Mr. Buck to Mr.
Hay.
United
States Legation,
Tokyo,
Japan, April 26,
1902.
No. 637.]
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.,
[Page 713]
[Inclosure 1.]
The British minister
to Baron Komura.
British Legation,
Tokyo, February 25,
1902.
No. 16.]
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.,
[Inclosure
2.—Translation.]
Baron Komura to
the British Minister.
Department of Foreign Affairs,
Tokyo, March 15, 1902.
No. 15.]
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.,
