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

332. At request of Consulate General, Shanghai, Embassy on December 15 asked Foreign Office for exemption of properties occupied by American civilian agencies, Shanghai, from national tax on income derived from lease of property, an exemption already established for property occupied by US Armed Forces. Foreign Office replied December 31 that portion of tax leviable on income derived from lease of property which is to be borne by lessee may be exempted, but portion borne by lessee must be paid as usual. Meaning of this statement unclear, but it apparently amounts to denial of exemption, as Shanghai despatch No. 12, January 12 to Embassy (copies to Dept) encloses letter from Shanghai Direct Tax Bureau1 stating that exemption cannot be granted. Consulate General states that tax will be very heavy one, probably far exceeding any tax Chinese consular establishment in US may be required to pay. USIS office, Shanghai, reports tax amounts to nearly 50% of rental, and that payment practically impossible under present budget. (Sent Dept as 332; repeated Shanghai 713, Tientsin 18.)

Lack of international law books and treaty series in Embassy makes impossible thorough study this question here. Therefore, Dept’s instruction requested regarding desirability pressing further for exemption. Since tax is national, question of payment will arise throughout China in connection with lease of property by (1) Dept for Embassy offices and residences of Embassy personnel (some leases concluded Nanking require payment taxes by lessee). (2) Dept for consular officer (offices?) and residences consular personnel. (3) Dept for USIS offices and residences USIS personnel. (4) Individual diplomatic, consular, and USIS personnel for residences. (5) Other US Govt agencies, such as War Shipping Administration.

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As some offices have already been requested to paj this tax, Dept’s early reply would be appreciated.

  1. Neither printed.