811.512337 Shipping/2

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

No. 1510

Sir: The Department has carefully considered your despatch no. 1567 of November 20, 1942 concerning the general question of tax exemption on United States Government undertakings in Cuba.

The Foreign Office Note No. 1124 concerning exemption from taxes on earnings in Cuba of the War Shipping Administration transmits a copy of an opinion of the Ministry of Finance dated November 9, 1942, holding that the $3.60 tax (on freight or passenger earnings) forms an important factor in the country’s income at the present time and that it therefore would not be advisable for the Treasury to suspend it; while the $2.65 tax is (on gross income) pledged, $1.25 to the service of foreign obligations, which cannot be legally suspended, and $1.40 being an Internal Revenue measure “which it would not be advisable for the Treasury to suspend”. Notwithstanding the opinion of the Minister of Finance, the Foreign Office Note No. 1124 states “that calculations are being made in order to ascertain to what extent the national economy would be prejudiced by the possible suppression of these taxes, so that in case it would not appreciably affect collections, the request [of the Embassy] may be granted”. It may, in the Embassy’s discretion, be advisable to await the result of the calculations referred to, and should this be the case, the Embassy may seek a favorable opportunity to press for an early determination of these calculations.

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Your note to the Foreign Office, No. 731, of October 15, 1942,52 is a clear statement of the Department’s position on the principle of law involved. An added argument for the exemption requested is the fact that the War Shipping Administration is an agency of this Government and the present request falls well within sub-paragraph (a) of the communication of the Minister to Foreign Office Note No. 1125 of November 17, 1942). The concluding paragraph of this communication reads, “It does not, however, seem just that the contractor be exempted from taxes on profits or earnings, since even though the work may be for defense purposes, not only does it seem fitting that individuals should contribute from their earnings in the state in which they are derived toward defraying its expenses, but it would, in fact, be extremely unjust to exempt them, while other private enterprises, precisely because of the war, see their earnings and margins of profit dwindle from day to day”.

The Department assumes that this paragraph covers both individuals and corporations of American and foreign nationality who act as contractors and subcontractors for this Government on defense projects. The term “profits or earnings” may lend itself to confusion in interpretation. What, if any, application would the Cuban income tax law have on the groups indicated in this paragraph?

Having these observations in mind, the Department feels that you should request of the Foreign Office a clarification of the paragraph above quoted. The Department transmits, for your information and comment, a copy of a letter dated January 4, 194352 from the War Shipping Administration. You will observe that the figure $320,000 is given as the tax collections which would be realized on earnings from May 1942 to December 1942, but as a result of Cuban Government Decree No. 2602, it is estimated that this figure could probably be cut by more than 50 percent. In view of the relatively small amount involved and the desirability of maintaining the important principle involved, the Department feels that you might use the information set forth by the War Shipping Administration to advantage in your efforts to accelerate the conclusion of the calculations mentioned above.

Very truly yours,

For the Secretary of State:
Breckinridge Long
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