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, Japan, April 26, 1902.
Sir: As a matter of interest, as respects the controversy over the troublesome question of tax on buildings erected on perpetual leaseholds in the foreign settlements, and in respect of the proposal of the Japanese Government to arbitrate that issue, I have the honor to inclose a copy of the note presented to the Japanese minister for foreign affairs by the British minister, of date February 25 last, and the reply of the minister for foreign affairs of the 15th ultimo proposing arbitration.
It will be observed that the British minister disclaimed having had any purpose to include the question of “income tax” as involved in the controversy.
As a result so far of the proposal of the Japanese Government to arbitrate the question of the house tax, the French minister, in behalf of his Government, accepted at once, and the Netherlands Government has informed the Japanese Government that it will not take part in the arbitration proceedings, but will abide by the result of the arbitration, taking a similar position to that of the United States; but the British minister has not yet signified an acceptance for his Government, and he is now endeavoring to have collateral questions submitted.
* * * * * * *
On the 22d instant the British minister called upon me and said that he had received a telegram from his Government informing him that the British ambassador at Washington had reported that he had been informed at the State Department—since your telegraphic instruction of the 24th ultimo that I need not take further action on your telegram of the 19th ultimo, as I understood him—that I had been instructed to contend for arbitration of all questions arising under Article XVII of our treaty with Japan, and he seemed to be surprised that I had not yet received such instruction.
The arbitration of the house-tax issue as proposed would, in my opinion, logically settle the important question of the right to impose the charge of 2| per cent of the value for registration of buildings and, perhaps, some other matters concerning which there is a difference, or a possibility of it. If the buildings should be declared free from municipal taxation, as is the land, then it would follow that they would be free from the registration and other charges, as the land is.
I have, etc.,
The British minister to Baron Komura.
Tokyo, February 25, 1902.
Monsieur le Ministre: My attention has lately been called to a rumor which is current to the effect that the imperial foreign office is not satisfied with the dispatch which I had the honor to address to your excellency on October 29 last on the subject of the house tax, inasmuch as it was not considered to contain any arguments of a nature to invalidate the contentions put forward in your excellency’s note No. 57, of October 21, and which was under reply.
In the event of there being truth in this rumor, I hasten now to expose to you more fully the grounds on which His Majesty’s Government base their objections to the proposed measure, confining myself, however, for the present moment, to the points raised in your excellency’s above-mentioned communication.
In the first place, it is therein stated that “the guaranty against taxation is specifically restricted to property held under leases in perpetuity,” and that “the property held under perpetual leases is, in the opinion of the Imperial Government, necessarily limited to the property granted by these leases;” * * * that the property granted by the leases was exclusively land, and that the building erected on that land formed no part of the granted property.
From this the Imperial Government draw the conclusion that the houses, not having been included in the original grants, are outside the purview of the conventional engagements exempting property held under such leases from taxation.
I beg leave to point out to your excellency that the land was granted, specifically, for purposes of trade and residence; the very situations of the concessions rendered them useless, nor can it ever have been contemplated to use them for any other purpose than for the construction of buildings.
Further, to show even more clearly how definite was the view of the Imperial Government in regard to the nature of such property, in some of the decrees regulating the grant of these lands a provision was inserted in the regulations to be observed to the effect that leaseholders “will be required, under penalty of forfeiture of title deed, to erect, within six months after date of title deed, in accordance with these regulations, buildings of a value not less than,” etc.
In the face of such documents as these, it appears difficult to perceive how the buildings standing on the leased land can be considered as “still held wholly independently of these grants,” whereas the very lease became invalid were the buildings not erected.
It is truly observed, however, that the buildings can not be said to belong, equally with the land, to the Imperial Government, as they were obligatorily constructed in fulfillment of the terms of the contract, at the expense and risk of the leaseholders. Moreover, the lands assigned were, at the time of cession, of an almost nominal value, and have only now assumed a position of importance owing to the industry and enterprise of those leaseholders.
I would next beg to call your excellency’s attention to article No. 21 of the treaty of navigation and commerce concluded between the Imperial Government and that of the French Republic and ratified at Tokyo in 1898, the conditions of which, under most-favored-nation treatment, apply no less to the subjects of His Britannic Majesty than to French citizens. This article runs as follows:
“Les divers quartiers étrangers qui existent au Japon et feront dès lors partie du système municipal du Japon.
“Les autorités japonaises compétentes assumeront en conséquence toutes les obligations et tous les devoirs municipaux qui résultent de ce nouvel état de choses et les fonds et biens municipaux qui pourraient appartenir à ces quartiers seront, de plein droit, transférés aux dites autorités japonaises.
