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Immunity From Taxation of Foreign State-Owned Property

Published online by Cambridge University Press:  20 April 2017

Wm. W. Bishop Jr.
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Extract

Recent press and Congressional discussion regarding the question of French taxation of property in France owned by the United States Government and used for mutual defense purposes suggests the desirability of considering whether international law forbids a state to impose taxes on public property owned by another state.

Type
Research Article
Information
American Journal of International Law , Volume 46 , Issue 2 , April 1952 , pp. 239 - 258
Copyright
Copyright © American Society of International Law 1952

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References

1 New York Herald Tribune, Sept. 28, 1951, p. 3, col. 8; New York Times, Sept. 26, 1951, p. 9, col. 1.

2 97 Cong. Rec. 12449–50 (Sept. 26, 1951, Senate); Hearings before Committee on Foreign Relations and Committee on Armed Services, U. S. Senate, 82nd Cong., 1st Sess., on S. 1762, Mutual Security Act of 1951 (July 26–Aug. 9, 1951), pp. 25–26, 701–718.

3 C. C. Hyde, International Law (2nd ed., 1945), Vol. II, p. 847.

4 Regarding diplomatic immunity from taxation see 4 Hackworth’s Digest of International Law 566 (1942); Harvard Research in International Law, Diplomatic Privileges and Immunities, this Journal, Supp., Vol. 26 (1932), pp. 57, 114.

5 Regarding consular exemption from taxation see 4 Hackworth, op. cit. 774 (1942); Harvard Research in International Law, Legal Position and Functions of Consuls, this Journal, Supp., Vol. 26 (1932), p. 346.

6 2 Hackworth, op. cit. 465 (1941). The Department took a similar position in 1919 with respect to a tax imposed by the City of Paterson, New Jersey, on certain railway locomotives belonging to the Russian Government and stored in that city, concluding that “there is no rule of international law or comity which would be violated should taxes be imposed on the property in question and collected.” (Ibid. 467.)

7 French Republic v. Board of Supervisors of Jefferson County, 200 Ky. 18, 21–22, 252 S.W. 124 (1923).

8 200 Ky. 18, at pp. 20–21.

9 74 N.Y.L.J., Dee. 30, 1925, p. 1279 (Special Term, Kings County, 1925).

10 V Op. Att. Gen. Mass. 445.

11 Schooner Exchange v. M’Faddon, 7 Cranch (U. S.) 116 (1812); Briggs v. Light Boats, 11 Allen (Mass.) 157 (1865); Mason v. Intercolonial Ry., 197 Mass. 349, 83 N.E. 876 (1908).

12 Hackworth’s Digest 467.

13 See $ 213 (b) (5) of the Revenue Act of 1924 (43 Stat. 253, 268), and $ 116 (e) of the Revenue Act of 1936 (49 Stat. 1648, 1689) ; 2 Prentice-Hall Federal Tax Service ¶16, 401. In connection with Republic of France v. City of New York, note 9, supra, it may be noted that this exemption from income tax does not apply to a corporation wholly owned by a foreign government, since “a corporation is an entity separate and distinct from its sole stockholder.” 2 Prentice-Hall Federal Tax Service ¶16, 412.

There appear to have been doubts regarding excise taxes on telephone and telegraph messages, and on transportation, where the tax was imposed on an officer of a foreign government and in fact paid by that government (see 4 Hackworth, op. cit. 775). Since 1943 this has been clarified by the Treasury Department’s regulation M.T.7 to the effect that “Consular officers of foreign governments, and other officers (other than diplomatic representatives), as well as agencies and commissions, of foreign governments are not required to pay Federal excise taxes, the legal incidence of which would otherwise fall upon them, in respect of transactions arising in the performance of their official functions for which payment is made by the foreign government.” (Internal Revenue Bulletin, April 11, 1943, No. 7, p. 107, 4 Prentice-Hall Federal Tax Service ¶ 39, 375.)

14 See 2 Hackworth, op. cit. 469.

15 Ibid. When a California sales tax was collected on oil sold a British naval vessel, Secretary Hull wrote the Governor of California in 1934 that “This Government has supported the view that American war vessels are exempt from the payment of such taxes in foreign countries,” and pointed to the trouble in sustaining such a claim if foreign vessels were taxed here. The Governor’s office replied that the California tax was imposed on the retailer rather than the purchaser, and said that the British Government should apply to the oil company for a refund and the company should then apply to the State for a like refund. (Ibid. 414.)

In 1925 the Chinese Government admitted free of duty materials and machinery imported by the United States Government for construction of river gunboats in China for the American Navy. (Ibid. 415.)

