TREATIES AND EXECUTIVE AGREEMENTS the power to implement the obligation to limit manufacture of these dangerous the type held valid in Missouri v. Holland (252 U. S. 416). ANALYSIS BY THE COMMISSIONER OF INTERNAL REVENUE OF THE EFFECTS OF SENATE Senate Joint Resolution 130 would propose to the legislatures of the States an amendment of the Constitution, sections 3 and 4 of which would contain certain provisions in which this Bureau is interested. Section 3 would provide that no treaty or executive agreement shall alter or abridge the laws of the United States or the Constitution or laws of the States unless, and then only to the extent that, Congress shall so provide by act or joint resolution. Section 4 would provide that executive agreements shall not be made in lieu of treaties, and that executive agreements, unless sooner terminated, shall expire 1 year after the end of the term of office for which the President making the agreement shall have been elected, unless Congress, at the request of the President, extends for the duration of his term the life of any such agreement made or extended during the next preceding Presidential term. TREATIES The United States now has income-tax treaties in effect with 10 countries and treaties with respect to taxes on estates of deceased persons with 5 countries. With certain countries, tax treaties have been signed and are awaiting exchanges of ratification. Treaties with other countries are being negotiated. All treaties are published in full in the State Department's Treaties and Other International Acts Series. The treaties are implemented by Treasury Department regulations, in the form of Treasury decisions, signed by the Commissioner and approved by the Secretary. Each Treasury decision includes within its text the treaty on which it is based and is published in full in the Federal Register, in conformity with section 7 of the Federal Register Act and section 3 (a) of the Administrative Procedure Act (44 U. S. C. 307; 5 U. S. C. 1002 (a)). The application to tax treaties of section 3 of the proposed article amendatory of the Constitution is not clear. Tax treaties do not alter or abridge the Constitution or laws of the States. The line of demarcation between the powers of the Federal and State Governments relative to taxation is fairly well drawn. Treaties entered into pertaining to Federal taxes would thus hardly encroach upon State law. They would, however, frequently alter or abridge provisions of the laws of the United States, namely, the internal-revenue laws. In this respect, there is no way of ascertaining from the resolution the extent to which permissive legislative authority from the Congress would be required. Various provisions of the Internal Revenue Code provide for tax treatment, under treaty provisions, of items of income in a manner or at a rate otherwise than that provided in the code. If the amendment should be adopted, it would be necessary to ascertain whether such code provisions would constitute legislative assent with respect to treaties affecting such provisions. The principal provisions of such sections are set forth below: Section 22 (b) (7) excludes from gross income, for purposes of determining the income tax, income to the extent required by any treaty obligation of the United States. Section 143 (b) requires all persons having control, receipt, custody, disposal, or payment of certain fixed or determinable annual or periodical gains, profits, and income constituting gross income from sources within the United States, of any nonresident alien individual, or of any partnership not engaged in trade or business in the United States and composed in whole or in part of nonresident aliens, to withhold from such gains, profits, and income a tax equal to 30 percent, except that such withholding rate may be reduced, in the case of a nonresident alien individual a resident of any country in North, Central, or South America, or in the West Indies, or of Newfoundland, to a rate of not less than 5 percent as may be provided by treaty. Section 144 contains a provision generally similar with respect to nonresident foreign corporations subject to the income tax, when not engaged in trade or business in the United States. Section 211 (a) imposes upon nonresident alien individuals not engaged in trade or business within the United States, from sources within the United States, a tax of 30 percent on fixed or determinable annual or periodical gains, profits, and income, except that such rate may be reduced in the case of a nonresident alien individual a resident of any country in North, Central, or South America, or in the West Indies, or of Newfoundland, to a rate of not less than 5 percent as may be provided by treaty. Section 231 (a) (1) contains a provision generally similar with respect to nonresident foreign corporations subject to the income tax, when not engaged in trade or business in the United States. Section 212 (b) excludes from gross income of a nonresident alien individual earnings derived from the operation of any ship documented under the laws of a foreign country and earnings derived from the operation of aircraft