“Lorsque les changements ci-dessus indiqués auront été effectués, les baux à perpétuité, en vertu desquels les étrangers possèdent actuellement des propriétés dans les quartiers, seront confirmes, et les propriétés de cette nature ne donneront lieu à aucuns impôts, taxes, charges, contributions ou conditions quelconques autres que ceux expressément stipulés dans les baux en question. II est entendu toutefois qu’aux autorités consulaires dont il y est fait mention, seront substituées les autorités japonaises.”
The wording of this clause, owing doubtless to the superior lucidity of the tongue in which it is expressed, is more clear and specific than that of the parallel passage in the treaty concluded with Great Britain. The word “quartier” is, and can be, applied in no other sense than to indicate a portion of a town, that is to say, land which is occupied by buildings, and the treaty proceeds to state, in the most open [Page 714] terms, that property of this nature shall not give rise to any form of charge other than those expressly stipulated in the leases. I have as yet seen no lease in which any mention, however indirect, is made of a house tax.
Until this principle has been successfully impugned, it appears to me to be beside the question to discuss whether the tax, which it is proposed to enforce, be discriminatory or excessive.
I would next point out that no representation on the question of income tax has yet emanated from this legation.
With regard to the number of persons who have voluntarily paid the house tax—though I am unable to perceive how facts of this nature can tend materially either to strengthen or invalidate the main point at issue—I find that even at the present date the total amount paid for the house tax amounts roughly to 20 per cent of the sum claimed, of which about 3 per cent has been contributed by British subjects, or about 7 per cent of the sum due from them. The interests of British subjects are very much more seriously affected than are those of the subjects of any other power, and their reluctance to pay is naturally proportionate. But if, indeed, such facts are to be adduced as arguments on either side, I venture to express a belief that, even if the total of contributions of all nationalities be adopted as the criterion, the balance will still incline in favor of the reasons which I have had the honor to maintain.
These are replies to some of the arguments set forth in your excellency’s note, but in conclusion I would again beg to point out that the whole question is one of the interpretation of a clause in a treaty (the official text of which is English) as between the Government of Japan and the British Government, and that Great Britain has a right in the treaty text, and its interpretation, fully equal to that of Japan.
I avail, etc.,
Baron Komura to the British Minister.
Tokyo, March 15, 1902.
Monsieur le Ministre: I have the honor to acknowledge the receipt of your excellency’s note of the 25th ultimo, in which, referring to a rumor to the effect that this department was not satisfied with your excellency’s note of October 29 last, respecting the house tax question, inasmuch as it was not considered to contain any arguments invalidating the contentions advanced in my communication of the 21st of the same month, your excellency exposes more fully the grounds on which His Britannic Majesty’s Government base their objections to the measure.
Before addressing myself to those objections, I wish to say that the rumor to which you advert was without foundation. The Imperial Government, desiring to give fresh evidence of their spirit of conciliation, endeavored, so far as possible, to meet the views of your excellency’s Government on all points connected with the former settlements. So far, however, as they felt bound to adhere to the position previously taken by them, they assigned the reasons which controlled their action.
It has seemed to them that those reasons were conclusive, and they had confidently expected that their arguments would also carry convictions to His Britannic Majesty’s Government. That that expectation was not realized was a source of regret to the Imperial Government. I must also admit that it was a disappointment to them that your excellency deemed it sufficient to confine your reply to a renewal of the protest previously formulated on the subject, because it was feared that that course could not have the effect of lessening the difficulty of finding a solution of the question. Your excellency will accordingly understand that I was especially glad to receive the note now under acknowledgment, since it seemed to open the way for a possible adjustment of the point at issue.
I am, however, at the same time compelled to say that, notwithstanding your excellency’s exposition, the Imperial Government remain unshaken in the conviction of the accuracy of their previously announced attitude.
Your excellency, in combatting the views of the Imperial Government, relies upon the single proposition that the land held under perpetual leases in the former settlements “was granted, specifically, for purposes of trade and residence” and was intended exclusively “for the construction of buildings.” In support of that proposition you refer to the building requirements which appear “in some of the decrees regulating the grant of these lands,” and you also cite article 21 of the treaty of 1896 between Japan and France, the conditions of which, under most-favored-nation treatment, [Page 715] you add, “apply no less to the subjects of His Britannic Majesty than to French citizens.”
Your excellency will, no doubt, be surprised to learn that the building requirements to which you invite attention had reference exclusively to land granted freely upon application without the payment of any purchase money, and not to holdings which were bought and paid for. Those requirements were imposed, like several other restrictive conditions, for the unique purpose of preventing land speculation. When the reasons which gave rise to those conditions disappeared, as they did very shortly after the first settlements were formed, the conditions themselves fell into desuetude and are in no case recognized as having binding force.
