ARRANGEMENT BETWEEN THE UNITED STATES AND GERMANY GRANTING RELIEF FROM DOUBLE INCOME TAX ON SHIPPING PROFITS

811.512362Shipping/2: Telegram

The Ambassador in Germany (Houghton) to the Secretary of State

BERLIN, September 7, 1923—9 a. m. [Received 10:40 a. m.] 137. Department's 3163, February 5th.78 Embassy's 278, March 22nd, also diplomatic serial 117, May 16th, 1922.79

[Paraphrase.] I am transmitting herewith, at the urgent request of the Foreign Office, the substance of a note verbale dated September 5. The Hamburg-American Line is also interested in having Department informed by telegraph. [End paraphrase.]

"Commonwealth [Reich] Minister of Commerce [Finance] has instructed the financial authorities, in case of commercial companies whose seat and place of directing are in the United States of America, not to subject to the corporation tax the income which comes exclusively from the operation of ships and not to demand a corporationtax declaration as to the above-mentioned from the North American companies which maintain in Germany a branch office, and other place of operation, or a permanent representative.80 This instruction was issued on condition of reciprocity on the part of the United States and under the reservation that it may be recalled at any time.

The said Minister has furthermore declared his readiness to grant the favored treatment accorded to North American shipping companies also to citizens (individual persons) of the United States of America who carry on shipping traffic to Germany, if the Government of the United States grants reciprocity in the same degree."

German Foreign Office requests Embassy also to obtain a statement as to the attitude of the United States Government towards the question of exemption from taxation of the above-described individual persons.

HOUGHTON

811.512362 Shipping/

The German Embassy to the Department of State

[Translation 81]

The German Embassy has the honor to forward herewith to the Department of State an ordinance of the German Minister of Finance, III C 7412 of August 10 of this year, together with an English

translation, concerning the exemption of North American Steamship Companies from the payment of the German corporation tax. WASHINGTON, September 13, 1923.

[Enclosure Translation 82]

The German Minister of Finance (Hermes) to the Presidents of the State Finance Offices of Königsberg, Mecklenburg-Lübeck, Oldenburg, Schleswig-Holstein, Stettin, Unterelbe, and Unterweser

III C 7412

BERLIN, August 10, 1923.

Under section 213, subdivision 8, of the Revenue Act of 1921 of the United States of America, the income derived exclusively from the operation of a ship or ships of a foreign company is exempted from the income tax if the company is subject to the laws of a foreign state which grants reciprocal rights to the United States. At the instance of the Embassy of the United States of America, I declare myself as agreeing, upon the assumption of full reciprocity and with the reservation of the right of revocation at any time, under authority of section 108, subdivision 1, of the Federal Tax Law, that in the case of companies operated for profit, whose domicile and place of management is in the United States of America, the income which is derived exclusively from the operation of ships shall not be subjected to the corporation tax. A corporation-tax return for the aforesaid income is not to be required of North American companies which maintain in this country a branch or other place of operation or a permanent representative. I request that the finance offices charged with making the assessments be notified forthwith.

If in individual cases doubt should arise, I ask that report be made thereof.

Representing the Minister:

ZAPF

811.512362 Shipping/1: Telegram

The Secretary of State to the Ambassador in Germany (Houghton) 83

WASHINGTON, October 6, 1923—6 p. m.

79. Your 137, September 7, 9 A. M. Treasury Department states that it is necessary for a foreign government to exempt citizens of the United States not residing in the foreign country concerned as well as domestic corporations from tax on earnings from sources

File translation revised.

"On Oct. 8, 1923, the Embassy in Berlin presented a note verbale to the German Foreign Office in conformity with this instruction. For text of note verbale, see Department of State, Executive Agreement Series No. 17, p. 2.

within such country derived exclusively from the operation of ships in order that such country may satisfy the equivalent exemption provision of Section 213 (b) (8) of the Revenue Act of 1921.

Therefore, if the Minister of Commerce [Finance] will issue the same instructions to the financial authorities relative to citizens of the United States not residing in Germany as have been issued relative to domestic corporations Germany will, Treasury Department states, have satisfied the equivalent exemption provision referred to and as soon as that Department receives notice that the additional instructions have been issued it will issue a statement that Germany has satisfied this exemption provision.

If the instructions referred to above are issued, report telegraphically the date on which they become effective. Also, inform Department whether Germany has ever demanded or collected, or under the law may demand, any income tax from citizens of the United States not residing in Germany or domestic corporations on earnings derived from the operation of ships from January 1, 1921, to the date on which above instructions if issued become effective.