registered 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. Section 231 (d) contains a provision generally similar with respect to nonresident foreign corporations subject to the income tax, when not engaged in trade or business within the United States. Revenue acts amending the Internal Revenue Code generally contain specific provisions that no amendment made by such acts shall apply in any case where its application would be contrary to any treaty obligation of the United States (See section 615, Revenue Act of 1951). Since the provisions of the code mentioned above are of prospective application, it would seem that by virtue of those provisions, it could well be contended that Congress would have provided by legislation, within the terms of section 3 of the proposed constitutional amendment, for those tax treaties which may be hereafter adopted, so long as they would be limited to the scope of those particular sections of the code. Such treaties would provide, just as numerous treaties now provide, for example, that interest or dividends paid by a corporation organized under the laws of one of the treaty countries are exempt from United States tax where the recipient is not a citizen, resident, or corporation of the United States; that compensation for personal services shall be taxable only in the contracting state in which the services are performed, or that such compensation for services rendered by residents of the treaty states is exempt if the residents are stationed in the other state for not more than 183 days in a year; that certain pensions and annuities derived from sources within a treaty state by a resident of the other state are exempt from tax by such treaty state; or that remittances received by students who reside in the other treaty state for purposes of study are exempt from tax by the treaty state in which residing. Such provisions are but an illustration of a much larger number of treaty provisions which could be said to be adopted by virtue of section 22 (b) ·(7) of the code. By virtue of the power of the President, however, to make treaties by and with the advice and consent of the Senate, as provided in article II, section 2, clause 2, of the Constitution, treaties have been adopted respecting many matters of taxation which are not authorized by any provision of the internal-revenue laws. Thus, treaties provide that with respect to countries other than those in North, Central, or South America, or the West Indies, or of Newfoundland, the rate of withholding on annual or periodical gains, profits, and income constituting gross income in the United States of individuals residing in, or corporations organized under the laws of, the other treaty state shall be at a rate less than 30 percent, notwithstanding sections 143 and 144 of the code. Other treaties contain provisions with respect to taxes on the estates of deceased persons and thus apply provisions contrary to those contained in chapter 3 of the code relating to estate taxes. In view of the foregoing, it is clear, that, should the proposed amendment be adopted, treaties providing for tax treatment in a manner contrary to the internal-revenue laws would require congressional assent in the form of legislation. Whether that assent would be considered as already given by Congress with respect to the provisions of the code now providing for variation of such provisions by treaty is in doubt. To the extent that congressional assent would be required by act or joint resolution, the uncertainty of such legislation, the delay incident thereto, and the possible alterations and omissions which either House of Congress might insist upon would introduce complications which the other contracting state might well find intolerable. Thus, these possibilities may cause any foreign country to be unwilling to negotiate a tax treaty. EXECUTIVE AGREEMENTS Numerous executive agreements in a limited field respecting internal revenue have been formally executed and published in the State Department's Treaties and Other International Acts Series and the former Executive Agreement Series. Treasury decisions are not issued to give them effect and they are not published in the Federal Register. They relate only to sections 212 (b) and 231 (d) of the Internal Revenue Code with respect to the exclusion from gross income of earnings of a nonresident alien or nonresident foreign corporation derived from the operation of any ship documented under the laws of a foreign country or from the operation of aircraft registered under the laws of a foreign country granting an equivalent exemption to United States citizens and corporations. Such executive agreements are divisible into two classes. In the first class, the executive agreement may serve as evidence of the fact of reciprocity on which the exclusion from gross income is based. If the country of the nonresident alien or foreign corporation does in fact grant an equivalent exemption to United States citizens and corporations, such nonresident alien or foreign corporation will not be required to prove the fact but may instead rely upon the executive agreement. If the foreign