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

No. 1833

Subject: Possible Exemption of Government Agencies from Payment of Brazil’s Consumption Tax.

Sir: I have the honor to refer to despatch No. 825 of April 3, 1945, on the above-mentioned subject, and to the Department’s telegraphic reply of May 14, 6 p.m., telegram No. 1236,25 stating that the question was submitted to the Treasury Department to determine if a basis for reciprocity exists.

There are now enclosed copies of 1) a memorandum received from Major E. M. Skinner, 2) a letter from Colonel E. J. Bean, Finance Department, Chief, Foreign Fiscal Affairs Branch, 3) letters written by the Embassy to Major Paul S. Espenshade, Captain W. R. Cooke, and Lt. N. C. Depaul, 4) of an official ruling on the liability of U.S. military establishments to payment of the consumption tax, rendered by Dr. Ovidio Paulo de Menezes Gil of the Ministry of Finance, and 5) translation of the ruling mentioned under 4 above.26

It will be noted that the Ministry of Finance maintains that the consumption tax is an indirect tax on the consumer, paid by the manufacturer; that United States military establishments in Brazil are exempt from all direct taxes, but not from indirect taxes paid by manufacturers; and that therefore United States military establishments in Brazil are not exempt from the tax, which is also paid by all Brazilian Government Departments through its incorporation in the manufacturers’ sales prices.

The problem faced by the United States military establishments is that under the new consumption tax law manufacturers are obliged to show the tax separately when billing their sales.

Instructions are respectfully requested whether any further action should be taken by the Embassy. Obviously the matter cannot be discussed further with the Foreign Office before the question of reciprocity is clarified.

Respectfully yours,

For the Ambassador:
DuWayne G. Clark

Commercial Attaché
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