Representatives of the governments of the United States and Japan signed a new Protocol to the United States-Japan income tax treaty on January 24, 2013. The new Protocol amends the existing tax treaty to bring that agreement into closer conformity with the current tax treaty policies of both the United States and Japan.
The new Protocol includes the following provisions:
• Residence-country-only taxation on interest;
• An expanded category of direct dividends paid by subsidiaries that are 50% or more owned for six months (from 12 months).
• Provisions of the existing treaty rules governing the taxation of capital gains in a manner that would permit the United States to fully apply the Foreign Investment in Real Property Tax Act;
• Mandatory binding arbitration of certain cases that the tax authorities of the United States and Japan have been unable to resolve after a reasonable period of time;
• Provisions to enable the competent authorities to assist each other in the collection of taxes; and
• An exchange-of-information provision to allow the competent authorities to facilitate the administration of each country’s tax laws.
These amendments to 2003 Protocol signed by both the United States and Japan would help promote investment and increase vitality in both economies and deepen both economic relationships.
The Protocol will enter into force when instruments of ratification are exchanged.
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