Asking that New York City refrain from imposing a sales tax on the purchase by the Ecuadorean Government of a vessel for use as a naval training ship, Secretary Hull wrote in 1935 that: “It is well settled in international law that the public property of foreign governments is not amenable to the local jurisdiction for tax purposes.” The tax was waived by the City. (Ibid. 415–416.)

16 Apparently published only as quoted in opinion of Attorney General Pallotti of Connecticut, Aug. 25, 1942, 22nd Biennial Report of Attorney General of Connecticut 414. This exchange of notes was also quoted in the opinion of the Assistant Attorney General of Michigan, and opinion NS-4136 of the Attorney General of California, both discussed infra.

17 22nd Biennial Report of Attorney General of Connecticut 236.

18 Ibid. 414.

19 Ms. copy of opinion made available to the writer by Assistant Attorney General Holbrook.

20 Opinion of April 25, 1941, 26th Biennial Report of the Attorney General of Washington (1941–1942) 10, 11.

21 Letter of May 14, 1945, from Attorney General Ralph W. Farris to Governor Hildreth, quoted in later opinion of Attorney General ruling that diplomatic and consular officers could not be exempted from motor fuel tax, and published in Report of Attorney General, State of Maine, 1947–1948, p. 110.

22 71 Jurisprudencia Argentina 400; Annual Digest, 1941–42, Case No. 52.

23 See Harvard Research in International Law, Competence of Courts in Regard to Foreign States, Art. 10 of Draft Convention, this Journal, Supp., Vol. 26 (1932), p. 590, and material there cited; B. W. Allen, Position of Foreign States before National Courts (1933), pp. 18, 226, 261, 301.

24 The exemption of embassy and legation property from taxation seems to be clearly included within the generally recognized diplomatic immunities, except insofar as local taxation may be in the nature of charges for commodities supplied or services rendered, such as water rates.

25 4 Hackworth’s Digest 783–784.

26 3 Op. Att. Gen. Cal. 102, 104.

27 An examination of the works by Conlon referred to, “Express or Implied Exclusions from Consumption Excises,” 8 Law and Contemporary Problems 594, 600–601 (1941), and Diplomatic and Consular Immunity from Taxation (Fed. Tax Adm’rs Research Rept., No. 9, 1940), shows that the discussion relates solely to personal exemptions of diplomatic and consular officers from taxation on their own property; there is no reference to or discussion of exemption of property owned by a foreign state or government.

28 Cf. Opinion NS-5552, June 21, 1944, 3 Op. Att. Gen. Cal. 393, concerning the personal property of an officer of the Agency, in which it was said that “Diplomats are the only public officers of foreign countries accorded personal tax immunity by international usage. … Even in the case of consuls affirmative action by various nations in the form of legislation or treaty has been necessary for them to attain tax exemption.” The same two works by Conlon were cited.

29 4 Op. Atty. Gen. Cal. 382.

30 6 Op. Atty. Gen. Cal. 287.

31 Opinion 45–311, 6 Op. Atty. Gen. Cal. 289, 290.

32 Opinion 0–5031, made available by the kindness of Attorney General Price Daniel.

33 This Journal, Supp., Vol. 26 (1932), p. 333.

34 Ibid., pp. 333–335.

35 44 Stat. 2132; U. S. Treaty Series 725; this Journal, Supp., Vol. 20 (1926), p. 4. With the quoted paragraph should be contrasted the preceding paragraph of the same article, under which tax exemption of consular officers specifically does not cover “taxes levied on account of the possession or ownership of immovable property situated in, or income derived from property of any kind situated or belonging within the territory of the State within which they exercise their functions.”

Provisions like those quoted from the German treaty are contained in U. S. treaties with Estonia, Art. 18 (Dee. 23, 1925), U. S. Treaty Series 736, 44 Stat. 2379; Hungary, Art. 16 (June 24, 1925), U. S. Treaty Series 748, 44 Stat. 2441; Cuba, Art. 6 (April 22, 1926), U. S. Treaty Series 750, 44 Stat. 2471; Honduras, Art. 18 (Dec. 7, 1927), U. S. Treaty Series 764, 45 Stat. 2618; Latvia, Art. 19 (Apr. 20, 1928), U. S. Treaty Series 765, 45 Stat. 2641; El Salvador, Art. 17 (Feb. 22, 1926), U. S. Treaty Series 827, 46 Stat. 2817; Austria, Art. 15 (June 19, 1928), U. S. Treaty Series 838, 47 Stat. 1876; Poland, Art. 18 (June 15, 1931), U. S. Treaty Series 862, 48 Stat. 1507; Finland, Art. 21 (Feb. 13, 1934), U. S. Treaty Series 868, 49 Stat. 2659; Siam, Art. 14 (Nov. 13, 1937), U. S. Treaty Series 940, 53 Stat. 1731; Liberia, Art. 3 (Oct. 7, 1938), U. S. Treaty Series 957, 54 Stat. 1751. A somewhat fuller form is used in the Consular Convention of March 14, 1947, with the Philippines, Art. 3, Treaties and Other International Acts Series (T.I.A.S.), No. 1741. In the Consular Convention of Jan. 12, 1948, with Costa Rica, Art. V, T.I.A.S., No. 2045, exemptions are even more explicitly provided for real or personal property owned by the sending state and used for consular purposes. To similar effect, see the draft Consular Convention with the United Kingdom, signed June 6, 1951, Art. 12, Senate Ex. O, 82nd Cong., 1st Sess.

