The Ambassador in Brazil (Berle) to the Secretary of State
[Received May 21.]
Subject: The new Brazilian Consumption Tax Law.
Sir: With reference to previous correspondence on the above-mentioned subject, I have the honor to report, for the information of the Department, the details of a conversation between a member of the Embassy and Mr. Hortencio de Alcantara, Director of Internal Revenue.
Mr. Hortencio pointed out the difficulties encountered in attempting to coordinate the consumption tax law with the Trade Agreement between the United States and Brazil. He stated that if the letter of the agreement were adhered to domestic manufacturers of commodities similar to those listed in Table I would be placed at a disadvantage, since they would be charged higher rates than those applicable to American products. It was mentioned to him that if an over-all solution could not be found without considerable delay, a partial solution might be possible immediately. First by placing goods imported from the United States on an equal footing with those of domestic manufacture, in compliance with paragraph one of article VII of the Agreement. Second by adjusting the tax on those table I commodities which present the least technical difficulties. The remainder could then be left for final over-all solution as rapidly as possible. Care was taken to avoid giving the impression that full compliance with the letter of the Trade Agreement was not expected.
During the conversation the impression was obtained that, while basically the consumption tax is primarily for revenue purposes, Government officials are very sensitive on the question of affording protection to domestic industries. For example, when it was mentioned that most radio receivers normally were imported and that domestic manufacture in the past was dependent upon imported components, immediate interest was aroused in examining the tax status of such components jointly with that of the completed sets, so that the rates on the former could be reduced if such action is taken on the latter.