Mr. Buck to Mr. Hay.

No. 616.]

Sir: I have the honor to acknowledge the receipt of your instruction No. 377, of the 12th ultimo, concerning the question of tax on buildings erected on property held by Americans under leases in perpetuity in the former foreign settlements in Japan, and concerning the tax on incomes derived from such property.

Immediately upon the receipt of the instruction, following the directions given, I applied to my British, French, German, and Netherlands colleagues for copies of such notes and arguments as they had presented to the Japanese Government upon those questions. Each having kindly complied with my request by furnishing copies of such notes and parts of notes as touched upon those subjects, I inclose them herewith.

As to the tax on incomes derived from property held under perpetual leases, none of the representatives of the powers here who protest against the house tax seem to be of opinion that there is much if any ground on which to base a protest, and have not contended for exemption from such tax, the present representative of France included, though his predecessor had claimed exemption from that as well as the “house tax.”

The representatives of other powers have taken little if any interest in the questions at issue, having few if any nationals interested, and, except the Russian and Belgian ministers, have expressed no opinion of which I am aware. Each of those have given consideration to these matters, and have expressed great doubt if oppositions to these taxes are well founded.

* * * * * * *

I have, etc.,

A. E. Buck.
[Inclosure 1.—Translation.]

The German chargé d’affaires to the Japanese minister for foreign affairs.

Mr. Minister: Count von Leyden, the Imperial German minister, now absent on leave, had the honor to submit to your excellency in his notes dated the 22d September and 27th October of last year, a series of observations in respect to the treatment given by the Japanese Government to the landed property in the former foreign settlements in Japan. Count von Leyden presented a report to the foreign office in Berlin on the above observations, as well as on the arguments propounded against them by the Imperial Japanese Government in the two memoranda of November 15, 1899. At the same time he asked for instructions as to the attitude to be assumed by this legation.

Being now in receipt of those instructions, I have the honor to lay before your excellency, in the following manner, the standpoint taken by my Government in reference to the contentions which have arisen between the representatives of the foreign powers and the Japanese Government.

* * * * * * *

4. Taxation of the buildings erected on the land in question.

For deciding the question whether buildings on land in the settlements may be subjected to communal or prefectural taxation, No. 3 of the note appended to the German-Japanese commercial treaty of the 4th April, 1896, the contents of which were confirmed by your excellency, is of most important significance. From that it is evident that the intention of the Imperial Government was to protect the owners [Page 700] of landed property in the settlements as such, against taxation of whatever nature beyond the stipulated ground rent. As, however, those pieces of land were to serve in the first place the purposes of residence, the guaranty in question would have been, from the very beginning, of no practical value if the buildings erected thereon could be burdened with taxes of optional amount.

I have, therefore, been instructed to demand for the German subjects settled in Japan the exemption from house taxes imposed in respect of landed property in the settlements.

I avail, etc.,

Graf von Wedel.
[Inclosure 2.—Translation.]

The German minister to the Japanese minister for foreign affairs.

Mr. Minister: I have the honor to acknowledge the receipt of your excellency’s note (No. 62) of the 21st instant, in which you are good enough to call my attention to law No. 39, of the 20th of September, 1901, which was promulgated on the 21st of last month. I have submitted that law to my Government.

In the note above referred to your excellency further informs me that, according to this new law, buildings on land in the foreign settlements are subject to the same taxes and rates as other buildings.

Your excellency is aware that my Government, on account of the existing treaty, do not share that view, and that they have claimed exemption from those taxes and rates for the German subjects.

This point of view is still maintained by my Government, and I have therefore, in accordance with instructions received by me, the duty to herein expressly repeat the same declaration, to protest against the collection of house tax from German subjects, and to reserve the rights of the latter against all losses and disadvantages which they may suffer in consequence of the collection of these taxes and rates.

Accept, etc.,

Graf von Arco Valley,
Imperial German Minister.
[Inclosure 3.—Translation.]

Mr. Harmand, minister of France, to the Japanese minister for foreign affairs.

