sir,

My telegram No. 117 of today dealt with the taxation problem raised by the President of Brazilian Traction and the general question of a tax convention between Canada and Brazil.

For your records, I enclose copies of a letter from the President of Brazilian Traction dated August 23t which sets forth the Company's views at some length and a copy of our reply. The subject was discussed with the Deputy Minister of National Revenue (Taxation) who feels that the Government should do everything possible to assist the Company. The Canadian Income Tax authorities recognize that it is in the general interest to encourage participation of local capital in undeveloped countries along with money from capital exporting countries. If this is to be effective, the tax laws of the capital exporting country should not bear too heavily on the dividends payable to the foreign nationals concerned-in this case Brazilians. The problem was discussed at various times by the Fiscal Committee of the League of Nations and may well be examined by the Fiscal Commission of the United Nations. In any event, it is one of which the Canadian authorities are prepared to discuss sympathetically with the Brazilian authorities.

In our view, however, any agreement on this question should be only a part of a broader income tax convention. There is a continuing trend towards the negotiation of such conventions between states whose nationals are doing business in each other's territory and they are found advantageous in developing international trade. In recent years, for example, Canada has concluded agreements with the United states and the United Kingdom, and the Canadian authorities believe that other agreements can be negotiated to mutual advantage in the case of countries with which Canada has considerable present or prospective trade or investment relations. such agreements usually cover a wide field including provisions for the taxation of foreign individuals, foreign companies with permanent establishments, agencies, shipping profits, airline profits and so forth. The Canada-United states Convention of 1942 (Treaty series 1942-No. 2) indicates the type of subject that can be included in such an agreement.

4. I shall be glad to have a report when you have been able to discuss this question with Mr. Borden' and subsequently with the Brazilian authorities.

I have etc.
H. H. WRONG
[for the] Acting secretary of state
for External Affairs

¹Le président, Brazilian Traction, Light and Power Company Limited.
¹President, Brazilian Traction, Light and Power Company Limited.