894.0144/26

The Consul General at Mukden (Baker) to the Secretary of State

No. 229

Sir: I have the honor to refer to my despatch of February 6, 1919 which was transmitted to the Department with Legation despatch No. 2615 of March 31st last and to quote the following excerpt from the Legation’s despatch to this office No. 4588 of August 1st:56 [Page 452]

“I have to enclose for your information a copy of instruction No. 992 of the Department of State dated June 3rd dealing with the attempt of the Japanese authorities to levy an income tax and other matters. As the Department makes no definite ruling on the income tax it is desirable that you should report fully to it concerning this particular matter and ask a specific instruction as to whether or not Americans are to pay this tax in the future.”

The facts in this case are very simple and the issue is very clear. Mr. Grey’s letter transmitted with my despatch above mentioned describes the situation very well. There is not much to add excepting one or two details as to the amounts which the Japanese have tried to collect. That the levy is in the nature of an income tax admits of no question. Members of the Standard Oil Company, for instance, were assessed according to their several incomes. Mr. Grey was charged about forty-four Gold Yen per quarter, Mr. Callahan, whose salary is somewhat less, was charged about thirty Yen for the same period and others were charged in proportion. Mr. Shrap, the American Manager of the Shanghai Life Insurance Company, received a quarterly bill for about thirty-five Yen although he paid no rent and did not even live in a rented house and did not own any real property in the Japanese Concession. He was residing in the Yamato Hotel, which is owned and operated by the South Manchuria Railway. This income tax appears to be a general imposition which the Japanese are trying to levy and it is intended to defray the municipal expenses mentioned in my despatch of February 6th. As explained therein there seems to be no reason why Americans should not contribute something toward the maintenance of the settlement in which they live. It is the form of the tax rather than the tax itself which is most objectionable.

I enclose herewith a copy of my despatch of May 19th in this regard which was sent to the Japanese Consul General and also transmit a copy of his reply of August 8th together with the enclosure which he mentions. From the last mentioned document it appears that the Japanese consider the tax in the nature of “municipal rates” which are collected in British and other concessions in China and that the manner of assessment is more or less incidental and is determined by the financial ability of the persons assessed. The following quotation therefrom harmonizes with Mr. Grey’s statement of the case:

“Further the rate of imposition is assessed according to the residents’ individual economical capacity and such capacity having been carefully investigated by the local director of the administrative office in each district is reported to the head-quarter[s] of the company which decide the rate and class of such imposition taking the reports and other conditions into consideration.”

[Page 453]

As suggested on page three of my despatch of February 6th it seems desirable that the Japanese and American authorities come to some understanding about this matter so that the local officials concerned may know exactly where they stand and to what extent they will be supported in their contentions.

I have [etc.]

E. Carleton Baker
[Enclosure 1]

The American Consul General at Mukden (Baker) to the Japanese Consul General at Mukden (Akatsuka)

Sir and Dear Colleague: I have the honor to refer to our recent conversation with regard to the taxation of Americans in the Japanese settlement and to state that the method of assessing the tax in question does not seem to be in accord with your expressed opinion that the tax is not in the nature of an Income Tax but is the same as the “rates” which are collected in other foreign settlements in China.

The Americans living in the Japanese settlement are perfectly willing, as I explained, to contribute their reasonable share toward the upkeep of the settlement but they do not consider that they are liable to the Income Tax which the Japanese are trying to collect. The Japanese tax officials have made it very evident that the levy which they are imposing is an Income Tax, for people enjoying exactly the same privileges are charged various amounts according to the salaries which they receive. The Japanese assessors, in fact, asked each man what his income was.

While it seems proper that American citizens living within the Japanese Concession should contribute their reasonable share to the cost of municipal services, the levying of an Income Tax does not seem to be a suitable manner of accomplishing this. There is an underlying difference in principle between the taxation of real property and personal taxation. In giving a “concession” to a foreign power, the land itself is made the subject of an agreement between China and the grantee Government; it would therefore seem logical to conclude that together with the land the Chinese Government might delegate to the grantee Government the right to levy thereon charges necessary for maintaining the local Municipal service. This is done, for instance, in the British Concession, where, however, the principle of representative Government is applied and a vote is given to every rate-payer in controlling the Municipal services and finances.

I am sure that you will agree with me that the taxation of Europeans and Americans in the Japanese settlement is a question of great [Page 454]importance and that it has far reaching consequences. The method of assessing and collecting taxes should not be left to the discretion of the local tax officials in the Japanese settlement but should be investigated and determined by the highest Japanese and Non-Japanese authorities who are familiar with International Law and with the precedents which have been established in other places. This question has several important phases. One of these has to do with the established principle that there should be “no taxation without representation”. If, therefore, the Japanese Municipality in Mukden is disposed to tax Non-Japanese it should immediately take steps to have Non-Japanese members on the Municipal Council.

I have told certain Americans in the Japanese settlement that this important question is now the subject of negotiations between the Japanese and American Consulates General and that they may await the final decision before taking any definite action.

I assure you that I am willing to view this whole question in a liberal and broad minded spirit, but I feel that the issue involved is very momentous and that it should be determined according to the highest principles of International Law and in harmony with the most modern and enlightened ideas with regard to the taxation of people in one country by the officials of another.

I have [etc.]

E. Carleton Baker
[Enclosure 2]

The Japanese Consul General at Mukden (Akatsuka) to the American Consul General at Mukden (Baker)

Sir and Dear Colleague: I have the honor to acknowledge the receipt of your despatch dated May 19th, regarding imposition of public expenditure upon Americans in the Japanese settlement here.

I did not lose no time to refer this matter to the President of the S.M.R.C., from whom I have just received the reply in the sense stated in the enclosure.

I have [etc.]

S. Akatsuka
[Subenclosure]

The President of the South Manchuria Railway Company to the Japanese Consul General at Mukden (Akatsuka)

In Article 6 of the treaty under which Eastern Chinese Railway was organized it is expressly stipulated that the administrative power of Russia in the railway zone is absolute and exclusive. This [Page 455]railway zone together with its administrative power, as it was, was transferred to Japan by the Russo-Japanese Treaty of 1905. The Government of Japan have delegated the administration of railway concession to the S.M.R.C. by an order under which this Company was organized. The right of imposition of the public expenses in the railway zone is based on this Governmental commission and it is out of question that the residents in the area, regardless of their nationality, are subjected to such imposition. While the imposition of public expenses has its legal ground on the above stated transfer and delegation, the amount collected from such imposition is only a small portion of the whole expenditure required for the public work and its maintenance. Further the rate of imposition is assessed according to the residents’ individual economic capacity and such capacity having been carefully investigated by the local director of the administrative office in each district is reported to the head-quarter[s] of the Company which decide the rate and class of such imposition taking the reports and other conditions into consideration.

It appears that as the general rule a representative system of ratepayers be advocated in the concession, provided all those rate-payers are prepared to pay whole necessary expenditure for the public work and its maintenance. It should, however, be taken into consideration that the residents are paying only a small portion of such expenditure as above stated; for instance the administrative expenditure in 1917 in the whole railway concession was more than ¥.18,420,000, while the collection from the residents was more or less ¥.1,170,000, that is only 6 per-cent of the total sum defrayed by this Company, while 94 per-cent of the total sum is borne by the Company—roughly speaking nearly total expenditure. In the present individual economical condition it is doubtless impossible to collect from the residents the total sum required for public expenditure and it appears that the representative system is yet too early to be adopted.

[No signature indicated]
  1. Legation’s despatch No. 4588 not printed.