Mr. Minister:* * * Mr. Delcassé likewise informs me that we agree with the British Government in considering the collection of a special tax on the houses of the former foreign concessions to be contrary to the spirit and to the letter of the treaties which bind us. Without wishing to revert here to the considerations set forth in my former letters, and notably to the argument based upon the meaning, which is so very precise and definite, of the word “proprieté” written in the fourth paragraph of article 21 of the Franco-Japanese treaty of 1896, I will confine myself for the present to recalling a fact which should be mentioned which may have escaped your excellency’s recollection. At the time of the discussion of the Anglo-Japanese treaty of 1896, the Japanese negotiator, the Viscount Okabe, had adopted for Article XII in his first draft of a convention a wording in which the continuance of the (taxe foncière, land rate or rent?) land tax set down in the perpetual leased concerned only property in land (biens foncières, real property). The British counter proposal (p. 108, Annex B of the Blue Book sent to the British Parliament in August, 1896) omits the qualifying word “real,” which was not again brought up in the course of the subsequent discussions. That is a circumstance of a positive value, the importance of which can not but be recognized. It makes the complement of all the arguments that I have previously had the honor to give you, and which all militate in favor of the good foundation of the French citizens’ claims of exemption from the payment of the house tax.

[Inclosure 4.—Translation.]

Mr. Harmand, minister of France, to the Japanese minister for foreign affairs.

Mr. Minister: Under date of April 30 last I had the honor to communicate to your excellency a petition of the French citizens of Yokohama against the claim of [Page 701] the financial administration of Japan to include, in determining the apportionment of the income tax due from them, the resources or profits that they obtain from the houses or lands which they possess in the former European concession.

Under the same date I brought the same document to the knowledge of my Government. In reply to that communication the minister of foreign affairs has just transmitted to me instructions in which he sets forth the way in which the Government of the Republic views this subject; and I hasten to make known to your excellency their tenor.

My Government considers that the wording itself of article 21 of the Franco-Japanese treaty of 1896 formally indicates not only that no new tax can be imposed upon the properties to which that article refers, but also that no charge other than those determined by the lease can be borne by the perpetual tenant (localaire perpétuel) of the lands, from the fact of their being in possession. Now it is incontestable that if the revenues of these properties were included in the calculation of the taxes that each resident must pay to Yokohama upon his income, the said properties would give rise to taxes from which their holders are expressly exempted by the terms of article 21 of our treaty.

Placing the question upon a juridical footing, our nationals have therefore protested (reclamé) with good reason, relying upon article 21 of our treaty, against the fact of the “Yokohama revenue administration bureau’s” putting upon the income-tax rolls the rents or the estimated value of their properties within the limits of the former concession.

Consequently my Government asks me to call the attention of the Imperial Government to the fact that in so doing the “Yokohama revenue administration” has lost sight of the above-cited stipulation of article 21 of the treaty of 1896.

It is important, moreover, to call your excellency’s attention to the fact that it is in carrying out a formal convention, entered into after a very long and exhaustive discussion between our two Governments, that the lands forming the former concessions in the Japanese ports have been placed upon a special footing (determined in respect to what concerns France by article 21 of our treaty), not only from the point of view of taxes, but also from every other standpoint. It is not understood, then, why the Japanese authorities persist in wishing to ignore it. This exceptional regimen applies, moreover, to so inconsiderable and limited a space that its annulment really has not any practical interest. There is no country where, as a result of geographical, political, or other conditions, exceptional instances of the same sort may not be observed; to speak only of France, have we not exempted zones where our customs tariff system can not be applied, neutral zones where our military activity can not be carried on, and these limitations to our sovereignty are far more irksome than those created by the recent treaties in favor of the former European quarters of the open cities of Japan. Much more, they have, in our country, lost their raison d’être, no longer meeting any need, in consequence of the modification, in other respects, of the state of things to meet which they had been instituted. Nevertheless, we have never sought to free ourselves from them of our own arbitrary will (de noire seule volonté) because the principle which should outweigh all others in the relations between civilized nations is respect for conventions.

