Letter to the Speaker of the House of Representatives Proposing Exemption of Foreign Central Banks From Income Tax on Interest on Government Securities

Dear Mr. Speaker:

There is attached a draft of proposed legislation to amend the Internal Revenue Code so that foreign central banks would be exempt from tax on interest they derive from holding obligations issued by the United States Government, if such obligations are held in connection with noncommercial activities of the central bank.

This measure is one of various desirable steps, mentioned in my Message to the Congress of February 6, intended to improve this country's ability to defend its gold reserve by offering competitively attractive dollar obligations .to foreign central banks. These official "banks of issue" must have unimpaired freedom to purchase gold from the United States, if they prefer to do so, but we should not perpetuate procedures which, in the case of many countries (and particularly the smaller countries) make United States Government securities relatively unattractive as an alternative to holding gold.

The legislation would bring about uniform tax treatment of all foreign central banks, many of which are now exempt from tax, either because they are considered an integral part of their government, or because of tax conventions. If foreign central banks keep their dollar assets in time deposits or bankers' acceptances, they are already exempt from tax by statute. Thus, the bill would make Government obligations as attractive to foreign central banks, from a tax standpoint, as bank deposits and bankers' acceptances.

A memorandum prepared by the Secretary of the Treasury explaining the bill in greater detail is also attached.

It would be appreciated if you would lay the proposed legislation before the House.

Sincerely,

JOHN F. KENNEDY