country grants an equivalent exemption but an executive agreement has not been entered into, the taxpayer may be required to present evidence satisfactory to the Bureau respecting the required equivalent exemption. In the second class, the executive agreement would not merely be evidence of the exemption but would by its own terms create the exemption. As indicating the alternative use made of executive agreements and treaties with respect to exclusion of income under sections 212 (b) and 231 (d), it is noted that all of the 10 income tax treaties as to which ratifications have been exchanged, as well as many executive agreements, give effect to such sections. In this connection, the first paragraph of section 4 of the proposed amendment provides that executive agreements shall not be made in lieu of treaties. A liberal construction of this provision could probably discontinue the use of executive agreements respecting exclusion of income under sections 212 (b) and 231 (d). If, however, it would not have this effect and if it should be determined that congressional assent has already been given to the making of these executive agreements, there would be no reason why they should not continue to be made just as at present, subject to the expiration and renewal provisions of the second paragraph of the proposed amendment. Senate Joint Resolution 130 is silent as to whether the amendment would apply to executive agreements in force prior to its adoption or whether it would have application only with respect to such agreements as would be made subsequent to such time. TREATIES AND EXECUTIVE AGREEMENTS AFFECTING OPERATIONS OF THE COAST GUARD TREATIES AND CONVENTIONS RATIFIED BY THE PRESIDENT WITH THE ADVICE AND CONSENT OF THE SENATE Maritime safety International conventions for the safety of life at sea (1914, 1929, 1948): These conventions are the basic documents controlling regulations for the safety of life at sea on the international level. They include provisions relating to the construction of vessels, life-saving appliances, communications requirements, the carriage of grain and other special type cargoes, basic provisions for rules to prevent collisions, and provisions for the establishment and maintenance of the international ice patrol. International load line convention (London, 1930): Ratified by the United States June 10, 1931. Treaty between the United States and Canada defining certain waters of the west coast of North America as "sheltered waters": Ratification exchanged July 26, 1934. Officers' competency certificates convention 1936): Ratified by the United States October 29, 1939. Minimum age convention (revised 1936): Ratification by the United States deposited on October 29, 1938. Communications Safety of life at sea conventions (1914, 1929, 1948): International civil aviation convention (Chicago): Signed December 7, 1944, effective April 4, 1947. In implementation of the civil aviation convention many international gatherings, regional meetings, sometimes bilateral, sometimes unilateral, have been held to work out the myriad of technical details necessary to make a civil international aviation organization function. International telecommunications convention (Atlantic City): Signed October 2, 1947. Ratification advised by the Senate 1948. To implement the telecommunications convention, Atlantic City, 1947 (above), an extraordinary administrative radio conference was held in Geneva in 1949 to bring into force a table of frequency allocations and to make other technical regulations. This is an example of the type of detail that must be worked out by succeeding conferences under basic treaties. Conventions between the United States and other American countries relating to communications matters, Habana, 1947. Ratified by the United States June 30, 1938. To implement this convention other gatherings have been held for the purpose of working out technical details. The last of these was the Fourth Inter-American Conference, the report of which was signed at Washington July 9, 1949. Aviation International civil aviation convention, Chicago, 1944. Signed December 7, 1944, effective April 14, 1947. In implementation of the civil aviation convention innumerable international gatherings, regional meetings, sometimes bilateral, sometimes unilateral, have been held to work out the myriad of technical details necessary to make a civil international aviation organization function. Conservation Convention between the United States and other powers for the regulation of whaling. Ratified by the United States June 17, 1932. Convention between the United States and Canada revising the convention for the preservation of halibut fisheries of the North Pacific Ocean and Bering Sea. Ratification advised by the Senate March 23, 1937. Convention between the United States and other powers for the preservation and protection of the fur seals and sea otter which frequent the waters of the North Pacific Ocean. Ratified November 24, 1911. General Convention concerning the boundary waters between the United States and Canada. Treaty Series No. 548, 36 Stat. 2454. Ratified by the United States May 5, 