So my Government does not wish to doubt but that the Imperial Government will take into consideration from the lofty point of view which is appropriate in such cases, the difficulties which arise from the properties situated in the former concessions, and that they will recall to a scrupulous observance of the conventions the agents of the Administration who violate, in their zeal, the text of solemnly concluded and ratified international arrangements.

[Inclosure 5.—Translation.]

Article 21 of the Franco-Japanese treaty of August 4, 1896.

The Government of the French Republic gives, in so far as they are concerned, their consent to the following arrangement:

The various foreign quarters which exist in Japan shall be incorporated into the respective municipalities of Japan, and shall thenceforward form part of the municipal system.

The competent Japanese authorities shall consequently take upon themselves all the obligations and all the municipalities which result from this new order of things, and such municipal funds and properties as may belong to those quarters shall be, by consummation of law(ipso facto? de plein droit), handed over to the said Japanese authorities.

[Page 702]

When the changes indicated above shall have been effected, the leases in perpetuity in virtue of which foreigners now hold property in the quarters shall be confirmed, and properties of this nature shall not give rise to any imposts, taxes, charges, contributions, or conditions whatsoever other than those expressly stipulated in the leases in question. It is, at the same time, understood that for the consular authorities mentioned therein the Japanese authorities shall be substituted.

Such lands as the Japanese Government may have given rent free in consideration of the public purposes for which they were appropriated shall remain, under the limitations of the rights of territorial sovereignty, permanently free from all imposts, taxes, or charges, and they shall not be deflected from the use for which they were originally intended.

[Inclosure 6.]

The British minister to the Japanese minister for foreign affairs.

Memorandum.

His Britannic Majesty’s minister desires to lay before his excellency the Japanese minister for foreign affairs for his consideration the following observations on the subject of the charges proposed to be levied on property held by British subjects in the foreign settlements in Japan, under perpetual leases granted by the Imperial Government.

By article 18 of the treaty of the 16th of July, 1894, by which the consent of His Britannic Majesty’s Government is given to the incorporation of the foreign settlements in Japan with the respective Japanese communes, and by which it is provided that the competent Japanese authorities shall thereupon assume all municipal obligations and duties in respect thereof, it is further provided that “When such incorporation takes place existing leases in perpetuity under which property is now held in the said settlements shall be confirmed, and no conditions other than those contained in such existing leases shall be imposed in respect to such property.”

The first observation which His Britannic Majesty’s minister desires to make is that the property referred to in the article cited above includes not only the land comprised in the respective leases, but also all the buildings erected thereon. If any doubt existed on this point it would be dispelled by a consideration of the circumstances under which land in the foreign settlements was originally granted.

The proposed charges to which it is desired to call the attention of his excellency are:

1.
The imperial and local taxes on land.
2.
The imperial and local taxes on buildings.
3.
The charge of 2½ per cent which it is sought to make on the registration of transfers.

From all these charges the land and buildings have been hitherto entirely exempt, with such exceptions only as are contained in the respective title deeds, and under the provisions of article 18 it is clearly intended that they should continue to be so exempted.

With regard to local taxation on land or buildings, it may be observed that under the regulations for the original leasing of land at Yokohama and Nagasaki it was agreed that “the streets, roads, and jetties will at all times be kept in thorough order, and sewers or drains will be made when necessary by the Japanese Government, and no tax will be levied on renters in the foreign quarters for this purpose.” And the obligation thus undertaken by the Japanese Government was subsequently extended to the policing and draining of the settlements.

And again, with regard to Kobe and Osaka, it was provided that the annual rent of one bu per tsubo reserved by the title deeds “shall be paid in advance into the municipality of each place, and shall be appropriated to the repairs of roads and drains, lighting the streets, or other municipal purposes, subject, however, to a first charge of one thousand five hundred and twenty-four bus at Osaka and one thousand six hundred and forty-one bus at Hiogo, which sums shall be paid annually to the Japanese Government as the ordinary land tax due on the said ground.”

