Foreign Relations of the United States, 1949, The United Nations; The Western Hemisphere, Volume II

IO Files: SD/A/C.5/133¹

Position Paper Prepared for the United States Delegation to the Fourth Regular Session of the General Assembly ²

restricted

[Washington,] September 2, 1949.

Tax Equalization

the problem

The Secretary-General is preparing a report on the system established for the achievement of tax equalization with respect to the salaries of Secretariat officials. The report will cover the operation of the staff assessment plan, and will undoubtedly indicate what action, if any, the Member governments have taken to implement the General Assembly Resolution, by outright exemption or otherwise, to relieve their nationals on the Secretariat of double taxation. Should the United States concur in approving the report? If the United States Congress and the Canadian Parliament fail to take the necessary action to implement the General Assembly Resolution, what position should the Delegation take as to continuing the practice of reimbursement to United States and Canadian nationals on the Secretariat for taxes paid to their Governments?

recommendation

1. Insofar as one can anticipate what will be included in the report of the Secretary-General, it is recommended that the United States Delegation concur in approving the report. With regard to the Resolution 239 (III) of the Third Session of the General Assembly (1948) asking Member nations to take the necessary action to relieve their nationals of double taxation, the Delegation should indicate that the Congress of the United States has been requested to take such action³ and that it hopes that Congressional action will be forthcoming either this session or early next year.

2. The United States Delegation should take no position as to whether the General Assembly should extend for another year the authorization to reimburse UN employees for taxes and should take no stand on whether an item for reimbursement should be included in the regular 1950 budget. The Delegation should, however, insist that, if it is necessary to make reimbursements out of the Working Capital Fund in respect of taxes paid on 1949 salaries, as provided in the 1948 Resolution, the Working Capital Fund be replenished by an appropriation in the 1949 Supplemental Budget, and not by special, additional assessments imposed on the Members whose nationals in the Secretariat receive tax reimbursements.

discussion

1. The report of the Secretary-General on the permanent headquarters of the United Nations will probably not be issued in time to permit its examination prior to the opening of the General Assembly session. Judging from the section on this subject contained in the Secretary-General’s annual report, the report on tax equalization will contain no controversial matters. It will merely set forth how the staff assessment plan has been operating since its introduction on January 1, 1949.

The report will undoubtedly contain, however, a reference to the fact that neither the United States nor Canada, the two nations at whom the Resolution 239 (III) was directed, has completed the action requested by the General Assembly Resolution on double taxation. This Resolution provided:

“The General Assembly,

Desiring to achieve both equity among the Member States and equality among members of the staff of the Organization and

Noting that certain Members have not yet taken the necessary action to that end,

Requests

That Members which have not acceded to the Convention on Privileges and Immunities of the United Nations or which have acceded to it with reservation as to its article 18 (b), take the necessary action legislative or other to exempt their nationals employed by the United Nations from national income taxation with respect to their salaries and emoluments paid to them by the United Nations, or in any other manner to grant relief for double taxation to such nationals.”

In this regard, the Delegation should state that the Congress of the United States has been requested to take the action recommended by the General Assembly, and it is hoped that Congressional action will be forthcoming either this fall or early next year. It is expected that the provisions of any legislation enacted will be made retroactive so that United States nationals would not pay a tax on the salaries they received during the calendar year 1949.

The legislation submitted to Congress would exempt from federal income tax the salaries paid by the United Nations to United States nationals on the Secretariat. The legislation provides, however, that while this income is not subject to tax, it shall be included in the individual’s gross income for the purpose of determining the rate of tax which should apply to any income the person may have from other sources. This was inserted in the bill in order to prevent the individual from getting a “windfall” by having his non-United Nations income taxed at a lower rate. The United States believes that this legislation, if enacted, would constitute full compliance with the General Assembly Resolution.

For the information of the Delegation, the tax legislation was submitted to Congress late in the session, only after it became clear that there would be no action on the Convention on Privileges and Immunities of the United Nations which also contains a tax exemption provision. The new bill has not yet been considered by the House Ways and Means Committee, and since this is a revenue bill which must originate in the House, the Senate Committee will not consider the bill until after the House passes it. It had been hoped that the House Committee would act on the bill during the month of August. The House of Representatives however, has virtually recessed for about a month, and it will probably be late in September before the Ways and Means Committee takes it up.

