U.S. Suspends Tax To Help Canada’s Growth

Press, Volume CII, Issue 30190, 23 July 1963, Page 15

U.S. Suspends Tax To Help Canada’s Growth

(N.Z. Press Association—Copyright) WASHINGTON, July 21. The United States has agreed to ease its new tax on foreign securities to prevent the tax from endangering Canada’s economy. In return for American exemption for new Canadian securities from 2.75 to 15 per cent, excise tax Canada has agreed not to use the dispensation to build up its foreign exchange reserves.

Canada depends on American long-term capital for financing most of its industrial and municipal developments. Canadian economists had feared when the tax was announced that the flow of United States dollars would be stemmed, damaging Canada’s economy and even weakening the Canadian dollar once again,

The Canadian Ambassador. Mr C. Gitchie, and the Secretary of the Treasury, Mr D. Dillon, held talks in Washington last week-end. The purpose behind the proposed American tax on foreign securities is to slow the flow of long-term investment capital overseas at a time when the United States is having serious balance of pavments difficulties. President Kennedy proposed the tax last Thursday as part of his programme to overcome the difficulties. Only new issues of securities would be affected. American officials made it clear that the tax still would be levied on United States

purchases from foreign holders of outstanding stocks or bonds.

A joint statement today said, however, that these have not been “a major factor” in United StatesCanadian transactions over the last year. "It is the hope and expectation of both Governments that by maintaining close consultation it will prove possible in practice to have an unlimited exemption for Canada without adverse effects on the United States.” the statement said. The United States agreed that the proposed tax legislation that will be sent to Congress will include a provision allowing President Kennedy to exempt certain new Canadian securities floated in the United States from the "interest equalisation tax.” “The President would thus have the flexibility to permit tax-free purchases of new issues needed to maintain the unimpeded flow of trade and payments” between the United States and Canada, the statement said.

The exemption also could be applied in “exceptional situations” involving other

countries that might be hurt by the tax, the statement said.

The tax would be 15 per cent, of the purchase price on purchases of common stocks and 2$ to 15 per cent, on purchase of bonds and other

securities, depending on the maturity dates. Canadian securities are much more heavily purchased than those of any of the other 21 nations which are included in Mr Kennedy's proposal. In the first half of 1963. new issues of foreign securities purchased by Americans were 880 million dollars, with 590 million dollars of these issued in Canada. In Ottawa. Mr Gordon termed the dispensation “a major change of course” by the United States Administration that would avoid an increase in Canada’s whole interest-rate structure.