If no stipulation whatever on the subject had been made in the treaty of 1894, justice and good faith would call for the due observance of the contractual obligations thus created between the Japanese Government and the foreign renters, but the [Page 703] stipulations of the treaty go much further and are intended to secure the exemption of the property referred to from every impost not expressly provided for by the respective title deeds, and such intention, it is submitted, extends to all the three categories of charges mentioned for whatever purpose the charges are intended to be levied.

[Inclosure 7.]

The British minister to the Japanese minister for foreign affairs.

Memorandum.

Sir Ernest Satow is pointing out “the necessity of an express confirmation of the leases and of such provisions being made as will prevent any incidents being annexed to the leases which it is not intended by the treaty should be annexed to them, and that they should all continue to have the characteristics of a perpetual lease, the principal of which is most aptly expressed in the form adopted by His Imperial Japanese Majesty’s Government in 1868, namely, the land being leased in perpetuity subject to the conditions mentioned in the lease and the wording then employed being that the Japanese Government forego all rights and title to the occupancy of the same lot or any buildings thereon so long as the ground rent shall be paid as aforesaid.’”

[Inclosure 8.]

The British minister to the Japanese minister for foreign affairs.

Mr. Minister: * * * On the subject of the claim of the Japanese authorities to levy rates and taxes in respect of such land and the buildings thereon (land in the former foreign concessions in Japan), I have the honor to inform your excellency that I have now received a dispatch from His Majesty’s principal secretary of state for foreign affairs stating the conclusions at which His Majesty’s Government have arrived upon considering these questions with the law officers of the Crown.

* * * * * * *

As regards the claim of the Japanese authorities to levy local rates in respect of the buildings on such land, His Majesty’s Government can not recognize as valid the distinction which your excellency makes in the memorandum inclosed in your excellency’s note of the 15th of November last, between the right to tax the land and the right to tax the house. The house is the property of the perpetual leaseholder just as much as the land on which it has been built.

In the opinion of His Majesty’s Government, the provision in article 18 of the treaty that no conditions other than those contained in the leases shall be imposed in respect of the property, protects the perpetual leaseholder from local rates as well as from any additional rent or taxation. If any doubt could be entertained on the point, it would, they consider, be removed by the terms of article 21 of the French treaty and the note attached to the German treaty, to the benefits of which British subjects are entitled under the most favored nation article of the British treaty.

I have, etc.,

James Beethom Whitehead.
[Inclosure 9.—Translation.]

The Netherlands minister to the Japanese minister for foreign affairs.

* * * * * * *

I should also be glad to know whether the Imperial Government is of opinion that the “house tax” is due upon the houses that are built upon the lands received in [Page 704] perpetual lease, and what the arguments are that can be put forward to show the levy of that tax to be consistent with article 3 of the protocol to the treaty of commerce and navigation between the Netherlands and Japan.

Pray accept, etc.,

H. Testa.
[Inclosure 10.—Translation.]

The Netherlands minister to the Japanese minister for foreign affairs.

* * * * * * *

Your excellency at the same time points out to me that the said law has not the effect of exempting the buildings erected upon the lands occupied by foreigners in virtue of perpetual leases from the taxes and the registration charges which are leviable in regard to other buildings.

You will be good enough to excuse me, Mr. Minister, from sharing that view, which, in my opinion, would not be in harmony with the spirit of the treaties with reference to the history of perpetual leases.

When the lands in question were put up at auction and the rents for the perpetual leases were fixed, those rents were very high for that time, and much higher than the taxes levied upon other lands of the same kind. It is incontestable, then, that the object of the said rents was to exempt the lands, and, no less, the houses—which the purchasers were, moreover, obliged to build upon them—from taxes of every kind, present and future. Now, the new treaties have simply aimed at the confirmation of the rights acquired. Consequently, it was stipulated that the perpetual leases should be confirmed, and that the exemption from all taxes in respect to those properties should be maintained. Now, the acquired exemption from taxes evidently refers equally to the lands held in virtue of perpetual leases and to the buildings erected upon those lands.

In submitting these considerations to the favorable attention of the Imperial Government, I avail, etc.,

H. Testa.