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Japan and United States Authorities Sign Agreement to Modify Income Tax Treaty
Posted in Tax and Finance

On Jan. 24, 2013, Japan and the United States signed a new protocol to the income tax treaty between the two nations. This new agreement updates the existing bilateral treaty, formed in 2003, to conform the treaty more closely to the current international tax policies of both Japan and the U.S. These amendments will hopefully provide clarity for international investors and businesses and help promote cross-border investments and transactions between these two economically-focused nations.

The income tax treaty between Japan and the U.S. was originally intended to avoid double taxation and prevent income tax evasion, and the new protocol contains a number of changes which strengthen these goals. Most significantly, these modifications provide for exclusive residence-country taxation of interest and an expanded category of direct dividends. The new protocol also allows the U.S. to fully apply the Foreign Investment in Real Property Tax Act on capital gains.

In addition, the new changes provide for mandatory binding arbitration to resolve tax cases that revenue authorities for the U.S. and Japan have not been able to resolve. Further, provisions in the protocol enable tax authorities in the U.S. and Japan to assist each other in the collection of taxes and improve the exchange of information between the two countries to better facilitate the administration of each country’s tax laws.

These new amendments were finalized after several months of negotiation and will take effect once the protocol is ratified by the U.S. Senate and Japan’s legislature. For a copy of the protocol, click here.

If you have questions about how this recent decision may impact you or your business, please contact a member of our Corporate and Transactional or our Tax and Finance Practice Groups.

  • Partner

    Kenji is a member of the Corporate Services Department. A Japanese native, Kenji has worked, researched and taught in the areas of International Maritime Law, International business law and arbitration law for 9 years. He is ...

  • Partner

    Ross D. Cohen serves as Co-Leader of the Federal Tax Team and concentrates his practice on federal tax transactional and planning issues of partnerships, joint ventures, limited liability companies and S and C corporations.

    With ...

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