The Japanese Embassy to the Department of State27
1. The United States Treasury Department notified the Toyo Kisen Kaisha in February, 1933, and the Nippon Yusen Kaisha and Osaka Shosen Kaisha in June, 1934, to pay additional war profits tax amounting respectively to $70,000 (for the years 1918, 1919); $1,329,500 (for the years 1918 to 1920); and $805,000 (for the years 1918, 1919). The case of the Toyo Kisen Kaisha is now proceeding in court.
2. This enormous amount of additional war profits tax seems to have been imposed upon the charter rate, the subsidy of the Japanese Government, and the amortization allowance of those ships which were tendered to the United States Shipping Board by the order of the Japanese Government, as it was earnestly desired by the American Government in order to facilitate the united operation of the allied and associated countries. In view of the fact that these charters were not concluded by free contract, but contracted between these three shipping companies and the United States Shipping Board, on a basis of the diplomatic negotiations between the United States and the Japanese Governments and that, furthermore, the ships were under the complete control of the United States Shipping Board in respect of route and cargo, etc., these charters ought not to be considered as ordinary charter contracts.
3. The rates of charters proposed by the United States Government was considerably lower than the prevailing rates at that time. However, in a spirit of cooperation with the allied and associated countries, the Japanese Government agreed to the proposal and placed 150,000 tons of shipping at the disposal of the United States Government for six months, and as a consequence the owners of the ships lost profit of 20,000,000 yen during this period, half of which was paid by the Japanese Government to partially offset this loss.
The allowance provided by the United States Government for the maintenance of the crews of these ships was less, by 1,500,000 yen, than the actual amount paid by the owners for this purpose.
If they had been ordinary charters, the Japanese Government and ship owners would not be called upon to assume such an additional financial burden.
4. The subsidy is not income earned by ordinary transportation business, as it is delivered by the Government to the special companies [Page 828] imposing upon them special services, and it is not “income or profit received from sources within the United States”, as provided in the American Tax Law. It is still more unreasonable to consider the whole amount of the subsidy as taxable income while it includes services in other parts of the world.
5. The Treasury Department decided not to recognize amortization for ships completed after the date of the Armistice (Nov. 11, 1918). However, these companies were obliged to build or acquire some expensive ships to replace those chartered to the United States Shipping Board, and speedy amortization was imminent owing to the high expense for those ships. Furthermore it was impossible to anticipate armistice at that time. In view of these facts, the Treasury Department’s decision upon the amortization of the Japanese ships is not only rigorous, but seems to be unfair, as amortization is recognized for American ships.
6. For the above-mentioned reasons the Japanese Government sincerely hopes that the American Government will not impose the tax upon the charter fees and the subsidy, and will give favorable consideration to the amortization for those ships for which the building contracts were made or construction was already started on or before Nov. 11, 1918.
7. According to the notifications of the Treasury Department, 90 days time limit, beginning June 11, is given for the payment of these taxes, but it is hoped that this time limit will be extended until these questions are settled by the negotiations between the two Governments.
- Handed to the Chief of the Division of Far Eastern Affairs by the Japanese Chargé on July 26, 1934.↩