811.512352 Shipping/28
The Acting Secretary of State to the Spanish Ambassador (Padilla)
Excellency: I have the honor to refer to previous correspondence concerning the desire of Spanish nationals to be exempted from income taxation in this country on revenue derived from the operation of Spanish ships and to inform you that a communication in the matter has been received from the Treasury Department, the pertinent portions of which are quoted hereunder. You will observe that the Treasury Department is of the opinion that Spain meets the reciprocal exemption provisions of the Revenue Acts of 1921, 1924 and 1926, and that accordingly the income of Spanish nationals which consists exclusively of earnings derived from the operation of the ships documented under the laws of Spain will be exempt from taxation by the United States under those Acts.
“The question which has been the subject of correspondence between the Department and the Spanish Government is whether the Compañía Transatlántica (Spanish Royal Mail Line) may be accorded exemption from income tax with respect to income derived from sources within the United States, in accordance with section 213 (b) (8) of the Revenue Acts of 1921, 1924, and 1926, which reads as follows:
‘The term “Gross income” does not include the following items, which shall be exempt from taxation under this title—
‘(8) The income of a nonresident alien or foreign corporation which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States.’
“It appeared from the statements made in the communication from the Spanish Government that although American shipping companies [Page 810] had never been subjected to income tax in Spain, that country did not under all circumstances exempt the profits derived by American corporations from the operation of ships documented under the laws of the United States, but, in the case of American corporations carrying on other business in Spain and also the operation of ships, Spain taxed the shipping profits as well as the profits from other business. In a letter to the Compañía Transatlántica, dated August 2, 1929,5 a copy of which was sent to your Department on the same date with the request that it be forwarded to the Spanish Embassy, it was indicated that if the Spanish Government would issue a decree or make a statement to the effect that in the administration of the Spanish income tax laws a corporation organized in the United States and a citizen of the United States not residing in Spain exercising maritime traffic in Spanish ports by means of ships documented under the laws of the United States, have not been subjected to income tax on that portion of their income derived from the operation of such ships from January 1, 1921, and that Spain does not and will not under its present law tax such income, this Department will issue a statement to the effect that Spain meets the equivalent exemption requirement from January 1, 1921.
“The letter of February 11, 1930, from the Spanish Embassy,5 transmitted a copy of a statement from the Secretary General at Madrid, dated January 10, 1930, in which it is stated that the Ministry of Finance has given very special consideration to the proposition of the United States Government in connection with the provisions of the Spanish income tax law of 1922, which provides that the existence in the Kingdom of Spain of consignees or agents of shipping companies whose ships call at the ports of Spanish provinces in navigation of 2nd and 3rd class only, does not create in and of itself the obligation to pay taxes under tariff 3a, and that on the other hand, taxes will be assessed on foreign companies which by means of permanent plants, engage in marketing operations in Spain, even though they have no established agency in the Kingdom. But the Spanish Ministry of Finance, taking as its own the opinion of the Treasury Department of the United States, has deemed it advisable to give the aforesaid provisions the necessary elastic interpretation, adopting, therefore, the following views on the subject: First.—That the mere existence in the Kingdom of consignees or agents of shipping companies whose ships call at the ports of Spanish provinces in navigation of 2nd and 3rd class only, does not create in and of itself the obligation to pay taxes under said tariff, for the aforementioned companies. Second.—That in case said companies will be engaged in any business other than navigation in the Kingdom, the ‘Jurado de Utilidades’ (Tax Commission), will decide the proportion in which said business will exist with other business engaged in by the company, in order that the exemption of income tax may thus be respected, if on the part of the country to which the company belongs there exists reciprocity for the Spanish companies in similar cases, notwithstanding that the proportion of the business not exempted will be subject to the general regime of taxation.
[Page 811]“It was further stated that having in mind that the text of the Spanish Income Tax Law of 1922, now in force, is a consolidation of former texts, and that one of them, the Royal Decree of October 19, 1920, establishes the above mentioned exemption from the date of its issue, the retroactivity will be adjudged from the date of the Royal Decree of October 19, 1920.
“It is understood that the effect of the foregoing statement from the Spanish Ministry of Finance is to exempt from taxation by the Government of Spain, the income of citizens of the United States and of corporations organized in the United States which consists exclusively of earnings derived from the operation of ships documented under the laws of the United States, such exemption being retroactive to October 19, 1920. This Department is of the opinion, therefore, that Spain meets the reciprocal exemption provisions of the Revenue Acts of 1921, 1924, and 1926, and accordingly the income of Spanish nationals which consists exclusively of earnings derived from operation of the ships documented under the laws of Spain will be exempted from taxation by the United States under those Acts. Inasmuch as sections 212 (b) and 231 (b) of the Revenue Act of 1928,6 relating to exemption of the income of non-resident aliens and foreign corporations, are substantially the same as section 213 (b) (8) of the Revenue Acts of 1921, 1924, and 1926, the exemption will be extended to the taxable years governed by the Revenue Act of 1928.”
Accept [etc.]