832.512/6–1845
The Acting Secretary of the Treasury ( O’Connell ) to the Secretary of State
My Dear Mr. Secretary: Reference is made to your letter of May 1, 1945 (PR–832.512/4–345)22 with which you enclosed a copy of Dispatch No. 825 of April 3, 1945, from the American Embassy at Rio de Janeiro, Brazil, in regard to the application of Brazil’s consumption tax to agencies of the United States Government operating in Brazil, and to your letter of May 22, 1945 (PR–832.512/5–545) with which you enclosed a copy of Dispatch No. 1254, dated May 5, 1945 from the Embassy at Rio de Janeiro.23 It appears that the particular problems involved concern the purchasing by the United States Naval Operating Base, Rio de Janeiro, from Brazilian manufacturers of various supplies subject to such tax and purchases by the United States Army of butter subject to the tax.
You express the opinion that under International Law agencies of one sovereign state should not be required to contribute to the public expenses of another state, except insofar as assessments or charges may be regarded as payments for services rendered, and request information as to the extent to which the United States Government grants exemptions from the payment of Federal excise taxes to foreign governmental agencies, and the method of administering such exemptions.
The position of the United States Government respecting the granting of exemptions from Federal excise taxes is set forth in M.T. 7, 1943 C.B. page 1151.24 It will be noted that agencies or commissions of foreign governments are exempt from the payment of Federal excise taxes, the legal incidence of which would otherwise fall upon them, in respect of transactions arising in the performance of their [Page 728] official functions for which payment is made by the foreign government.
The taxes under this classification are: The taxes on admissions and dues imposed under Chapter 10 of the Internal Revenue Code; the tax with respect to safe deposit boxes under Chapter 12 of the Code; the taxes with respect to telegraph, telephone, radio, and cable facilities under Subchapter B of Chapter 30 of the Code; the tax on the transportation of persons under Subchapter C of Chapter 30 of the Code; the tax on the transportation of property under Subchapter E of Chapter 30 of the Code; the tax on the use of motor vehicles and boats under Chapter 33A of the Code; and the documentary stamp taxes relating to the issuance and transfer of shares of stock and corporate securities, and relating also to certain foreign insurance policies, passage tickets, and conveyances of realty sold, imposed under Chapters 11 and 31 of the Code.
Attention is invited especially to the fact that agencies or commissions of foreign governments are not accorded exemption from taxes, the legal incidence of which is not imposed on them, even though the burden of such taxes may be ultimately passed on to the agency or commission by inclusion of the amount of the tax as a part of the cost of the article. For example, certain Federal excise taxes are imposed upon sales of various articles by manufacturers and by retailers, the legal incidence of which falls directly on the manufacturer or retailer. In practically every case, these manufacturers’ and retailers’ excise taxes are passed on to the ultimate consumer as part of the cost to him of the taxable article. As to such taxes, an agency or commission of a foreign government is not accorded any tax exemption, even though, as the ultimate consumer of the taxable article, the agency or commission is thus required to bear the burden of the tax.
In view of the foregoing, if the legal incidence of the Brazilian consumption tax in question is on the Naval Operating Base at Rio de Janeiro, it would be a tax similar to those United States excise taxes, for which exemption is granted by this Government, under M.T. 7, supra, to agencies or commissions of foreign governments. However, if the legal incidence does not fall upon the Naval Operating Base, but instead the burden of the tax is merely passed on to such Agency as part of the cost of the taxable article, such tax would be similar to the manufacturers’ and retailers’ excise taxes for which no exemption is accorded agencies or commissions of foreign governments by M.T. 7, supra.
From the information before it, this Department is unable to ascertain the nature of the Brazilian consumption tax and the person upon whom the legal incidence of the tax is imposed, and it is not possible, therefore, to determine whether it is similar to those Federal [Page 729] excise taxes for which exemptions are permitted to foreign agencies or commissions.
In the event of further correspondence, please refer to IR: MT.
Very truly yours,