1910. Maritime safety EXECUTIVE AGREEMENTS The exchange of notes between United States and Canada in regard to reciprocal exemption of vessels from inspection and the abolition of inspection fees. April and May 1905. Communications Agreement between United States and Canada relative to promotion of safety on the Great Lakes by means of radio. March 1952. Aids to navigation Letters and notes over the period of the last 10 years concerning the use of land at Bona Vista, Newfoundland, as a loran station. This exchange of notes resulted in an agreement for the use of the land for this purpose. Agreement dated March 14, 1947, between United States and Republic of Philippines concerning certain military bases; covered in this agreement is the authorization for the use of certain sites in the Philippine Islands for loran stations. Exchange of notes between Panama and the United States (Navy and Coast Guard) relating to the use of certain property at Cape Mala, C. Z., as a light station and radio beacon. Conference between representatives of the United States (Light House Service) and Canada (Department of Marine) relative to the coordination of maritime radio beacons between United States and Canada. Recommended May 18, 1935; became effective December 1, 1935. Notes exchanged between the United States (Department of State) and Great Britain (British Ambassador) relative to the maintenance of navigational marks in the vicinity of Mantinella Shoal off the northwest point of the Little Bahama Bank. These aids are maintained by the United States but paid for by Great Britain. 1920. Agreement entered into between United States (Department of State) and Canada (Minister of Marine and Fisheries) relative to aids to navigation in the lower Detroit River. May 10, 1911. General Agreement entered into between United States (Department of State) and Canada, as the result of an exchange of notes, relating to the size and number of naval vessels on the Great Lakes. 1817. (Treaties and Conventions, vol. 1, p. 628.) Hon. PAT MCCARRAN, DEPARTMENT OF COMMERCE, Chairman, Committee on the Judiciary, United States Senate, Washington, D. Ở. DEAR MR. CHAIRMAN: I should like first to express my appreciation for the opportunity given me to present my views with regard to Senate Joint Resolution 130, a resolution proposing an amendment to the Constitution of the United States relative to the making of treaties and executive agreements. The Department of Commerce, because of its broad interest in international operations in commerce, transportation (including highway, marine, and air),. industrial property such as patents and trade-marks, censuses and weather forecasting, uses executive agreements for the purpose of fulfilling its responsibilities in these fields. Hence, the Department is directly concerned with possible modifications of or restrictions upon authority to enter into such agreements. Because of the concern of the chairman lest information received at this time be merely cumulative of that already received, I shall limit my views largely to a presentation of operational activities, undertaken by the Department of Commerce under executive agreements, which would appear to be affected by section 4 of the proposed amendment to the Constitution. I should like, however, to endorse generally the position with respect to the proposed amendment taken by the Honorable David K. Bruce, Acting Secretary of State, in his appearance before your committee on this matter on May 27, 1952. His remarks with respect to section 1 of the resolution which provides that "No treaty or executive agreement shall be made respecting the rights of citizens of the United States protected by this Constitution, or abridging or prohibiting the free exercise thereof" were of particular validity and interest to this Department. The Treaty of Friendship, Commerce and Navigation between the United States and Italy, which he selected to illustrate the undesirable effects of the proposed section 1, by article I protects the rights of citizens of the two nations to carry on foreign trade and engage in commercial activities in Italy and in the United States. Such protection assists the Department of Commerce in carrying out its statutory duty to foster and promote the foreign commerce. In recent years, the negotiation of new treaties of commerce and the modernization of old treaties of that nature have been an important part of the Government's program to promote foreign trade and investment abroad. While the State Department has taken the leadership in that work, we have worked very closely with them in the designing of such treaties and have supported them before the Congress. The program also has the support of all interested segments of the business world. These treaties deal with a wide variety of rights and privileges which our citizens, foreign traders, and investors particularly, should like to enjoy in their relations with and activities within foreign countries. Both economic and personal rights and privileges are covered, and to a large extent the principles involved are patterned on those guaranteed to our citizens in this country. |