The Secretary of State to the Embassy in China
486. Taxes on leased Govt-occupied properties (Embtel 332, February 20). For legal background requested, US takes general position one Govt should not tax another Govt or property thereof used for public purposes. Individual properties of foreign Govt officers not legally exempt unless head of diplomatic mission. In cases of property leased or rented to Govt, legal distinction is whether tax is imposed on lessee Govt or imposed on landlord. Legal right of exemption is confined to taxes imposed directly on Govt, and does not extend to tax imposed on landlord though burden passed on to lessee Govt or officer. Foregoing is in absence of treaties, which may extend exemptions. (Repeated to Shanghai2.)
US practice exempts from all taxes and assessments, except charges for services such as water-rates, all property used for official diplomatic purposes which is owned by foreign Govt or diplomatic officer. Dept would regard taxation of such Emb property contrary to international law and practice. Same applies to residence of head of diplomatic mission; but in US exemption is not believed to extend to residences of other diplomatic or consular officials or employees other Govt agencies, when not Govt-owned. Exemptions in US, in absence of treaty, are confined to taxes imposed on Govt or on head of diplomatic mission, and do not extend to taxes imposed on landlord and passed on to Govt or officials as tenant.
Dept in note April 12 [March 18?], 19443 informed Chinese Emb that consular property in California owned by Chinese Govt would not be taxed if Chinese Govt could assure Dept that reciprocal exemption granted in China. Chinese Emb here recently requested and obtained tax exemption for building newly bought by Chinese Supply Commission in Washington.
Answering specific inquiries, legal right to exemption apparently limited to taxes imposed on US Govt, and to this extent Chinese FonOff statement December 31 regarding leases legally sound in distinguishing portion of tax borne by lessor from that borne by lessee Govt, and exempting only latter. However, despite lack of legal [Page 1336] right to exemption, Emb should request exemption from taxes on landlord which are in fact passed on to US Govt, and may in its discretion request exemption from taxes passed on to individual Govt officials. Case is strongest for Govt and head diplomatic mission, next for other diplomatic officers. High rate of Chinese tax, greatly in excess of similar taxes imposed in US, and fact that in reality it is paid by lessee through increased rent, adds weight to argument that tax constitutes encumbrance on operations of this Govt and attempt to impose on US and US officials inappropriate obligation to contribute to public expenses and support of China.