Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 2, 1902
Mr. Buck to Mr. Hay.
Tokyo, October 24, 1901.
Sir: Referring to previous correspondence on the perpetual lease questions, and, notably, to my dispatch No. 587 of the 2d instant, in which I mentioned that there had been no pronouncement respecting the tax on buildings standing on lands held under perpetual leases, I now have the honor to inclose for your information a copy of a note from the minister for foreign affairs stating the position maintained by the Japanese Government.
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I have, etc.,
Japanese minister for foreign affairs to Mr. Buck.
Tokyo, October 21, 1901.
Monsieur le Ministre: His Imperial Majesty has been pleased to sanction and to order to be promulgated the law relating to leases in perpetuity granted to foreigners, which received the consent of the Diet in its last session. His Majesty has also caused two imperial ordinances to be issued in aid of the law, and departmental ordinances and notifications, in execution both of the law and imperial ordinances, have been issued.
I have the honor to refer your excellency for the full text of these several enactments to the Official Gazette of the 21st ultimo.
These measures were conceived in a spirit of conciliation, and I venture to hope that your excellency will find it possible to agree with me that they furnish a just and equitable solution of the several questions which have been raised respecting perpetual leases.
I should, however, point out that the enactments referred to do not have the effect of exempting the buildings standing on lands held by foreigners under perpetual leases from the taxes and registration fees which are leviable in respect to other buildings; neither do they relieve foreigners from the obligation to pay income taxes in respect of incomes derived from property held under such leases.
The Government of His Imperial Majesty have given the most careful consideration to the observations which several of the foreign representatives have been pleased to address to them on the subject, and, although anxious to meet as far as possible the views of the interested powers on this, no less than on other branches of the question, they have been unable, I regret to say, to bring themselves to the conclusion that the provisions of the treaties now in force exempting property held under [Page 688] perpetual leases from taxation have the extended meaning which has been claimed for them.
The Imperial Government experience no difficulty in admitting the wide significance of the word “property” which appears in the conventional stipulations referred to and which is chiefly responsible for the issue which has been raised. The word is generic in its nature, and, when used in its generic sense, it comprises everything, movable as well as immovable, that is susceptible of individual appropriation and exclusive enjoyment. But in the context in which it is employed in the treaties the term is subject to a controlling qualitative limitation.
That limitation specifically restricts the guaranty against taxation to property held under leases in perpetuity. The property held under perpetual leases is, in the opinion of the Imperial Government, necessarily limited to the property granted by those leases, for it seems clear to them that no property not actually granted by the leases can be held under the leases.
By reference to the leases and the arrangements of an international character under which the leases were issued, it will be found that the property granted by the leases was exclusively land. The buildings standing on the leased land formed no part of the granted property. On the contrary, they have, without exception, been erected since the leases were issued, and, equally without exception, are the absolute property of the lessees.
The Imperial Government have drawn from this chain of circumstances what seems to them to be the natural and inevitable conclusion that the buildings standing on the leased land, not having been included in the original grants and being still held wholly independently of those grants, can not be said to be held under the leases in question, and are, therefore, outside the purview of the conventional engagements exempting property held under such leases from taxation. Nor is it perceived how it would be possible to bring such buildings within the scope of those engagements, unless it be assumed, in contradiction of actual facts, that they, equally with the land, belong to the Imperial Government and that they actually form a part of the property granted by the leases.
If the contentions of the Imperial Government are correct, it follows as a necessary corollary that the buildings in question are subject in all respects to the revenue laws of the empire. They are, by treaty, guaranteed national and most favored nation treatment in the matter of taxation, and the Imperial Government are prepared to assert that the taxes imposed are neither discriminatory nor excessive.
The Imperial Government find it equally impossible to reconcile their convictions with the claims which have been made respecting the applicability of the income-tax law to incomes flowing from property held by foreigners under leases in perpetuity.
The tax in question is limited to actual incomes. In no cases is it applicable to sources of income. It is in its incidence and attributes essentially a personal and not a property tax, and the Imperial Government are unable to persuade themsevles that the general imposition of that tax contravenes to any extent the provisions of existing treaties, which exempt property held by foreigners under leases in perpetuity from taxation.
Many foreigners have voluntarily paid both the building and income taxes. Others, however, knowing that the question was under consideration, have delayed action. The Imperial Government were not in a position to express any decided opinion on the various points raised in connection with perpetual leases until the necessary enactments had been issued; and, accordingly, grace has hitherto been allowed in the matter of the payment of the taxes in question. But in view of what has been said, it will now be necessary to let the provisions of law relating to the collection of taxes take their usual course.
I avail, etc.,
Minister for Foreign Affair.