The Secretary of State to the Japanese Ambassador (Matsudaira)

Excellency: I have the honor to refer to your Embassy’s note, No. 17 dated February 12, 1925, regarding the establishment of reciprocity between the United States and Japan with respect to the exemption from taxation of income derived from the operation of merchant vessels, in which is set forth your Government’s interpretation of law No. 6 promulgated by the Government of Japan, July 17, 1924.

The Treasury Department, to which a copy of the Embassy’s note was referred, in a communication of March 17, 1925,9 refers to a [Page 456] conference held at that Department in December last, between a representative of the Embassy and officials of that Department, in which the points mentioned in the memorandum accompanying the Embassy’s note of November 6, 1924,10 were informally discussed. The Treasury Department assumes that, in view of the unqualified use of the word “office” in the Embassy’s note of February 12 referred to above, and of the conclusions reached at the conference mentioned, it is now mutually understood that the exemption to be accorded by Japan is to be absolute and that such exemption shall not be affected by the nature of the office maintained in Japan by a citizen or corporation of the United States.

The Treasury Department adds that upon the explicit understanding that a citizen of the United States non-resident in Japan, and a corporation organized under the laws of the United States, is thus exempted, irrespective of the question whether such citizen or corporation has an office, main or branch, place of business or an agent in Japan, it is of the opinion that Japan satisfies the requirements of Section 213(b) (8) of the Revenue Act of 1924.

The Treasury Department observes that the Japanese law No. 6 became effective July 17, 1924, the date on which it was promulgated and states that if the Japanese Government will furnish a statement that the provisions of the law mentioned will be applied as at present interpreted retroactively from and including July 17, 1924, the income of a non-resident alien individual or a foreign corporation from sources within the United States which consists exclusively of the earnings of a ship or ships documented under the laws of Japan shall be deemed exempt from July 17, 1924, from Federal taxation under the equivalent exemption provision of Section 213(b) (8) of the Revenue Act of 1924.

Accept [etc.]

For the Secretary of State:
J. V. A. MacMurray
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