the public debt service and therefore cannot, in his opinion, be suspended legally (The Department will recall that similar arguments were advanced by the Cuban Government at the time exemption from this particular tax, known as the gross sales tax, was sought on behalf of the Nicaro Nickel Company and that as a result the company’s attempts to obtain exemption from this tax were subsequently abandoned).28 It will be noted that in spite of the Minister of Finance’s recommendations, the Minister of State, in Foreign Office note No. 1124, informs the Embassy that studies are being [Page 261] made in order to ascertain to what extent the national economy would suffer from the elimination of the taxes under reference so that, if it were found that the attendant loss of revenue would not be too severe, steps to accede to the Embassy’s request could be taken.

Foreign Office note No. 1125 deals with the sought-for general exemption from taxes on all undertakings of our Government in Cuba and to the request for exemption from taxes on the local operations of the Metals Reserve Company. As in the case of note No. 1124, note No: 1125 is based on a letter from the Minister of Finance, Attached thereto, in which he expresses the opinion that our requests might be considered insofar as they refer to taxes assessed on official agencies of our Government or on articles or products to be used in defense projects by private contractors or to taxes which they (the contractors) may pass on (presumably to such official agencies of our Government). It is the Minister of Finance’s opinion, however, that it would not be proper to exempt from existing taxes the earnings and profits of the contractors themselves.

The Minister of State has interpreted the Minister of Finance’s opinion in the sense that official agencies of our Government should be exempted from all taxes and, in accordance with the last paragraph of note No. 1125, instructions are being issued to the Ministry of Finance to prepare a decree granting tax exemption to the operations in Cuba of the Metals Reserve Company as sought for in the Embassy’s note No. 847 and to undertake a study with a view toward granting the general tax exemption referred to in the Embassy’s note No. 811.

Note No. 1125 appears satisfactorily to settle the tax problem of the Metals Reserve Company, and Mr. George W. Tower, the representative of that Government agency in Cuba, has been so informed. It also appears to accept, at least in principle, our contention that all undertakings of the United States Government in Cuba should be exempted from taxation when the tax is levied on a defense project whether carried on by an agency of our Government or by a private contractor for governmental account; when the project is financed and controlled by the Government of the United States for a public purpose; and when the burden of the tax would fall upon the United States Government.

The apparent unwillingness of the Cuban Government to extend such exemption to the earnings or profits of private contractors engaged in the execution of Government projects would not appear substantially to detract from the value of the concession which it seems disposed to grant, but the Department’s views and comments in connection with this particular phase of the matter would be appreciated.

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Inasmuch as the War Shipping Administration is an official agency of our Government, there appears to be a discrepancy between note No. 1124, in which it is stated that exemption from taxation in the case of vessels owned by or chartered to that agency will be considered favorably only if the resulting decrease in revenues is not too severe, and note No. 1125, in which it is admitted that all official agencies of our Government should be exempted from taxes and, in fact, thus specifically exempting the operations of the Metals Reserve Company. The Embassy has not as yet brought this apparent discrepancy to the attention of the Cuban Government and before doing so it would appreciate receiving the Department’s further instruction. In issuing such instructions, the Department may wish to consider the arguments advanced by the Minister of Finance that the suspension of the 3.60 and 2.65 per cent taxes would substantially curtail Cuban revenues and that of the 2.65 per cent tax, 1.25 per cent is pledged to the service of Cuba’s foreign debt. It may also wish to consider the fact that any substantial reduction in revenues would increase Cuba’s budgetary difficulties proportionately and might well result in Cuba’s having to look to us for financial assistance in order to eke out its budgetary revenues. Moreover, the Cuban Government, although it has not done so, could allege with some justification that the vessels owned by or chartered to the War Shipping Administration are more or less the same vessels which, privately owned, previously plied between United States and Cuban ports, so that the activities of the War Shipping Administration, unlike those of the Metals Reserve Company, the Nicaro Nickel Company, etc., have not, strictly speaking, made any additional contribution to Cuba’s economy. In other words, while tax exemptions in respect of the Metals Reserve Company, the Nicaro Nickel Company, etc., would merely deprive Cuba of additional tax revenue, tax exemption in respect of the operations of the War Shipping Administration would deprive Cuba of income which has in the past constituted a substantial part of its budgetary revenues.

Respectfully yours,

For the Ambassador:
Albert F. Nufer

Counselor of Embassy for Economic Affairs
  1. Instruction No. 754 not printed; it requested the Ambassador to bring the facts to the attention of the appropriate Cuban officials and endeavor to have them discontinue those taxes on an agency of the United States Government.
  2. Not printed.
  3. Not printed.
  4. Not printed.
  5. Embassy’s note No. 847 not printed; it reminded the Ministry of State that the Metals Reserve Company was an agency of the United States Government, financed and controlled by that Government, and created for the purpose of purchasing vital metals and supplying them to the mutual war effort.
  6. Neither printed.
  7. José Miguel Irisarri; letter not printed.
  8. The attempt was abandoned, partly because the Department in August 1942 considered the Nicaro Nickel Co. in Cuba to be a Cuban company and therefore deemed it inadvisable to request tax exemption through diplomatic channels. However, the Department in its airgram A–293 of October 27, 1942; informed Ambassador Braden that a request for tax exemption might properly be made for the Nicaro Nickel Company for the reason that it was in fact an American corporation contributing to the joint war aims of the two nations (837.512/650). The Ambassador requested this exemption in a formal note, No. 148 of January 29, 1943, p. 263.