The Acting Secretary of State to the Japanese Chargé ( Yoshida )
Sir: I have the honor to refer to your notes No. 73 of August 4, and No. 81 of September 13, 1924,6 regarding the establishment of reciprocity between the United States and Japan concerning the exemption from income tax of earnings derived from the operation of merchant vessels documented under the laws of the respective countries. You enclosed with your note of September 13 a translation of a law No. 6 promulgated by your Government on July 17, 1924, regarding the exemption from income tax of earnings derived from the operation of vessels of foreign registry and requested that it be substituted for the translation quoted in your note of August 4. In the last mentioned note you inquired whether the law satisfies the provisions of Section 213 (b) (8) of the United States Revenue Act of 1924.
The law of July 17, 1924, as transmitted with your note of September 13, reads as follows:
“A” Foreigners or foreign juridical persons who have no domicile in Japan shall be exempted from income tax in respect of the income derived from vessels of foreign nationality, except in cases where a country whose nationality is possessed by the said vessels does not grant similar exemption in regard to the income of Japanese vessels.[Page 454]
“The present law shall come into operation on the day of its promulgation, (July 17, 1924.)”
The Treasury Department, to which copies of your notes were referred for consideration, calls attention to a statement in its letter of June 18, 1924,7 which was quoted in my note of June 26, 1924, to the Japanese Ambassador8 in reply to the inquiries contained in his note of May 27, 1924,7 regarding the establishment of reciprocity between the United States and Japan concerning income derived from the operation of merchant vessels. This statement, which appears at the end of the first paragraph of page 4 of the note of June 26, reads as follows:
“It is deemed advisable to point out that the exemption granted by the Japanese law to the United States corporations must be absolute, that is, the exemption must apply to all United States corporations even though such corporations have a branch office, a place of business or an agent in Japan.”
The Treasury Department observes that under the term “Foreigners or foreign juridical persons who have no domicile in Japan”, as used in the law promulgated by the Japanese Government, the exemption of a citizen of the United States non-resident in Japan or of a United States corporation upon income derived from the operation of ships documented under the laws of the United States might be destroyed by the citizen or corporation having an office or place of business or an agent in Japan; that if such should be the case, it would follow that the Japanese law of July 17, 1924, does not satisfy the equivalent exemption provision of Section 213 (b) (8) of the Revenue Act of 1924.
In view of the doubt as to the construction which may properly be placed on the provisions of the law, the Treasury Department desires a statement from the Japanese Government concerning the interpretation which that Government places upon the provisions in question. It also desires to be furnished with a statement from the Japanese Government
“whether a citizen of the United States, a non-resident in Japan, or a corporation organized in the United States, under the Japanese law promulgated on July 17, 1924, would be subject to Japanese taxes upon so much of their income as consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of the United States if such citizen or corporation were engaged in business in Japan or had an office, place of business or an agent in Japan.”
If you will be good enough to furnish me with a statement from your Government on these points, I shall be glad to transmit it to the [Page 455] Treasury Department for the purpose of determining whether the reciprocal exemption provided for in Section 213 (b) (8) of the Revenue Act has been established.