894.0144/26
The Consul General at Mukden (Baker) to the Secretary of
State
Mukden, September 4,
1919.
No. 229
Sir: I have the honor to refer to my despatch
of February 6, 1919 which was transmitted to the Department with
Legation despatch No. 2615 of March 31st last and to quote the following
excerpt from the Legation’s despatch to this office No. 4588 of August
1st:56
[Page 452]
“I have to enclose for your information a copy of instruction No.
992 of the Department of State dated June 3rd dealing with the
attempt of the Japanese authorities to levy an income tax and
other matters. As the Department makes no definite ruling on the
income tax it is desirable that you should report fully to it
concerning this particular matter and ask a specific instruction
as to whether or not Americans are to pay this tax in the
future.”
The facts in this case are very simple and the issue is very clear. Mr.
Grey’s letter transmitted with my despatch above mentioned describes the
situation very well. There is not much to add excepting one or two
details as to the amounts which the Japanese have tried to collect. That
the levy is in the nature of an income tax admits of no question.
Members of the Standard Oil Company, for instance, were assessed
according to their several incomes. Mr. Grey was charged about
forty-four Gold Yen per quarter, Mr. Callahan, whose salary is somewhat
less, was charged about thirty Yen for the same period and others were
charged in proportion. Mr. Shrap, the American Manager of the Shanghai
Life Insurance Company, received a quarterly bill for about thirty-five
Yen although he paid no rent and did not even live in a rented house and
did not own any real property in the Japanese Concession. He was
residing in the Yamato Hotel, which is owned and operated by the South
Manchuria Railway. This income tax appears to be a general imposition
which the Japanese are trying to levy and it is intended to defray the
municipal expenses mentioned in my despatch of February 6th. As
explained therein there seems to be no reason why Americans should not
contribute something toward the maintenance of the settlement in which
they live. It is the form of the tax rather than the tax itself which is
most objectionable.
I enclose herewith a copy of my despatch of May 19th in this regard which
was sent to the Japanese Consul General and also transmit a copy of his
reply of August 8th together with the enclosure which he mentions. From
the last mentioned document it appears that the Japanese consider the
tax in the nature of “municipal rates” which are collected in British
and other concessions in China and that the manner of assessment is more
or less incidental and is determined by the financial ability of the
persons assessed. The following quotation therefrom harmonizes with Mr.
Grey’s statement of the case:
“Further the rate of imposition is assessed
according to the residents’ individual economical capacity and
such capacity having been carefully investigated by the local
director of the administrative office in each district is
reported to the head-quarter[s] of the company which decide the
rate and class of such imposition taking the reports and other
conditions into consideration.”
[Page 453]
As suggested on page three of my despatch of February 6th it seems
desirable that the Japanese and American authorities come to some
understanding about this matter so that the local officials concerned
may know exactly where they stand and to what extent they will be
supported in their contentions.
I have [etc.]
[Enclosure 1]
The American Consul General at Mukden
(Baker)
to the Japanese Consul General at Mukden
(Akatsuka)
Sir and Dear Colleague: I have the honor to
refer to our recent conversation with regard to the taxation of
Americans in the Japanese settlement and to state that the method of
assessing the tax in question does not seem to be in accord with
your expressed opinion that the tax is not in the nature of an
Income Tax but is the same as the “rates” which are collected in
other foreign settlements in China.
The Americans living in the Japanese settlement are perfectly
willing, as I explained, to contribute their reasonable share toward
the upkeep of the settlement but they do not consider that they are
liable to the Income Tax which the Japanese are trying to collect.
The Japanese tax officials have made it very evident that the levy
which they are imposing is an Income Tax, for people enjoying
exactly the same privileges are charged various amounts according to
the salaries which they receive. The Japanese assessors, in fact,
asked each man what his income was.
