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Sorember 20, 1956.

^ POSSIBLE WAY OF CHECKED THE CTASIOg OF TAXES SBSIGBEB TO DETER
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
ray*
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*

Poss-

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*