I should, moreover, point out, in order to remove the danger of future misapprehensions, that the instruments in which the building requirements appeared, were not “decrees” in the sense of domestic enactments, but were regulations agreed to by the local Japanese authorities and the foreign consuls.
With the same object in view I wish to say that, while the Imperial Government have no intention in practice to withhold from British subjects, in the matter under consideration, any rights or immunities which are enjoyed by the subjects or citizens of any other power in virtue of treaty stipulations, they can not admit, in principle, that your excellency’s nationals can, under the most-favored-nation rule, claim, by reference to the Franco-Japanese treaty, any rights or immunities superior to those which have actually been recognized as belonging to French citizens, and I may add that the question of the nature and extent of the rights and immunities really granted by article 21 of the Franco-Japanese treaty is now under discussion between the two powers directly interested.
Turning next to your excellency’s principal contention, you will permit me to say that I am unable to see how the object for which the land was granted—assuming that it was granted in all cases for building purposes alone—can be said to affect the right of taxation in respect of property other than that actually granted.
If land is granted it must in the nature of things be granted for some purposes, and I fail to perceive why the mere declaration of the object of the grant should be held to deprive the granting state of rights which would belong to it if the object of the grant remained undeclared. I can not believe that a limitation upon an essential attribute of sovereignty, such as the right of taxation undoubtedly is, can be inferred from such a distinction.
Japan’s ancient treaties provided that the subjects and citizens of the treaty powers should have the right, at the several open ports and towns, to lease ground and to purchase buildings thereon and to erect dwellings and warehouses.
In pursuance of that stipulation ground has been leased and buildings have been purchased and erected. The land having been granted by the State, subject to a rent charge, is exempt from taxation, but the Imperial Government claim that the buildings so erected, equally with all other property, saving only the property so leased, are subject to the revenue laws of the Empire. Nor can they admit that the confirmation of the leases or the exemption of the property held under such leases from taxation, which is guaranteed by the new treaties, extends to the buildings standing on the leased property any more than it does to other property belonging to the land renters.
Your excellency seems to regard the fact that the leases in perpetuity make no mention of a house tax, as inconsistent with the contentions of the Imperial Government.
It should be remembered that the leases in question are leases of land and of land alone, and, viewed in the light of this fact, it is thought that any reference in such leases to taxes on property not granted by the leases was not only unnecessary but would have been entirely out of place.
The leases containing the forfeiture clause to which your excellency alludes also provide, under the same penalty, that any transfer of the leased ground must be reported to the proper consul and through him to the governor for their joint assent and concurrence and for due registration. Buildings standing on the leased land are constantly purchased and sold and removed without the consent or authorization of either of the functionaries mentioned in the leases, such consent and authorization not being regarded as essential to pass good titles. It was in this sense that I wished your excellency to understand my assertion that the buildings in question are “still held wholly independently of those grants.”
And in order to draw more sharply, if possible, the distinction which really exists in the matter of title between the leased land and the buildings thereon, I beg to invite your excellency’s attention specifically to the forfeiture clause in the leases which you cite. It is therein declared that in case of default in any of the specified directions, the lease “shall become null and void and the buildings on said land shall become the property of the Japanese Government.”
[Page 716]It may, I think, be fairly assumed from this provision that those who were responsible for the form of the leases in question shared the view of the Imperial Government that the buildings can not be said to be held under the leases, for if the leases cover both kinds of property, then the mere cancellation of those instruments would be sufficient to vest title to the buildings equally with the land in the Government.
The Imperial Government concur entirely with your excellency in the opinion that the question of the number of persons who have voluntarily paid the house tax does not tend to strengthen or invalidate the main contention any more than would reference to the number of persons who have failed to pay that impost, and I believe your excellency will find if you will turn to my previous communication on this subject that I did not cite the fact in support of the arguments of the Imperial Government.
In conclusion I wish to say that the Imperial Government still hope that His Britannic Majesty’s Government will find it possible to accept their conclusion as to their right, in view of their treaty engagements, to impose the house tax in respect of buildings standing on land held under governmental leases in perpetuity in the former settlements. If, however, they are disappointed in that hope, the Imperial Government— recognizing, as your excellency justly observes, that the question depends upon treaty stipulations, in the interpretation of which neither contracting party can claim any exclusive right—will in principle consent to submit the point at issue to impartial arbitration.
The Governments of Germany, France, and the Netherlands have also raised objections to the imposition of the tax in question. It would manifestly be impossible for the Imperial Government to agree to separate arbitration in each of these cases; and your excellency will, I am confident, agree with me that the rights of all should be definitely determined by a single reference. If this proposition is agreed to by the powers interested, the details of the submission can very readily be elaborated.
I should add that the laws affecting the question which the Imperial Government are prepared to refer to arbitration will, pending the final determination of the matter, naturally continue to take their normal course.
I avail, etc.,