The Chargé in Chile ( Norweb ) to the Secretary of State

No. 1551

Sir: With reference to this Embassy’s despatch No. 1487 of June 21, 1933, concerning the 2% sales tax on services rendered to and articles purchased by the United States Government in Chile, and to the Department’s telegram No. 38 of July 29, 2 p.m., 1933, instructing that this Mission limit its protest to the payment of the tax on fixed charges, I have the honor to transmit herewith a copy of the Embassy’s Memorandum on this subject left at the Foreign Office on August 17, 1933,37 and a copy, together with English translation, of a Memorandum of the Chilean Government of September 29, 1933, replying thereto.

It will be observed that the Embassy’s Memorandum of August 17, 1933, points out that the pertinent section of Law No. 5154 amends former Law No. 4460 by establishing a sales tax of 2%, and by authorizing the seller to collect the said tax directly from the buyer; that consequently the corresponding invoices carry, in addition to the agreed price, a separate charge of 2%, or the sales tax; and that in view thereof, the charge would appear to be in the nature of a direct tax against the American Government. The Memorandum then sets forth that this practice, in so far as it concerns the payment of the tax on fixed charges not subject to negotiation between the seller and buyer, is contrary to the treatment accorded officers of the Chilean Government in the United States. In consideration thereof and [of?] the view expressed informally by the Foreign Office, that it was not believed to be the intention of the Congress to place a direct burden upon foreign governments, the Memorandum presumes that the Chilean Government does not wish to apply this direct tax.

The Foreign Office, in reply to this memorandum seeks to evade the issue by the specious argument that the tax is not a sales tax, nor even a tax of any kind, but is a surcharge due to the increased cost of living which the Government of Chile itself is obliged to pay. [Page 59] Such reasoning carries no conviction. Unquestionably, the 2% charge is a direct tax for the benefit of the Government and not simply a legalized surcharge on industrial and commercial operations.

Awaiting further instructions from the Department, the Embassy is declining to pay this tax.

Respectfully yours,

R. Henry Norweb

The Chilean Ministry for Foreign Affairs to the American Embassy


In the Memorandum of August 17, 1933, the Embassy of the United States of America referred to the application of the tax of 2% established by Law No. 5154 on invoices for services rendered or articles sold to the offices of the Government of the United States of America or to the diplomatic or consular officers of that country, and pointed out that it involved a direct tax against the said American Government and its officers.

In this connection, the Ministry of Foreign Affairs points out that Law No. 5154 established the so-called tax “on the total amount of business,” which imposes a tax of 2% on the amount received by way of interests, premiums, commissions or other form[s] of remuneration, authorizing the persons or enterprises subject to the said tax to increase their interests, premiums, etc., in a sum equivalent to the amount of the tax. The same law raised the former tax on services and sales which was ½% on the value thereof, to 2% and also authorized the persons or enterprises subject thereto to increase their prices in an amount equivalent to the tax.

It does not therefore appear possible to say that the persons who contract with those enterprises which are subject to the tax on the amount involved, pay a fiscal tax. These persons experience only the increased cost of living which all taxes normally cause. It is indispensable to distinguish between the tax provided for commercial or industrial enterprises and the higher price which the enterprises charge or may charge their clients.

In the case to which the Embassy of the United States of America refers, it is necessary to observe finally that it does not involve a tax of 2% but a surcharge authorized by Law 5154. Thus, the Chilean Government itself is obliged to pay its accounts with the said surcharge which would not be the case if the payment of such a surcharge could be construed as the payment of a tax.

  1. Not printed.