Memorandum by Mr. Willard F Barber of the Division of the American Republics 44

Cuban Taxation on Operations of the United States War Shipping Administration

At Mr. Walmsley’s request I have studied the Attached file45 and have given the matter considerable thought. My conclusions are as follows:

There is a fundamental legal principle at stake which is of considerable importance.
It seems advisable to obtain the tacit or explicit acceptance of this principle by the Cuban Government. It appears as a matter of fact, that it has already made an indication of its acceptance of the principle in its note no. 1125 of November 14, 1942.46
If the failure to receive anticipated revenues from taxes on the operations of the vessels of the War Shipping Administration should seriously prejudice the stability of Cuban finances other means might well be used to grant the necessary emergency assistance which would not involve any prejudice to this Government’s rights or legal position. The calculations as to the amount of tax which the War Shipping Administration’s letter of January 446 contains makes it appear that the sacrifice by Cuba will not be as great as had been previously estimated. This calculation brought to the attention of the Cuban Government, in conjunction with its statement with its own calculations as to the burden of the tax (Cuban Foreign Office’s note no. 1124 of November 17, 194246) might well bring the Cuban Government into agreement with us without undue strain On our friendly relations.
I believe that the request of the War Shipping Administration for the tax exemption is proper and should be supported. It is therefore desirable to concur with the points raised in Le’s memorandum of February 647 and to proceed with an instruction to our Embassy at Habana along the lines of Le’s draft of January 20.46

Additional information or argumentation on the conclusions enumerated above is submitted herewith.

(1) There is a fundamental legal principle at stake which is of considerable importance.

It is a well recognized principle of international law that the revenues of foreign governments should be exempted from the payment of taxes. This is recognized not only in our own law and in [Page 269] the decisions of the United States Supreme Court, but also by the practice, the laws and judicial decisions of other nations. A fundamental legal principle is involved going far beyond the present instance of War Shipping Administration vis-à-vis Cuba. It is obvious that without the establishment and constant safeguarding of this principle of tax exemption the operations of the OLLA,48 the CCC,49 the Rubber Development Corporation, the Defense Supplies Corporation and other agencies of this Government would be seriously handicapped. These and other agencies of our Government conduct operations in an ever increasing number of foreign jurisdictions. For them to be subject to taxation by each country through which the goods might pass or where the operations are being conducted, would result in an impossible situation: the multiplication of costs and the restrictions of many governments’ regulations. Compared to this the narrow and limited Cuban budgetary considerations are decidedly secondary.

While it is true that the War Shipping Administration is conducting a function under the aegis of Government authority which in normal times would have been a matter of ordinary business and commercial transaction, the answer is that the Defense Supplies Corporation, the Export-Import Bank, the Agricultural Marketing Administration, the Commodity Credit Corporation, and other agencies of the Government are entering fields and are conducting negotiations in realms which in normal times, or in peace times, or in earlier times, were considered to be the businessman’s sphere. Obviously, this Government on principle could not permit the operations, the property and the functions of these agencies to be subjected to such local taxation abroad as would subject them to alien control and veto.

(2) It seems advisable to obtain the tacit or explicit acceptance of this principle by the Cuban Government.

The third paragraph of the Cuban Foreign Office’s note no. 1125 of November 17 tacitly admits the principle that an official agency of the United States Government should be exempt from local taxation.

(3) Decrease in Cuban Government Revenues.

(a) The amount of revenues which the Cuban Treasury may not receive is a matter which had been calculated by the War Shipping Administration and which is being calculated by the Cuban Treasury. The War Shipping Administration estimates that the suspension of the taxes would amount to a decrease in revenues of a sum less than $160,000. (b) The amount of loss in revenue is comparatively insignificant, [Page 270] (c) The expenditures of this Government through Export-Import Bank, naval and aviation construction and maintenance, and its assistance in the sugar industry and in a variety of other ways, more than makes up for the comparatively slight decrease in revenues represented by the figure cited above, (d) Cuba, as have the United States and other belligerent Governments, has found some new and additional sources of tax revenue, and may find it necessary to increase the rates and amounts of taxes already imposed. That is a part of the cost of war. (e) It is not the function or the purpose of the War Shipping Administration to conduct its operations in such a way as to underwrite governmental budgets and estimates of revenues made by other countries. When and if that purpose is intended we have other ways of accomplishing the purpose; and it can be done without yielding on legal points which would have embarrassing and costly results in our relations with other countries.

Willard F. Barber
  1. Addressed to Messrs. Bonsal, Walmsley, and Scherer of the Division of the American Republics and to Miss Anna A. O’Neill, assistant to the Legal Adviser.
  2. Memorandum of January 21 by the Assistant Chief of the Division of the American Republics, p. 263.
  3. Not printed.
  4. Not printed.
  5. Not printed.
  6. Supra
  7. Not printed.
  8. Office of Lend-Lease Administration.
  9. Commodity Credit Corporation.