125.8571/11–2746

The Consul General at Shanghai ( Davis ) to the Secretary of State

2346. Acting on authorization Deptel 2129, November 22,13 and oral approval of Embassy and Dr. S. Y. Liu, designated by Dr. T. V. Soong14 to deal with property program under agreement August 30, I accepted, under yesterday’s date, offer of owner of property at 70 Route Doumer to sell for $450,000 payable in Chinese currency at official rate plus 20 per cent (subject to terms of agreement dated August 30, 1946) or a total of CNC one billion eight hundred million, which includes all charges incident to transfer, such as registration or measurement fees, deed fees, deed tax attorneys’ services, and other charges of any nature, above amount also to include repairs and alterations agreed upon, particularly the placing of heating equipment in working condition and certain alterations required in apartments for immediate occupancy.

Owner’s agent indicated acceptance satisfactory, but tax situation now threatens success of deal. Robert T. Bryan,15 who has been retained to draw up contract, advises that transfers of real property are subject to six types of taxes: (1) Registration fee, two-tenths of 1 [Page 1341] percent now imposed on buyer; (2) deed fee, up to 2 percent; (3) deed tax, 7½ percent of value, which tax is collected from buyer; (4) income tax, which in case of Route Doumer property is estimated at 50 percent, which is required to be deducted by purchaser from price paid; (5) increment tax, payable every 10 years, from 20 to 80 percent of increase in value of land (it is not clear from whom such tax is collected or how it is figured); and (6) an excess profits tax.

The first three represent nearly 10 percent of amount to be paid which with income tax deduction would leave seller only about 40 percent or 720 million. Converted at present rates he would have to pay for dollars, this represents only about $150,000 as compared with selling price of $450,000. It goes without saying that unless some relief can be obtained from foregoing excessive requirements there will be no possibility of concluding this transaction, nor of purchasing any other private property. Please advise what Embassy proposes doing in the cases.

Sent Nanking 1329, repeated to Washington as 2346.

Davis
  1. Not printed.
  2. President of the Chinese Executive Yuan.
  3. American lawyer, formerly Municipal Advocate of Shanghai International Settlement.