The only recent consular convention signed by the United States which does not provide for tax exemption of property owned by the sending state and used for consular purposes appears to be that with Mexico, Aug. 12, 1942, U. S. Treaty Series 985, 57 Stat. 800.

36 Tin-Tso Hsiung v. Toronto, [1950] 4 D.L.R. 209, digested in this Journal, Vol. 45 (1951), p. 595. Although it appeared that the premises were held by the Consul General in trust for the Government of the Chinese Republic, the court treated the land and premises as being the property of the Chinese Republic.

37 Reference re Power of Municipalities to Levy Rates on Foreign Legations and High Commissioners’ Residences, [1943] 2 D.L.R. 481 (Supreme Court of Canada, 1943).

38 The case is of particular interest in view of Michigan State Bridge Commission v. Point Edward, [1939] 3 D.L.R. 533, in which the Ontario Court of Appeal held that a Michigan governmental body as owner of the international bridge from Port Huron to Point Edward was not entitled to immunity from taxation. The Ontario court said in that case that plaintiff Michigan political subdivision was not exercising any functions in Ontario other than those of its transferror, a private Canadian company which had been granted powers to construct and maintain the bridge. An editorial note to the 1939 opinion reads: “Apart from the law’s recognition of diplomatic immunity, purely as a matter of grace, foreign States are entitled to no special privileges or exemptions from the general law of the land.” (p. 533.)

Similarly in 1942 the Supreme Court of Ceylon held in Superintendent of the Government Soap Factory, Bangalore, v. Commissioner of Income Tax, 43 New Law Reports, Ceylon, 439, that the profits made in Ceylon by the Mysore Government Soap Factory could be taxed by Ceylon without violation of international law. The Ceylon court held that the State of Mysore had no position in international law and could not invoke any immunity arising by virtue of international law. The court added: “There appears, however, to be no principle of International Law precluding the legislature from enacting legislation imposing on a foreign State liability to pay income tax. On the other hand, unless the foreign State submits to the jurisdiction, there is no power or authority to enforce such liability.”

39 See, for example, agreements between the United States and Belgium, effected by notes exchanged June 6 and July 23, 1947, T.I.A.S. 1672, 61 Stat. 3352; Italy, Sept. 13 and 24, 1946, T.I.A.S. 1713, 61 Stat. 3750; France, Oct. 1, 1947, T.I.A.S. 1720, 61 Stat. 3767; Hungary, June 18, July 25, and Aug. 9, 1946, T.I.A.S. 1748, 61 Stat. 3898; The Netherlands, April 11, 1947, T.I.A.S. 1777, 61 Stat. 4037; Rumania, June 19 and 28, 1946, T.I.A.S. 1796, 61 Stat. 4042.

40 See, for example, Agreement with Denmark for the Defense of Greenland, April 9, 1941, Ex. Agr. Ser. 204, 55 Stat. 1245; Agreement with Liberia for Construction of a Port, Dec. 31, 1943, Ex. Agr. Ser. 411, 58 Stat. 1357; Agreement with Canada on Provincial and Municipal Taxation on United States Defense Projects, Aug. 6 and 9, 1943, Ex. Agr. Ser. 339, 57 Stat. 1065.

Covering primarily duty-free treatment and exemption from internal taxation on importation or exportation of property, see for example Agreement with the Philippines, March 14, 1947, T.I.A.S. 1775, 61 Stat. 4019; and Mutual Defense Assistance Agreements signed Jan. 27, 1950, with Belgium, T.I.A.S. 2010; Denmark, T.I.A.S. 2011; France T.I.A.S. 2012; Italy, T.I.A.S. 2013; Luxembourg, T.I.A.S. 2014; The Netherlands, T.I.A.S. 2015; Norway, T.I.A.S. 2016; signed January 26, 1950, with Korea, T.I.A.S. 2019; and May 23, 1950, with Iran, T.I.A.S. 2071.

