The Ambassador in Brazil (Berle) to the Secretary of State

No. 825

Sir: I have the honor to present, for the Department’s consideration, a problem which has arisen regarding the payment of Brazil’s consumption tax by United States Government agencies operating in Brazil. This problem has been discussed by the Embassy with other interested U.S. Government agencies, and is summarized in the Memorandum [Page 726] of Conversation of March 30, 1945, a copy of which is submitted as enclosure No. 121 to this despatch.

It will be observed that the United States Naval Operating Base, Rio de Janeiro, has received instructions from the Office of the Judge Advocate General, U.S. Navy, Washington D.C., prohibiting it from paying Brazil’s consumption tax, a copy of this instruction being submitted as enclosure No. 221 to this despatch. The instruction of the Judge Advocate General was based on the fact that United States Naval expenditures constituted those of a sovereign government and, therefore, under the general principle of international law that one sovereignty should not tax another sovereignty, it was considered that its expenditures should be exempted from the payment of Brazil’s consumption tax.

In as much as by this instruction the U.S. Naval Operating Base might be forced to curtail radically or discontinue entirely the purchase of many important commodities, particularly foodstuffs, in Brazil, with resultant far reaching deterrent effects on U.S. Naval operations in Brazil, the matter was discussed orally with Minister Antonio de Vilhena Ferreira Braga, Chief of the Economic and Commercial Division, Brazilian Ministry of Foreign Affairs.

Minister Ferreira Braga assured the Embassy that the Ministry of Foreign Affairs would be glad to take up with the Ministry of Finance the problem of the payment of Brazil’s consumption tax presented by the United States Navy as well as by other U.S. Government agencies, but since the matter related to the principle of reciprocity under international law, he stated that the Ministry would appreciate receiving a note from the Embassy indicating the degree and extent to which the United States Government grants exemptions from the payment of Federal internal taxes to foreign governmental agencies, as well as manner in which this tax exemption is administered.

Since the Embassy is not sufficiently informed regarding the general legal provisions and administrative procedures by means of which foreign governmental agencies are effectively exempted from the payment of Federal taxes in the United States, the Embassy informed Minister Ferreira Braga that prior to the presentation of a formal note on the matter, it would be referred to the Department’s consideration.

Should the Department instruct the Embassy to request the Brazilian Government to exempt U.S. Government agencies operating in Brazil from the payment of Federal internal taxes, or specifically from the payment of the consumption tax, it would be appreciated if the precise terms and phraseology to be contained in the formal note would be indicated.

[Page 727]

The Embassy has kept the U.S. Naval Operating Base fully informed regarding the status of this matter, and has suggested that it should inform the Judge Advocate General, U.S. Navy, so that temporary measures could be taken which would permit the U.S. Naval Operating Base to continue its purchases in Brazil pending the solution of this matter with the Brazilian Government.

Respectfully yours,

Adolf A. Berle, Jr.
  1. Not printed.
  2. Not printed.