HUGHES

811.512362 Shipping/8

The Ambassador in Germany (Houghton) to the Secretary of State

No. 526

84 with

BERLIN, January 22, 1924. [Received February 12.] SIR: Referring to my telegram No. 21 of January 21st last,s regard to exemption from taxation of individual Americans engaged in shipping, who are non-resident in Germany, and of American shipping companies, I have the honor to transmit herewith a copy and translation of the note from the German Foreign Office, to which my telegram referred.

I have [etc.]

[Enclosure Translation 85]

A. B. HOUGHTON

The German Foreign Office to the American Embassy

No. V Steu 30

B 2556

NOTE VERBALE

The Foreign Office has the honor to inform the Embassy of the United States of America, in reply to the latter's note verbale of

October 27, 1923 (No. 543), and supplementing its own note verbale of September 5, 1923 (V Steu 1496),87 that, by an ordinance dated January 5, 1924, the Federal Minister of Finance has instructed the competent financial authorities that incomes derived from the operation of ships by citizens of the United States of America (individual persons) who have no residence in Germany are likewise to be exempted from the income tax, under the condition of reciprocity and the reservation of repeal at any time, as has already been ordered by a proclamation of August 10, 1923,89 relating to American commercial companies as affected by the corporation tax.

Furthermore, according to the investigations undertaken by the German Government, citizens of the United States who have no residence in Germany, as well as American shipping companies which receive their incomes from the operation of ships, have not been subjected in Germany to either the income or corporation tax since January 1, 1921.

The Foreign Office would be grateful for a statement as to whether now the Government of the United States of America will grant to German shipping companies and individual persons engaged in shipping the same exemption from taxation of incomes derived from the operation of ships, and particularly so with retroactive effect from January 1, 1921.

BERLIN, January 19, 1924.

811.512362 Shipping/9

The Secretary of State to the Ambassador in Germany (Houghton)

No. 3354

90

WASHINGTON, March 20, 1924. SIR: With reference to your telegram No. 21, of January 21st, 4 p. m., concerning the taxing by Germany of earnings derived from the operation of ships documented under the laws of the United States, the Department desires to advise you that a communication, dated March 3, 1924, of which a copy is enclosed for your information, has been received from the Treasury Department " stating that before making a rule on this subject, the latter desires to secure additional information from the German Government. Accordingly,

Not found in Department files.

90

See telegram No. 137, Sept. 7, 1923, 9 a. m., from the Ambassador in Germany, p. 188.

88

Post, p. 194.

82 Ante, p. 189. *Not printed.

please make a formal response to the Foreign Office's note of January 19, 1924 substantially as follows: 91

In the Ordinance of August 10, 1923, it is noted "that in the case of companies operated for profit, whose domicile and place of management is in the United States of America, the income which is derived exclusively from the operation of ships, shall not be subjected to the corporation tax. A corporation tax return for the aforesaid income is not to be required of North American companies which maintain in this country a branch or other place of operation or a continuous [permanent] representative."

Under this provision of the Ordinance of August 10, 1923, it appears that an American corporation whose place of management, for instance, is in London, might possibly be taxed while an American corporation whose place of management is in the United States or Germany, would be exempted. In order for individual Germans and German shipping companies to be entitled, under the provisions of American law, to the benefits of reciprocity in the matter of exemption from taxation, it would be necessary for the ordinance of August 10, 1923, to apply to all corporations organized in the United States regardless of the place of management.

Moreover, in order to enable the Government of the United States to pass upon the question as to whether equivalent exemption is applicable from January 1, 1921, the Treasury Department states that it will be necessary for the German Government to show that citizens of the United States non-resident as to Germany and domestic corporations have not been subjected to income and corporation tax since January 1, 1921, on the earnings derived from the operation of ships, and that they are exempt from such taxes and will not be required to pay the income and corporation tax on any income earned since January 1, 1921.

Please request the Foreign Office to expedite consideration of your response. When the Foreign Office shall have again replied, a copy thereof should be mailed to the Department with the following additional material bearing upon this subject.

(1) A copy of the Ordinance of January 5, 1924, exempting citizens of the United States not residing in Germany from tax on earnings derived from operation of ships:

(2) Translated copy of Section 108, subdivisional, of the Federal Tax Law of Germany.

I am [etc.]

For the Secretary of State:

J. BUTLER WRIGHT

91 On May 5, 1924, the Embassy in Berlin presented a note verbale to the German Foreign Office in conformity with this instruction. For text of note verbale, see Department of State, Executive Agreement Series No. 17, p. 5.