41 Treaty of Friendship, Commerce and Navigation with Italy, signed Feb. 2, 1948, T.I.A.S. 1965, Art. 24, par. 6. To like effect, see Art. 15 of the Treaty of Friendship, Commerce and Navigation with Ireland, signed Jan. 21, 1950, T.I.A.S. 2155; Art. 18 of the Treaty of Friendship, Commerce, and Economic Development with Uruguay, signed Nov. 23, 1949, Senate Ex. D, 81st Cong., 2d Sess.; Art. 14, Treaty of Friendship, Commerce and Navigation with Greece, signed Aug. 3, 1951, with Department of State Press Release No. 700, Aug. 3, 1951; Art. 18, Treaty of Friendship, Commerce and Navigation with Israel, signed Aug. 23, 1951, Senate Ex. R, 82nd Cong., 2d Sess.; Art 18, Treaty of Friendship, Commerce and Navigation with Denmark, signed Oct. 1, 1951 Senate Ex. I, 82nd Cong., 2d Sess.

42 See Harvard Research in International Law, Art. 9, loc. cit. (supra, note 23), pp. 572–590; C. Fairman, “Some Disputed Applications of the Principle of State Immunity,” this Journal, Vol. 22 (1928), p. 566; Allen, op. cit (supra, note 23), at p. 15.

43 Long v. The Tampico, 16 Fed. 491 (S.D.N.Y. 1883); The Johnson Lighterage No. 24, 231 Fed. 365 (D.N.J. 1916); The Navemar, 303 U. S. 568 (1938); Ervin v. Quintanilla, 99 F.(2d) 935 (5th Cir., 1938). Cf. Republie of Mexico v. Hoffman, 324 U. S. 30 (1945).

44 Hassard v. United States of Mexico, 29 Misc. (N. Y.) 511, 512 (1899), affirmed on opinion below, 46 App. Div. 623, 61 N. Y. Supp. 939 (1st Dept., 1899); aff’d. 173 N. Y. 645, 66 N. E. 1110 (1903).

45 Vavasseur v. Krupp, 9 Ch. Div. 351 (Ct. App. 1878); Berizzi Bros. Co. v. S. S. Pesaro, 271 U. S. 562 (1926); Banque de France v. Equitable Trust Co., 33 F.(2d) 202 (S.D.N.Y. 1929); Auer v. Costa, 23 F. Supp. 22 (D. Mass., 1938) ; 2 Moore’s Digest 591; I Oppenheim, International Law (7th ed., 1948) $ 115a; Hyde, International Law (2d ed., 1945), Vol. 2, pp. 844–845; Fenwick, International Law (3d ed., 1948), p. 308. Cf. Loewenfeld, “Some Legal Aspects of the Immunity of State Property,” 34 Grotius Society Transactions (1948) 111.

46 Dexter and Carpenter v. Kunglig Jarnvagsstyrelsen, 43 F.(2d) 705 (2d Cir., 1930), this Journal, Vol. 25 (1931), p. 360, cert, den., 282 U. S. 896 (1931); Duff Development Co. v. Government of Kelantan, [1924] A.C. 797; von Hellfeld v. Fiskus des Russischen Belches, 29 Zeitschrift für Internationales Recht 417 (1910), translation in this Journal, Vol. 5 (1911), p. 490.

47 See Harvard Research in International Law, Competence of Courts in Eegard to Foreign States, this Journal, Supp., Vol. 26 (1932), p. 451; E. W. Allen, Position of Foreign States before National Courts (1933), pp. 301–302; Hervey, “Immunity of Foreign States When Engaged in Commercial Enterprise,” Mich. Law Rev., Vol. 27 (1929), p. 751; Fensterwald, “Sovereign Immunity and Soviet State Trading,” Harv. Law Rev., Vol. 63 (1950), p. 614; note, Yale Law Journal, Vol. 58 (1948), p. 176.

48 See Judge Mack’s opinion in The Pesaro, 277 Fed. 473 (S.D.N.Y. 1921); Justice Frankfurter’s concurring opinion in Republic of Mexico v. Hoffman, 324 U. S. 30, 38 (1945). On April 9, 1948, a press officer of the Department of State announced that the policy of requesting immunity for foreign government-owned and government-operated merchant vessels might be reconsidered. The New York Times, April 10, 1948, p. 27, col. 3.

49 See Secretary of State Lansing to the Attorney General, Nov. 3, 1918, 2 Hackworth’s Digest 429; Department of State to Italian Embassy, March 31, 1921, ibid. 437; communication from Department of State on Aug. 2, 1921, quoted in The Pesaro, 277 Fed. 473, 479–480, note 3 (S.D.N.Y. 1921).

50 See note 6 supra.

51 See p. 240 supra.

52 See note 41 supra.