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vestment of funds; that the responsibility for deciding in what manner endowment funds shall be invested lies with the trustees; and that this Government should not intrude in the matter. We are, of course, concerned that the funds be handled on sound principles of investment; but we cannot undertake to assume or to share the responsibility of the trustees and we, therefore, offer no opinion regarding the proposed investment under reference. You may inform Bennett of the above.




893.5123/34 : Telegram The Ambassador in China (Johnson) to the Secretary of State

NANKING, January 12, 1937-1 p. m.

[Received 2:15 p. m.] 16. Department's 229, September 24, 6 p. m. to Peiping 18 and related correspondence on Chinese income tax.

Following is the text of a formal note dated December 30 from the Chinese Minister for Foreign Affairs: 19

"Excellency: I have the honor to acknowledge the receipt of your formal note of September 18, 1936,18 in regard to the levying of the income tax by the Chinese Government, [that] the provisional regulations governing the income tax are not applicable to Americans in China. I have noted the above.

It is observed that the provisional income tax regulations and the detailed rules for their enforcement were promulgated for enforcement by order of the National Government in accordance with legal procedure. On the [basis?] of international law, since the people of the various nations resident in China receive protection from the Chinese Government they should naturally pay taxes to the Chinese Government in accordance with the law: of this there is not the least doubt. The full levying of the income tax is now shortly to begin, and I have the honor to request Your Excellency to refer to my note of August 25, 1936 20 and order all people of your country residing in China to pay the income tax in accordance with the regulations.

I avail myself, et cetera".
Peiping informed.



17 Continued from Foreign Relations, 1936, vol. iv, pp. 628–634.

Not printed. 19 Gen. Chang Chun.

See telegram No. 430, September 3, 1936, 2 p. m., from the Ambassador in China, Foreign Relations, 1936, vol. IV, p. 629.


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893.5123/35 : Telegram

The Ambassador in China (Johnson) to the Secretary of State

NANKING, February 2, 1937—2 p. m.

[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. Gauss 21 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 trans

Clarence E. Gauss, Consul General at Shanghai. % Foreign Relations, 1936, vol. IV, p. 632.

mit 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.


893.5123/36 : Telegram

The Ambassador in China (Johnson) to the Secretary of State

NANKING, February 3, 1937—2 p. m.

[Received 8:25 p. m.] 56. My 53, February 2, 2 p. m. I have learned from the British Embassy that the Embassy has recommended to the British Foreign Office that the Chinese authorities be informed that the British Government is prepared to assist the Chinese Government in the collection of the income tax from Chinese employed by British individuals and firms and that it is willing to advise British subjects to supply to the appropriate Chinese authorities on request lists of Chinese employees, with salaries paid. The Embassy has not yet received an instruction from the British Foreign Office on this point.

My informant in the British Embassy recalled that the attitude taken by the British Government toward the request of the Chinese Government that extraterritorial nationals pay Chinese income tax had been less positive” than that of the American Government since the British Government had announced its willingness to consider payment of the tax by British subjects in China when the tax should be collected from all nationalities; whereas, the American Government had replied that it did not regard the tax as applicable to American citizens. The American and British Embassies are keeping in touch concerning this request.

Another note has been received from the Foreign Office dated January 27, [saying that?] the income tax went into effect January 1 and asking that American citizens in China be instructed to pay the tax. The British Embassy has not decided what reply, if any, shall be made to this note and is inclined to feel that no further declaration of the British position is required. Unless otherwise instructed by the Department I shall return no reply in writing but if the matter is taken up with me again in conversation and the circumstances seem to warrant I intend reopening the assurance contained in the Department's 226, September 19, 3 p. m., to Peiping

. in the sentence beginning "Peck may add”. 23 Repeated to the Department and Peiping.


893.5123/35 : Telegram

The Secretary of State to the Ambassador in China (Johnson)

WASHINGTON, February 4, 1937–8 p. m. 28. Your 53, February 2, 2 p. m., and 56, February 3, 2 p. m., in

2 regard to income tax. The Department approves your circularizing American consular offices in China in the sense indicated in paragraphs 4 and 6 of telegram No. 53.

The Department also approves the attitude and procedure outlined in the last sentence of telegram 56.



The Ambassador in China (Johnson) to the Secretary of State

No. 1192

PEIPING, April 19, 1937.

[Received May 17.] SIR: I have the honor to refer to the Embassy's despatch No. 1177 of April 13, 1937,24 and previous correspondence in regard to the Chinese income tax law, and to enclose for the Department's information copies of Shanghai's despatch No. 746 of April 10, 1937, to the Embassy 24 on the subject.

Mr. Gauss encloses with his despatch a copy of a letter dated April 6 from the Texas Company (China) Limited,24 concerning the deduction of income tax by the Chinese authorities on certain loan debentures of the Municipality of Greater Shanghai held by that company. In his reply to the company of April 10, Mr. Gauss stated that, while the Department has taken the position that the provisions of the Chinese Income Tax Regulations are not applicable to American firms and individuals, it would appear that the National Government has taken an opposing view. He stated further that it was not believed to be practicable to attempt to recover the income tax

2 Telegram printed in Foreign Relations, 1936, vol. IV, p. 632. Sentence mentioned contained an assurance to the effect that the Department would be prepared to consider an income tax on Americans should all other governments concerned acquiesce in the imposition of an income tax on their respective nationals.

* Not printed.


deductions in question unless it was definitely and precisely provided in the debentures that the payments to be made thereunder should be free from taxes or deductions. The Embassy has informed Mr. Gauss that it approves his reply to the company. Respectfully yours,

For the Ambassador:

FRANK P. LOCKHART Counselor of Embassy


Memorandum by the Chief of the Division of Far Eastern Affairs


[WASHINGTON,] July 10, 1937. Conversation : Dr. H. H. Kung, Chinese Minister of Finance;

Dr. C. T. Wang, Chinese Ambassador;
Mr. Hornbeck;

Mr. Hamilton.25 Present: Mr. P. W. Kuo and Dr. Clarence K. Young.28 During the course of and following a luncheon given by the Chinese Ambassador at his residence at Twin Oaks, the Chinese Minister of Finance, Dr. H. H. Kung, asked Mr. Hornbeck what our attitude was toward the Chinese income tax law. Mr. Hornbeck said that he would be glad to answer that question but that before doing so he would like to ask certain questions by way of making a setting for his answer. He asked how many foreigners there were in China. The Chinese Ambassador said that he thought there were about 300,000. There was some discussion as to whether this was not too high or too low a figure. Mr. Hornbeck said that for purposes of discussion he would assume a figure of 400,000. Mr. Hornbeck then asked how many Chinese paid the Chinese income tax. Dr. Kung replied that half of the Chinese who under the Chinese law should pay did pay. Mr. Hornbeck then said that he of course would not undertake to question these figures but that he would venture the remarks that on the basis of these figures: there was only one foreigner in China to every thousand Chinese; that the question whether the foreigners did pay or did not pay would therefore not seem to be of great practical importance; and that in his estimate there were probably at least a hundred Chinese who should under the law pay the tax but who did not for every foreigner who would be required to pay the tax if the law were applicable to foreigners. Mr. Hornbeck said that our

25 Maxwell M. Hamilton, Assistant Chief of the Division of Far Eastern Affairs. Advisers to Dr. Kung.


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