The Ambassador in Chile ( Culbertson ) to the Acting Secretary of State

No. 1487

Sir: I have the honor to refer to the Embassy’s despatch No. 1427 of April 13, 1933,32 with which was transmitted a copy of the new Chilean tax law, No. 5154, enacted on April 10, 1933,33 providing for a general increase of existing taxes. Section 17 of Article 7 of this law amends paragraph 1 of Section 33 of Article 7 of Law No. 4460 of November 13, 1928, first, by establishing a sales tax of 2% in lieu of the former stamp tax on invoices of ten centavos for each 100 pesos which was paid by the seller; and, second, by authorizing the seller to pass on the tax in question directly to the buyer. The pertinent section of the law reads, in translation, as follows:

“… Commercial sales, including operations in foreign exchange, 2% of the amount of the transaction.

“Persons or enterprises classified in the third category (commerce and industry) of the Income Tax Law will pay this same tax on the amount received by way of interests, premiums, commissions or other forms of remuneration for business, services or loans of any kind. The said persons or enterprises can require, in all cases, that the interests, premiums, commissions or other forms of remuneration be paid them with a surcharge equivalent to the amount of the tax. …”

Since the law authorizes the seller to require the buyer to pay the tax, bills for all purchases and services, including rent, electricity, gas, water, telegraph and telephone bills, etc., carry a separate charge for the 2% tax in addition to the price of the article or service rendered. Under these circumstances the tax might be considered as a direct charge by the Chilean Government against foreign Governments and diplomats.

In answer to inquiries made at the Foreign Office the opinion was expressed that while the law did not specifically exempt foreign diplomatic officers from the payment of the tax, it was not believed that it was the intention of the legislator to place this direct burden upon foreign governments and their officers. In any case, it was added, the matter could be satisfactorily arranged on the grounds of reciprocity. [Page 57] With this end in view the Foreign Office suggested that the Embassy bring the question to its attention in an informal memorandum. However, before submitting such a memorandum I desire to know whether the Department is disposed to press for exemption from this tax. Doubt as to what attitude the Department might take with respect to this question has been caused by the statement made in Department’s circular instruction of October 24, 1925,34 concerning exemptions from taxation enjoyed by foreign diplomatic officers within the United States. It will be recalled that in that instruction the question of taxes on the sales of automobiles and jewelry was discussed and it was held that foreign diplomatic officers were not exempted because the Government looked to the manufacturer and the vendor for the payment of the tax and not to the purchaser of the article. It was added that for this reason and the further reason that the price of the articles sold is a matter of negotiation between the vendor and the purchaser, the position was taken that no exemption from the payment of these taxes could be granted to the manufacturer or vendor by reason of the fact that the sale was made to a diplomatic representative of a foreign government.

The sales tax of 2% established by Law No. 5154 is of course much more comprehensive than the luxury tax referred to in the Department’s circular instruction above mentioned since it covers every kind of a commercial transaction.

I therefore have the honor to request instructions as to whether the Department wishes the Embassy to protest the tax in general, or to limit the protest to the payment of the tax on fixed charges, such as bills for rent, telephone, electric light, telegraph and other similar services, which do not admit of price negotiation. In view of the fact that I am withholding the payment of bills now due and which should be included in the Embassy’s June accounts, I have the honor to request that the Department telegraph its instructions prior to June 30th.

Respectfully yours,

W. S. Culbertson
  1. Not printed.
  2. For text, see Chile, Diario Oficial, No. 16,548, April 10, 1933.
  3. Not printed.