The Acting Secretary of the Treasury (O’Connell) to the Secretary of State

My Dear Mr. Secretary: Reference is made to your letter of September 25, 1945 (PR 832.512/),30 together with enclosure of a translated [Page 732] copy of Brazilian Decree-Law No. 7.404, in which you refer to previous correspondence with respect to the application of this law to agencies of the United States Government operating in Brazil.

In a letter to you dated August 7, 1945 (IR:MT), in reply to your letter of July 2, 1945 (PR–832.512/6–1845),32 you were advised that this Department did not have sufficient information to enable it to determine definitely the exact nature of the tax and upon whom the legal incidence thereof falls. Accordingly, at that time it was impossible for this Department to determine whether the United States would allow an equivalent exemption from such taxes to agencies or commissions of the Brazilian Government operating in this country.

[Here follows a statement of the position of the United States Government as given in the third, fourth, and fifth paragraphs of the letter from the Acting Secretary of the Treasury, June 18, printed on page 727.]

Article 2 of Decree-Law No. 7.404, supra, provides that the tax is to be paid before the products leave the factories, commercial establishments, custom houses and custom agencies, and that the amount of the tax should be included in the value of the product and charged up to the consumer.

It appears that under the provisions of Decree-Law No. 7.404, supra, the Brazilian consumption tax is paid by the manufacturer, importer, producer, or retailer and is always incorporated in the sales price of the article. Therefore, since the legal incidence does not fall upon the agencies of the United States Government, but instead the burden of the tax is merely passed on to such agencies as part of the cost of the taxable article, such tax is similar to the manufacturers’ and retailers’ excise taxes for which no exemption is afforded agencies or commissions of foreign governments by M. T. 7, supra.

In the event of further correspondence, please refer to IR:MT.

Very truly yours,

Joseph J. O’Connell, Jr.
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