The Japanese Ambassador (Matsudaira) to the Secretary of State

No. 72

Sir: In your note dated March 27, 1925, you were good enough to inform me of the opinion of the Treasury Department 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 are exempted by Japan from taxation of income derived from the operation of merchant vessels documented under the laws of the United States, irrespective of the question whether such citizen or corporation has an office—main or branch,—place of business, or an agent in Japan, Japan satisfies the requirements of Section 213 (b) (8) of the Revenue Act of 1924.

Pursuant to instructions from my Government, I have the honor to state that with regard to your observation as to the date on which the reciprocal exemption is to be carried out, the provisions of the Japanese Law No. 6 will be applied as at present interpreted retroactively from and including July 18, 1924, the date on which the law was promulgated.

I am further instructed to state that in putting into effect the present arrangement of reciprocal exemption, the Japanese Government propose the following methods to be adopted by both countries in order to prevent any differences of opinion which may arise in making complicated calculations involved in this matter:

Income of an individual acquired during the calendar year of 1924 shall be exempt from taxation.
Income of a juridical person acquired during its fiscal year ending on or after the 18th of July, 1924, shall be exempt from taxation.
Determination of tax, if already made on the income mentioned in (1) and (2), shall be cancelled.
Income preceding that mentioned in (1) and (2) is subject to taxation.
With regard to an income preceding that mentioned in (1) and (2), no additional amount of tax shall be imposed nor any reduction of tax shall be made even in case of error in assessment. The same principle shall be applied to income on which the amount of tax to be imposed is now in dispute.

I beg to add that as the Japanese law in question is intended to be put into force not only in Japan proper, but in its possessions and territories as well, my Government are desirous that your Government will see its way to adopt the same principle in the practical application of its law bearing upon this subject.

Accept [etc.]

T. Matsudaira