The Ambassador in Chile ( Sevier ) to the Secretary of State

No. 137

Sir: I have the honor to refer to the Department’s instruction No. 8 of January 10, 1934, and preceding correspondence concerning the application of the Chilean sales tax to services rendered to and articles purchased by the diplomatic representatives of the United States Government in Chile.

Immediately upon receipt of this instruction a Memorandum, as per copy enclosed,39 was left with the Foreign Office. On numerous occasions since that time the matter has been discussed informally with the appropriate authorities. Particular stress has been placed on the fact that the United States Government in according exemption from Federal excise taxes to foreign diplomatic officers has done so under the application of the principles of international law exempting from taxation ambassadors, ministers and other duly accredited diplomatic representatives of foreign governments.

At first the Foreign Office endeavored to sustain the position taken in its Memorandum of September 29, 1933, (Enclosure No. 2, despatch No. 1551, October 3, 1933), that the 2% charge is not a government tax but a surcharge authorized by Law No. 5154. Later it advanced the theory that the tax was not imposed upon diplomatic representatives since the Government of Chile looks to the vendor and not to the purchaser for the payment of the charge. In both cases the Embassy was able to point out that the 2% charge is effectively a government tax, which, in view of the manner in which it is itemized in invoices and particularly those for fixed charges, is paid directly by the diplomatic representatives of foreign governments.

During the course of the conversations with the Foreign Office the Under Secretary repeatedly expressed the desire of the Government of Chile to exempt foreign diplomatic representatives from the payment of the 2% sales tax. He explained, however, that since the pertinent law makes no provision for the exemption of such officers, the [Page 63] Executive is not authorized, even on the grounds of reciprocity, to waive the imposition. In this connection he stated that under Chilean jurisprudence the municipal law obtains and as provision is not made for general exemption from taxation of foreign diplomatic representatives, Congress must enact special legislation granting the exemption. The Under Secretary added that at the appropriate time the Executive desired to submit to Congress a bill which would exempt foreign diplomats from the payment of the tax in question. However, the Government is confronted with the fact that it considers it politically impossible at this moment to raise with Congress the question of any exemption from this tax. The sales tax has been unpopular from its inception notwithstanding its continuance is considered essential in order to maintain a balanced budget. Furthermore, there is a large group in Congress against it and the Executive hesitates to submit any legislation which will raise the question in any form.

. . . . . . . . . . . . . .

It is apparent that nothing further can be done by the Embassy to obtain a modification of the existing practice in Chile with respect to this tax, especially since the Government attributes to political reasons its inability to correct the de facto situation. I would add in this connection that it was explained to the Foreign Office that while the American Government accords its present liberal treatment to foreign diplomatic representatives under the application of the principle of international law, its action is predicated on reciprocal treatment to American diplomatic officers by the accrediting foreign governments. The Under Secretary replied that while he regretted extremely the inability of his Government to accord similar privileges to American diplomatic officers and he realized that the United States might wish to withdraw these privileges now extended to Chilean diplomatic officers in the United States, his Government was not in a position to give any satisfaction at this time.

While it seemed that little could be gained by pursuing the question further, it was pointed out that the principle whereunder foreign governments exempted each other from taxation appears so well established that the decision of the Foreign Office could not be accepted pending instructions from the Department.

In view of the foregoing I have the honor to request that the Department instruct me as to what action should be taken by me with respect to those taxes assessed against the Embassy which I have declined to pay on the grounds of the general exemption from taxation accorded by governments to each other.

Respectfully yours,

For the Ambassador:
Robert M. Scotten

Counselor of Embassy
  1. Not printed.↩