While it seems proper that American citizens living within the
Japanese Concession should contribute their reasonable share to the
cost of municipal services, the levying of an Income Tax does not
seem to be a suitable manner of accomplishing this. There is an
underlying difference in principle between the taxation of real
property and personal taxation. In giving a “concession” to a
foreign power, the land itself is made the subject of an agreement
between China and the grantee Government; it would therefore seem
logical to conclude that together with the land the Chinese
Government might delegate to the grantee Government the right to
levy thereon charges necessary for maintaining the local Municipal
service. This is done, for instance, in the British Concession,
where, however, the principle of representative Government is
applied and a vote is given to every rate-payer in controlling the
Municipal services and finances.
I am sure that you will agree with me that the taxation of Europeans
and Americans in the Japanese settlement is a question of great [Page 454] importance and that it has
far reaching consequences. The method of assessing and collecting
taxes should not be left to the discretion of the local tax
officials in the Japanese settlement but should be investigated and
determined by the highest Japanese and Non-Japanese authorities who
are familiar with International Law and with the precedents which
have been established in other places. This question has several
important phases. One of these has to do with the established
principle that there should be “no taxation without representation”.
If, therefore, the Japanese Municipality in Mukden is disposed to
tax Non-Japanese it should immediately take steps to have
Non-Japanese members on the Municipal Council.
I have told certain Americans in the Japanese settlement that this
important question is now the subject of negotiations between the
Japanese and American Consulates General and that they may await the
final decision before taking any definite action.
I assure you that I am willing to view this whole question in a
liberal and broad minded spirit, but I feel that the issue involved
is very momentous and that it should be determined according to the
highest principles of International Law and in harmony with the most
modern and enlightened ideas with regard to the taxation of people
in one country by the officials of another.
I have [etc.]
[Enclosure 2]
The Japanese Consul General at Mukden
(Akatsuka) to the American
Consul General at Mukden (Baker)
Sir and Dear Colleague: I have the honor to
acknowledge the receipt of your despatch dated May 19th, regarding
imposition of public expenditure upon Americans in the Japanese
settlement here.
I did not lose no time to refer this matter to the President of the
S.M.R.C., from whom I have just received the reply in the sense
stated in the enclosure.
I have [etc.]
[Subenclosure]
The President of the South
Manchuria Railway Company to the Japanese Consul
General at Mukden (Akatsuka)
In Article 6 of the treaty under which Eastern Chinese Railway was
organized it is expressly stipulated that the administrative power
of Russia in the railway zone is absolute and exclusive. This [Page 455] railway zone together with
its administrative power, as it was, was transferred to Japan by the
Russo-Japanese Treaty of 1905. The Government of Japan have
delegated the administration of railway concession to the S.M.R.C.
by an order under which this Company was organized. The right of
imposition of the public expenses in the railway zone is based on
this Governmental commission and it is out of question that the
residents in the area, regardless of their nationality, are
subjected to such imposition. While the imposition of public
expenses has its legal ground on the above stated transfer and
delegation, the amount collected from such imposition is only a
small portion of the whole expenditure required for the public work
and its maintenance. Further the rate of imposition is assessed
according to the residents’ individual economic capacity and such
capacity having been carefully investigated by the local director of
the administrative office in each district is reported to the
head-quarter[s] of the Company which decide the rate and class of
such imposition taking the reports and other conditions into
consideration.
It appears that as the general rule a representative system of
ratepayers be advocated in the concession, provided all those
rate-payers are prepared to pay whole necessary expenditure for the
public work and its maintenance. It should, however, be taken into
consideration that the residents are paying only a small portion of
such expenditure as above stated; for instance the administrative
expenditure in 1917 in the whole railway concession was more than
¥.18,420,000, while the collection from the residents was more or
less ¥.1,170,000, that is only 6 per-cent of the total sum defrayed
by this Company, while 94 per-cent of the total sum is borne by the
Company—roughly speaking nearly total expenditure. In the present
individual economical condition it is doubtless impossible to
collect from the residents the total sum required for public
expenditure and it appears that the representative system is yet too
early to be adopted.
[No signature indicated]
