Foreign Relations of the United States Diplomatic Papers, 1936, The Far East, Volume IV

893.5123/13: Telegram

The Counselor of Embassy in China (Peck) to the Secretary of State

Nanking, September 23, 1936—9 a.m.
[Received 3:30 p.m.]

276. Department’s 226, September 19, 3 p.m., to Peiping and Pei-ping’s September 21, 11 a.m. to Nanking.

1. Note to Foreign Office dated September 18 stating that the regulations governing income tax cannot be considered as applicable to American nationals was delivered morning of 22nd and I called on the Minister of Finance September 22, 6 p.m.

2. I told Kung that the Ambassador had just sent to the Foreign Office a reply concerning income tax and I repeated its phraseology. I then said that I had been directed to deliver a reply to the oral message he asked me to transmit on September 17. Following this I gave in informal language the purport of the observations set down in the Department’s September 19, 3 p.m.

3. There ensued a rather lengthy discussion the upshot of which was that Kung felt disappointed and hurt⁸⁴ at the boldness of the Ambassador’s reply which was a simple assertion that “the regulations cannot be considered as applicable to American nationals”. Kung again referred to the press item quoting an oral statement by the newly arrived British Ambassador (See my September 17, 7 p.m.) which, although conditioning payment of the income tax by British nationals on its payment by all other nationals, nevertheless gave him some moral support in initiating this new tax. Part of the China Press September 14 stated in effect that the British Ambassador informed a reporter that Great Britain was not opposed to the measure per se; that similar taxes were collected by other governments and that the British Government saw no reason for objecting to the tax if it were paid by citizens of other countries. Kung observed that the attitude of the American people toward China had always been characterized by fair play and generosity and he had not expected that in connection with the income tax the United States would evince a less friendly attitude than Great Britain. He remarked that he quite understood that the American Government might entertain objections to features of the income tax law itself such as its comparatively heavy incidence on incomes in very low brackets, which features were occasioned by standards of living peculiar to China, but having regretted the public impression which would be created by the statement made in the Embassy’s notifications to the Foreign Office without explanation or qualification that the law could not be considered as applicable to American nationals. Kung said that he personally had endeavored to frame an equitable tax law which would not be oppressive in its rates or mode [of] collection and he stressed the urgent need of the Chinese Government for additional funds where-ever [possible?] to carry out vital projects such as currency reform. He explained that tax declarations regarding incomes would be accepted at face value and demands for documentary evidence would be exceptional.

4. In connection with Kung’s apparently strong feeling on this subject I venture the explanation that he believes his reputation is closely involved in the success of the income tax as a measure widely used, the justice of which is almost universally acknowledged. He evidently attaches great importance to the arguments referred to in paragraph 2 of my September 17, 7 p.m. He apparently overlooks the fact that rejection of the application of the law to American nationals on grounds of imperfections in the law would hardly have benefited his situation, although he insists he would have had no objection to an acceptance conditioned on actual application to all nationalities. I was appropriate in my comments but the interview ended with Kung apparently feeling much less agreeable than at the beginning.

5. Sent to the Department and Peiping.

Peck

84. The Acting Secretary of State in his telegram No. 229, September 24, 6 p.m., to the Ambassador in China stated: “It is regretted that Kung felt disappointed and hurt at the tone of the Embassy’s note.” (893.5123/15.)