Nevertheless, there is still a possibility that Congressional action will be completed before the Congress adjourns (perhaps in October). If action is not completed, every effort will be made to secure Congressional action early in 1950. While there is doubt as to whether Congress will grant the requested tax exemption, it is believed that Congress will grant at least a “tax credit”. Such a credit would permit United States nationals to credit against taxes due to the United States sums paid to the United Nations under the staff assessment plan. Since the rates of the United Nations staff assessment plan are somewhat higher than current United States income tax rates, the United States nationals on the Secretariat will, generally, pay no tax to the United States. Provision for such tax credit would also constitute full compliance with the General Assembly Resolution of 1948.

So far as Canada is concerned, its Delegation has informally indicated that it will implement the General Assembly Resolution if the United States does. As of this writing, they have not yet taken action.

2. Provision for Reimbursement

In order to provide for the contingency that the United States and Canada might not take the action necessary to protect their nationals on the Secretariat against double taxation, the Third General Assembly authorized the Secretary-General to make reimbursement for taxes paid by Secretariat employees on salaries received during 1949, if necessary, drawing on the Working Capital Fund for this purpose.

Whether such reimbursement will be necessary depends, of course, on whether the United States and Canada take the action requested of them. If, when the General Assembly considers the matter, the action of both Governments in this regard is still uncertain, it will be necessary to provide for the contingency that reimbursement will be necessary and replenish the Working Capital Fund out of a special appropriation in the 1949 Supplemental Budget. The United States Delegation should oppose any proposal for a special assessment on the United States and Canada to replenish the Working Capital Fund for sums paid out in reimbursement of the nationals of these two countries for taxes paid to their Governments. The Delegation should indicate that the United States is unalterably opposed to special assessments in the implementation of general policies approved by the General Assembly and point out that tax reimbursement was authorized by an overwhelming majority of the General Assembly in a vote in which the United States abstained.

If United States and Canadian action on the 1948 Resolution is still uncertain, the General Assembly will also have to consider whether to provide for reimbursement for taxes which might be paid by United States and Canadian nationals on their 1950 salaries. It is hoped and believed that such reimbursement will not be necessary. It is advisable, however, that the Delegation not participate in the discussion or vote on this point. The United States agrees that equality of treatment with respect to salaries requires that all Secretariat officials regardless of nationality bear similar tax burdens. United States nationals on the Secretariat who, like their colleagues, pay a United Nations staff assessment should not therefore have to bear the burden of an additional national tax. For this reason, as has been indicated, the Executive has sought Congressional action to relieve these United States nationals from their Federal income tax. So long as Congress fails to act, the United Nations must choose between letting the United States nationals on the Secretariat bear the burden of two taxes, or relieve these United States nationals of this additional burden by reimbursement. The latter, of course, means that the general budget of the Organization will, in effect, be contributing to the United States and Canadian Treasuries in the amounts of these tax reimbursements. In the past, when faced with this dilemma, the United Nations has chosen to reimburse although the idea was not entirely popular with many Member delegations. In view of the fact that this difficult choice is, in a sense, imposed on the United Nations by the failure of the United States Congress to act, the United States, while it may prefer continuation of the reimbursement practice, should not participate in the decision. In no event will the United States agree to accept a special assessment to offset reimbursement if the latter is authorized.

1. Short form for the master files of the Reference and Documents Section of the Bureau of International Organization Affairs, Department of State.
2. Drafted in the Office of United Nations Affairs. For documentation regarding the organization and composition of the U.S. Delegation to this session of the General Assembly, see pp. 12 ff. The General Assembly convened at Flushing Meadow, New York, on September 20.
3. This was done in a letter of the Secretary of State to the President of the Senate (Vice President Barkley), dated July 25, 1949; for text of this letter and accompanying explanatory memorandum, see the Congressional Record, vol. 95, pt. 9, pp. 10397–10399. On July 29 Sen. George, Chairman of the Senate Finance Committee, introduced legislation to amend the U.S. Internal Revenue Code and that of the District of Columbia along the lines set forth in the Departmental communication (S. 2345). A similar bill was introduced in the House of Representatives on August 15 by Rep. Doughton, Chairman of the House Ways and Means Committee (H.R. 5993).