Message to the Congress on a Proposed Amendment to the Internal Revenue Code Regarding a Canadian Tax Law Provision
November 17, 1981
To the Congress of the United States:
On September 9, 1980, President Carter sent a message to the Congress concerning the Canadian tax law which denies a deduction for Canadian income tax purposes for the cost of advertising placed with a foreign broadcast undertaking and directed primarily at the Canadian market. President Carter determined that this provision within Canadian law is an unreasonable practice which burdens U.S. commerce within the meaning of section 301(a)(2)(B) of the Trade Act of 1974, as amended (19 U.S.C. 2411(a)(2)(B)). President Carter further determined that the Canadian practice resulted in the loss of access by U.S. broadcasters to more than $20 million in advertising revenues annually.
President Carter, under provisions of the Trade Act of 1974, proposed legislation which would amend the Internal Revenue Code to deny a deduction, otherwise allowable under the Code, for expenses of an advertisement placed with a foreign broadcast undertaking and directed primarily to a market in the United States. This restriction would apply only if a similar deduction is denied to advertisers in the country in which such station is located for the cost of advertising directed primarily to a market in that country when placed with a U.S. broadcast undertaking. It would, therefore, be applicable to Canada.
Section 301 of the Trade Act of 1974 requires that if the President determines that action by the United States is appropriate to respond to any act, policy, or practice of a foreign country that is unjustifiable, unreasonable or discriminatory and burdens or restricts United States commerce, he shall take all appropriate and feasible action within his power to obtain the elimination of such act, policy or practice. The intent of section 301 is to resolve disputes and thereby eliminate the unjustifiable, unreasonable or discriminatory trade practices which burden or restrict United States commerce. The Canadian tax law is the subject of one such dispute. Notwithstanding a good faith effort on the part of the United States Trade Representative to resolve the dispute and have the offending practice eliminated, this dispute has not been resolved. Therefore, I am acting under the authority of section 301 to recommend legislation similar to the amendment proposed by President Carter. This amendment to the Internal Revenue Code would mirror the Canadian law as it applies to broadcast undertakings, i.e., it would deny a tax deduction for expenses of advertisements placed with a foreign broadcast undertaking and directed primarily to a market in the U.S. This restriction would apply only if the laws of the country in which such foreign broadcast undertaking is located deny a similar deduction to advertisers in that country. Thus, the legislation will establish a disincentive to the transfer of U.S. advertising revenues to foreign broadcast undertakings only if the laws of the country in which such broadcast undertakings are located create a similar disincentive vis-a-vis U.S. broadcast undertakings. Thus, if Canada should repeal its law, the amendment will cease to apply to Canada. It would be effective with respect to deductions attributable to transactions entered into on or after the date of introduction of this bill.
At this time, the mirror image legislation is an appropriate response to the Canadian practice. The intent of such legislation is not to erect new barriers to trade, but rather to encourage the Canadians to eliminate their unreasonable and restrictive practice. I recognize, however, that this amendment by itself may not cause the Canadians to resolve this dispute. Therefore, I note that I retain the right to take further action, if appropriate, to obtain the elimination of the practice on my own motion under the authority of section 301(c)(1). Hopefully, this will not be necessary.
This legislative proposal is being submitted at this time because I feel it is imperative that the Government of Canada be made to realize the importance the U.S. Government attaches to the resolution of this issue. I urge its early passage.
The White House,
November 17, 1981.