125.8571/8–2649: Telegram
The Consul at Shanghai (McConaughy) to the Secretary of State
[Received August 26—9:51 a. m.]
3495. Apart from labor demands most immediate threat to unimpeded operation of Consulate General is tax collection (ReConGentel 3073 [3039?], August 4 and 3306, August 18). Tax collectors have appeared at various residences, properties owned by Government, including Consul General residence, and in some eases have created unpleasant scenes thru their insistence on immediate payment. Communist regime still does not recognize any right foreign government to exemption from tax on its properties, even those used exclusively for public purposes. Both house and land taxes on Consulate General building and government-owned residences already overdue with substantial penalties accrued. Our position has been undermined by action certain other Consulates which have yielded to constant pressure and paid tax. My understanding is that British Consul General has decided (probably on basis of having paid in past) to accede and will pay shortly under protest, if it has not already done so.
Position further complicated by consistent policy of Communists not to recognize any governmental corporate entity and to hold some [Page 1285] individual or individuals personally liable for obligations of entity employing him. Thus our staff members occupying houses may be subjected to eviction, personal indignities or actual court process if they do not pay. Tax law provides that if collection cannot be made from owner, then tenant or occupant is personally liable.
Altho some of my consular colleagues disagree, I believe we are on sound policy grounds in refusing to pay taxes regardless of technicalities which might be cited by Communists in support of their position. If Communists intend to close Consulate General, I believe they will do it regardless whether we pay tax. If we refuse to pay taxes, altho individual staff members may be subjected to unpleasantness, questionable whether Communists will take far-reaching decision close us on [as?] this issue not basically important to them. However, Communist course cannot be predicted with any degree of certainty and it is entirely possible that a major issue may be precipitated by tax question, especially if some over-zealous minor employee Tax Bureau or newspaper publicizes extreme position from which top authorities cannot recede without loss of face.
I am bringing up question again solely insure all ramifications of issue, both policy and legal, carefully considered by Dept in light of events since Deptel 1419, July 15. We are prepared stand firm on issue, but decision should be made in full awareness of possible serious consequences.
Sent Dept, repeated Nanking 1848.