The Secretary to the Prime Minister’s Department has submitted for advice the question whether the agents in Australia of the United States Shipping Board are liable to pay income, and war time profits, taxes on income and profits earned in Australia by vessels owned or controlled by the Board.?Attached to the file is an opinion of the Solicitor-General of New Zealand who advises upon two questions:

1. Whether a foreign Government is assessable for income tax on profits earned by it in trading operations carried on in New Zealand; and
2. Whether if it is so assessable its agents can be made liable for the tax under section 108 of the New Zealand Land and Income Tax Act 1916.

Upon these questions the Solicitor-General of New Zealand advises that:

1. A foreign Government is not exempt from the revenue laws of New Zealand, but though in respect of both its public functions and its trading functions it is immune from any compulsory process of suit or execution, it is nevertheless property assessable for income tax on any profits earned by it in trading operations carried on in New Zealand. In support of this view, he cites Mighell v the Sultan of Johore 1894 1 Q.B., and the Parliament Belge 5 P.D. 197.
2. The agents of a foreign Government cannot under section 108 of the New Zealand Act be subject to compulsory civil process in respect of income tax owing by that Government, but the immunity possessed by the Government itself is possessed by its agents in cases where the refusal of the immunity to the agent would be merely an indirect method of exercising compulsion upon the foreign Government.

The principles of the Commonwealth Income Tax Act and War Time Profits Act, in relation to the liability by an agent in Australia to pay tax on behalf of a principal who does not reside in Australia are similar to those in the New Zealand Land and Income Tax Act, and the opinion of the Solicitor-General of New Zealand would, if sound, apply with equal force to the question of the liability of the Australian Agents of the United States Shipping Board to assessment of tax under the Commonwealth legislation.

I agree with the opinion of the Solicitor-General for New Zealand so far as it relates to the United States of America, the United States Shipping Board (a Department of the United States Government) and the agents of the Government.

It appears, however, that the ships in this case were chartered to and controlled by the Emergency Fleet Corporation–a corporation formed under the ordinary Corporation Law of the District of Columbia, by virtue of an Act of Congress–the Shipping Act of 1916, section 11 (Statutory Volume 40, page 731).

That section empowers the United States Shipping Board to form, under the laws of the District of Columbia, one or more corporations for the purchase, construction, equipment, lease, charter, maintenance, and operation of merchant vessels in the commerce of the United States, and further empowers the Board, on behalf of the United States, to take up not less than a majority of the capital stock of any such corporation, and also to sell any such stock, but so that the United States should not at any time be a minority stock-holder.

The Emergency Fleet Corporation was formed in pursuance of this power, and it seems that all its stock is in fact owned by the United States, though the United States might, at any time, sell to private stockholders either a minority or the whole of the stock.

That being so, I think that the Corporation, so far as its status goes, is on the footing of an ordinary trading corporation, whose capital is privately owned.

This has actually been decided by the Supreme Court of the United States in Sloan Shipyards v. United States Fleet Corporation, 258 U.S. 549, when it was held that the Corporation, as originally created, had the powers of corporations of the District of Columbia, and was liable to be sued there and elsewhere upon its contracts and for its torts, notwithstanding the fact that it was a federal agency and that its stock was taken entirely by the United States. Also that the extensive increase of the powers of the Corporation by later Acts, and by delegation from the President of large powers vested in him by Congress, did not render the Corporation in all cases immune from private suit.

The decision in the case was that the Corporation was suable in the State Court for breach of a contract made by it ‘representing the United States’ but in which the Corporation was recognised as the immediate party contracting; and that a claim in bankruptcy made by the Corporation in its own name as an instrument of the Government was not entitled to preference as a claim of the United States.

There was a dissenting judgment by Taft, C.J., and two other Judges on the ground that the special legislation of Congress relating to this Corporation implied that it must be regarded as the agent of, and or having the privileges and immunities of, the United States.

The minority judgment also pointed out that Congress had taken over all the assets of the Corporation, so that judgments against it would be valueless except as Congress should conclude to pay them.

The decision of the Court appears to me to be undoubtedly right, and I think that it follows that the Corporation would, in respect of its Australian trade, be liable to income tax and would not be immune from legal proceedings. Whether it has any available assets to which resort could be had I do not know.

[Vol. 21, p. 182]