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Sorember 20, 1956.

j m t m OF CAPITfl,
St is common knowledge that the treasury has never been successful
In collecting more than a snail portion of the incone and capital gains
taxes applicable to foreigners* The repeal of thecspital gains taxes
and the surtaxes applicable to foreigners! in the Revenue Act of 19Sp and
the substitution of a flat 10 percent tax on income was in part & recogni**
tion of the fact of widespread evasion and of the growth of trading In
American securities in other markets* Congress in affect said* •Wo cannot
hope to tax foreigners as ure do Americans*

J*et us therefore repeal the

capital gains tax and try to prevent a further loss of business to our
security exiih&nges**
It would appear* therefore* futile to initiate a stock purchase tax
or a capital gains tax applicable to foreigners unless sons means can be
found to prevent the evasion of such taxes through the development of
markets in our securities abroad*

The following suggestion is designed to

prevent this form of evasion!
Require that all stocks in An&rican companies listed to our stock
exchanges be legally transferable oiOy by gift* by private sale subject to
the approval of the S* S*

or %

sale on American stock exchanges*

Evidence that the stock had been transferred in one of these three says
would have to be furnished to transfer agents before the transfer could
be offacted*
Any purchase or sale tqr noa-resldenta would either have to be negotiated
directly through an Anerlcanbroker or indirectly through a resident* Other*

wise nonresidents would have no legally enforceable claim to the
stock or to the dividends payable on the stock* Hence* information
could be obtained from brokers1 books without fear that this would
involve loss of business to American brokers* as has happened formerly
when information on transactions of foreigners was obtained in this
This provision would not prevent the issue of end tracing in
abroad of bearer certificates representing ownership in American
stocks. It would* however, require the payment of the purchase tax
whenever more American stocks were purchased against which additional
bearer certificates are issued*
In order to prevent Americans abroad from purchasing stocks
for foreigners on our stock exchanges and in this way avoiding the
payment of a purchase tax* the tax might be made applicable to all
non-residents rather than to non-resident aliens.
The proposal has the additional merit of preventing the growth
of trading abroad by Americans for the purpose of evading margin
requirements and capital gains taxes*

Its legality could be defended

on the grounds that it was necessary for the effective exercise of
powers that are constitutional*

It would not apply to bonds nor to

foreign stocks* such as Canadian Pacific* listed on our exchange*
The Asa&caa broker* if the purchase were direct* or the resident
nominee or correspondent* if the purchase were indirect* could be
made responsible for the payment of & S percent stock purchase tax

and, possibly, a flat c&pitsi gains tax at the time of sale*

It Is

far easier to discover and prosecute resident than non-resident evaders.
One of the most effective vays of checking evasion and of deterring
foreign purchases of our stocks would appear to be to impose a flat
income tax of say

percent (the seme as In Great Britain) to be

deducted at source In the case of stocks registered In the namea of
non-residents and to b© declared and paid by resident agents or correspondents in the case of stocks held here on non-resident account*


ibly a lower rate sight be advisable for dividends going to residents
of contiguous countries*

Consideration alght even be given to the

imposition of a high income tax deducted at source in lieu of a capital
gains tax*