The Ambassador in China (Johnson) to the Secretary of State
[Received 4:35 p.m.]
53. 1. The following telegram (in clear) has been received from Canton:
“January 29, 6 p.m. American and other foreign firms Canton asked by Chinese income tax office to collect income taxes from Chinese employees and pay them over to designated bank. Instructions requested whether such procedure general throughout China and whether American firms should accede to demand. It is noticed that in the United States employers furnish lists of employees and salaries paid but do not collect taxes for income tax authorities”.
2. The Embassy has also learned from Mr. Gauss21 that the Standard Vacuum Oil Company has instructed its branches in China to avoid for the time being the disclosure to the Chinese income tax officials of information as to salaries paid to Chinese employees of the company.
3. The question whether American firms in China may properly be called upon either to deduct the income tax from salaries of Chinese employees or to give the competent authorities information as to the salaries earned by such employees may be expected to arise wherever American firms are operating in China.
4. Does the Department desire me, in this connection and at this time to bring to the attention of American consular offices in China the statement contained in the final paragraph of the Department’s telegram to Peiping No. 226, September 19, 3 p.m.,22 to the effect that American firms may not properly be expected to act as agencies of the Chinese Government in the collecting of the tax from Chinese citizens?
5. If the Department’s view set forth above is communicated to American firms it would seem only fair to warn them that their treaty rights in the matter are limited and that the treaties appear to afford no immunity to the employees of American firms which would protect such employees from other methods, possibly more rigorous, taken under Chinese law to collect income data and compel payment of the income tax by employees.
6. In view of the fact that the treaties only absolve American firms from obligation to supply wage information and to deduct and transmit [Page 679] income tax payable by Chinese employees and does not free Chinese employees from inception of the tax, I suggest that American firms be informed that the Department would not regard the voluntary supplying of income tax data as abandonment of extraterritorial rights and that American firms are free to follow the course which seems to them most advantageous.
Sent to the Department, Peiping, Shanghai.