Letter of Interpretation
In connection with the income tax Convention signed today, I should like to State our understanding of the agreement reached by the delegations of the United States of America and the Union of Soviet Socialist Republics concerning the application of certain provisions of the Convention.
- In connection with Article III, subparagraph 1(e), it is our understanding that Soviet foreign trading organizations perform the functions of a broker or general commission agent for various Soviet industrial and other organizations in the purchase of goods and services from foreign suppliers. Accordingly, a representation of a United States commercial organization in the Soviet Union making sales to a Soviet foreign trading organization will be regarded as making sales through a broker or general commission agent.
It is understood that a firm acting in the U.S.A. as a broker, general commission agent or other agent for a Soviet foreign trade organization will not be considered to be of independent status if it is owned or otherwise controlled by an authorized organization of the Soviet Union.
It is also understood that if such a broker, general commission agent or other agent has no income other than commission income, such broker, general commission agent or other agent will be taxable only on such commission income.
- In Article VI, subparagraphs 1(d) and (e) provide exemption under certain circumstances of an amount “necessary to provide for ordinary living expenses.” It is agreed that the exemption under subparagraph 1(e) in any taxable year will not apply to any amount in excess of $10,000 or its equivalent in rubles, and that the exemption under subparagraph 1(d) will generally apply to a lesser amount, to be determined in each specific case.
- With respect to income mentioned in Article V, it is understood that each of the Contracting States will, if necessary, endeavor to secure exemption from taxes which may be imposed in republics, States or at the local level.
- It is understood that both Contracting States continue to exercise tax jurisdiction over journalists and press, television and radio correspondents on foreign assignment. Accordingly, it is agreed on the basis of reciprocity that subparagraph 1(c)(1) of Article VI shall apply to such journalists and correspondents for a two year period whether or not they are present in the other Contracting State at the invitation of a governmental agency or institution. It is understood that the exemption granted by the host country will apply only to compensation received from abroad.
- It is understood that customs duties are not considered taxes for purposes of Article IX and paragraph 3 of Article X.
Please accept, Mr. Minister, assurances of my highest consideration.
George P. Shultz