The Chargé in Chile ( Norweb ) to the Secretary of State
[Received October 12.]
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.
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