895.63 Or 4/43

The Chargé in Japan ( Neville ) to the Secretary of State

No. 992

Sir: I have the honor to transmit copies of two letters dated August 6 and September 25, 1934, with their enclosures,23 received from the American Consul in charge of the Consulate General at Seoul, Chosen, in regard to the levying of income tax upon the employees of the Oriental Consolidated Mining Company, an American concern which operates gold mines at Unsan, Chosen.

The particular point at issue is the contention of the company that its books are not subject to inspection by the tax authorities. The original concession,24 a copy of which was transmitted in this Embassy’s despatch No. 134 of September 23, 1932, contained a clause (Article XVII) giving the King of Korea the right to inspect the company’s books. This Article was subsequently deleted, and Article XII consequently rendered inoperative, in return for a cash payment [Page 825] of Yen 200,000 and an annual payment of Yen 25,000, regardless of the output of the mines. The company is of opinion that the deletion of the clause in question carries permanent immunity from inspection by tax officials.

An examination of the record seems to indicate that the original concession and its subsequent modifications were drawn up without reference to the possible imposition of an individual income tax. There is no evidence of an intention on the part of the Government General of Chosen to levy taxes on the company. It is obvious, however, that the authorities in Chosen insist upon the right to inspect the company’s books in order to verify the amounts paid to employees who are subject to income tax under the law.

In view of the stringent provisions of income tax legislation in the United States, I feel that the Embassy would not be justified in supporting the company’s position in this matter without the Department’s express approval. I am accordingly instructing Mr. Langdon25 to withhold his proposed reply to the Government General pending a review of the case in the Department.

Respectfully yours,

Edwin L. Neville

Proposed Reply by the American Consul at Seoul ( Langdon ) to the Chief of the Foreign Affairs Section, Japanese Government General of Chosen ( Tanaka )

Sir: I have the honor to refer to your letter of September 18, 1934,26 in regard to the application of the Chosen Income Tax Law to the Oriental Consolidated Mining Company and its employees.

The Consulate General does not dispute the Government General’s view that the incomes of individual employees of the Company are taxable under the Chosen Income Tax Law, inasmuch as there is no provision in the Company’s charter upon which its employees might properly claim exemption from such tax. With regard to the inspection of the Company’s books, however, as Article 17 of the original charter, containing the distinct sentence “Said officer (viz., the representative of the sovereign) may inspect the books of the Company”, was canceled without any reservation whatever, the Consulate General cannot admit that there still resided in the sovereign the right to inspect the books for particular purposes. Such an interpretation would render the Company’s special right in this respect valueless, as the [Page 826] inspection of books for one purpose may very well be an inspection for every purpose.

It is your opinion that the cancelation of Article 17 did not permanently extinguish the sovereign’s right to inspect the books of the Oriental Consolidated Mining Company because books form the basis of taxation. In the case of the Company, however, the whole question of taxes was settled for the duration of the concession by the agreement of March 27, 1899, to pay to the sovereign a fixed annual sum of Yen 25,000 each year, regardless of the productiveness of the mines. The principle that books form the basis of taxation, therefore, would not seem to be applicable to the Oriental Consolidated Mining Company.

As a practical way out of the difficulty, the Consulate General is prepared to request the Oriental Consolidated Mining Company fully to cooperate with the tax authorities at Neihen in the collection of the income tax, by preparing a statement of third class income paid by it as mentioned in Article 47 of the Tax Law and otherwise.

I have [etc.]

Wm. R. Langdon
  1. Only one enclosure printed.
  2. Not printed.
  3. William R. Langdon, Consul at Seoul.
  4. Not printed.