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The Secretary of State to Diplomatic and Consular Officers
Consular No. 871
Status in Foreign Countries of Vessels and Representatives of the United States Shipping Board
Gentlemen: Frequent inquiries have been made concerning the exemption of Shipping Board vessels and representatives of the Shipping Board in foreign countries from taxation, and the following statement of the views of the Department regarding the status and immunities in foreign countries of vessels of the United States Shipping Board, and of Shipping Board representatives, is submitted for the information and guidance of American Diplomatic and Consular Officers in maritime countries.
[Page 268]1. suits against shipping board vessels in foreign courts
The Department does not regard Government owned or operated vessels when engaged in commercial work to be entitled to immunity as public vessels and when the Department has been requested by diplomatic representatives of foreign governments to inform our courts that such vessels were immune, it has declined to comply with the request. It accordingly has also declined to request foreign governments to grant immunity to Shipping Board vessels when arrested in foreign ports on judicial process.
Lower Federal courts of the United States have held that merchant vessels owned and operated by foreign governments are not immune from arrest upon process issued from the Admiralty Courts of the United States and unless these decisions are reversed by the Supreme Court of the United States, the Department will continue its past practice of declining to request foreign governments to grant Shipping Board vessels immunity from judicial process in foreign courts.
In this relation it may be of interest to note that the chairman of the Shipping Board in a recent letter to the Department2a states that he “is heartily in favor of Government-owned ships in commercial work being subject to all the laws” which apply to privately owned ships. Attention is also invited to Section 7 of the Suits in Admiralty Act approved March 9, 1920, (41 Stat. L. 525), which was referred to in Special Consular Instruction No. 722, of May 21, 1920, and which provides among other things that American Consular officers may execute bonds under which the United States undertakes to satisfy judgments that may be rendered against the United States Shipping Board vessels in foreign ports. Reference is also made to the decision of the Supreme Court of the United States rendered May 1, 1922, in the case of the Sloan Shipyards Corporation vs. the United States Shipping Board Emergency Fleet Corporation2b that the defendant was not a governmental agency to such an extent that it was immune from suit in the courts of the United States.
2. customs duties on merchandise imported for shipping board vessels
This Government does not exempt foreign governments from the payment of customs duties on materials brought into the United States for use in repairing merchant vessels owned or operated by them.2c It accordingly declines to request foreign countries to exempt the Shipping Board from the payment of such customs duties on materials [Page 269] imported into such countries for repairing Shipping Board vessels.
3. income taxes on earnings of shipping board vessels
Foreign governments are not taxed on incomes consisting of earnings derived in the United States from the operation of merchant vessels belonging to or operated by them and the Department has in the past endeavored to obtain an exemption, as a matter of comity, for the Shipping Board in certain foreign countries in which steps were taken to collect income taxes on the earnings of Shipping Board vessels. The matter was, however, not pressed as a matter of right.
Section 213(b) (5) and (8) of the Revenue Act of 1921 approved November 23, 1921, (42 Stat. L. 227 [237] 239), contain the following provisions:
“Sec. 213. That for the purposes of this title (except as otherwise provided in section 233) the term ‘gross income’—
. . . . . . . . . . . . . .
“(b) Does not include the following items, which shall be exempt from taxation under this title:
. . . . . . . . . . . . . .
“(5) The income of foreign governments received from investments in the United States in stocks, bonds, or other domestic securities, owned by such foreign governments, or from interest on deposits in banks in the United States of moneys belonging to such foreign governments, or from any other source within the United States.
. . . . . . . . . . . . . .
“(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.”
You will observe that provision is made for the exemption from taxation of any income received by a foreign government from sources within the United States and also for the exemption from taxation of the income of a nonresident alien individual or a foreign corporation which consists of the earnings derived from the operation of vessels documented under the laws of a foreign country which grants the equivalent exemption to citizens of the United States and to corporations organized in the United States.
4. income taxes on earnings of representatives of the united states shipping board in foreign countries
As the Treasury Department has ruled that an alien who is a resident of the United States is subject to income tax upon payments made to him by a foreign government for services rendered in this [Page 270] country to that government in the conduct by it of a commercial enterprise, and as representatives of the United States Shipping Board in foreign countries enjoy neither a diplomatic nor a consular status, the Department has not been in a position to request foreign governments to grant them special exemptions from taxation.
The information contained in this instruction is for use by the representatives of this Government, but should not be communicated to private interests or foreign governments except pursuant to specific instructions from the Department.
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