CONVENTION BETWEEN
THE GOVERNMENT OF JAPAN AND
THE GOVERNMENT OF
THE UNITED STATES OF AMERICA
FOR THE AVOIDANCE OF
DOUBLE TAXATION
AND THE PREVENTION
OF FISCAL EVASION
WITH RESPECT TO
TAXES ON INCOME
The
Government of Japan and the Government of the United States of America,
Desiring
to conclude a new Convention for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income,
Have
agreed as follows:
ARTICLE 1
2. The
provisions of this Convention shall not be construed to restrict in any manner any
exclusion, exemption, deduction, credit, or other allowance now or hereafter
accorded:
(a) by
the laws of a Contracting State in the determination of the tax imposed by that
Contracting State; or
(b) by
any other bilateral agreement between the Contracting States or any
multilateral agreement to which the Contracting States are parties.
3. (a) Notwithstanding
the provisions of subparagraph
(b) of
paragraph 2:
(i) any
question arising as to the interpretation or application of this Convention
and, in particular, whether a measure is within the scope of this Convention,
shall be determined exclusively in accordance with the provisions of Article 25
of this Convention; and
(ii) the
provisions of Article XVII of the General Agreement on Trade in Services shall
not apply to a measure unless the competent authorities agree that the measure
is not within the scope of Article 24 of this Convention.
(b) For
the purposes of this paragraph, the term “measure” means a law, regulation, rule,
procedure, decision, administrative action, or any similar provision or action,
as related to taxes of every kind and description imposed by a Contracting
State without regard to Article 2 and subparagraph (d) of paragraph 1 of
Article 3.
4. (a) Except
to the extent provided in paragraph 5, this Convention shall not affect the
taxation by a Contracting State of its residents (as determined under Article
4) and, in the case of the United States, its citizens.
(b) Notwithstanding
the other provisions of this Convention, a former citizen or long-term resident
of the United States may, for the period of ten years following the loss of
such status, be taxed in accordance with the laws of the United States, if the
loss of such status had as one of its principal purposes the avoidance of tax
(as defined under the laws of the United States).
5. The
provisions of paragraph 4 shall not affect the benefits conferred by a
Contracting State under paragraphs 2 and 3 of Article 9, paragraph 3 of Article
17, and Articles 18, 19, 20, 23, 24, 25 and 28, but in the case of benefits
conferred by the United States under Articles 18, 19 and 20 only if the
individuals claiming the benefits are neither citizens of, nor have been
lawfully admitted for permanent residence in, the United States.
ARTICLE 2
1. This
Convention shall apply to the following taxes:
(a) in
the case of Japan:
(i) the
income tax; and
(ii) the
corporation tax
(hereinafter referred to as “Japanese tax”);
(b) in
the case of the United States, the Federal income taxes imposed by the Internal
Revenue Code but excluding social security taxes (hereinafter referred to as
“United States tax”).
2. This
Convention shall also apply to any identical or substantially similar taxes
which are imposed after the date of signature of the Convention in addition to,
or in place of, those referred to in paragraph 1. The competent authorities of the
Contracting States shall notify each other of any substantial changes which
have been made in their respective tax laws, or changes in other laws that
significantly affect their obligations under the Convention, within a
reasonable period of time after such changes.
ARTICLE 3
1. For
the purposes of this Convention, unless the context otherwise requires:
(a) the
term “Japan”, when used in a geographical sense, means all the territory of
Japan, including its territorial sea, in which the laws relating to Japanese
tax are in force, and all the area beyond its territorial sea, including the
seabed and subsoil thereof, over which Japan has jurisdiction in accordance
with international law and in which the laws relating to Japanese tax are in
force;
(b) the
term “United States” means the United States of America. When used in a geographical sense, the
term includes the states thereof and the District of Columbia; such term also
includes the territorial sea thereof and the seabed and subsoil of the
submarine areas adjacent to that territorial sea, over which the United States
exercises sovereign rights in accordance with international law; the term,
however, does not include Puerto Rico, the Virgin Islands, Guam or any other
United States possession or territory;
(d) the
term “tax” means Japanese tax or United States tax, as the context requires;
(e) the
term “person” includes an individual, a company and any other body of persons;
(f) the
term “company” means any body corporate or any entity that is treated as a body
corporate for tax purposes;
(g) the
term “enterprise” applies to the carrying on of any business;
(h) the
terms “enterprise of a Contracting State” and “enterprise of the other
Contracting State” mean respectively an enterprise carried on by a resident of
a Contracting State and an enterprise carried on by a resident of the other
Contracting State;
(i) the
term “international traffic” means any transport by a ship or aircraft operated
by an enterprise of a Contracting State, except when such transport is solely
between places in the other Contracting State;
(j) the
term “national” of a Contracting State means:
(i) in
relation to Japan, any individual possessing the nationality of Japan and any
juridical person or other organization deriving its status as such from the
laws in force in Japan; and
(ii) in
relation to the United States, any individual possessing the citizenship of the
United States and any legal person, partnership or association deriving its
status as such from the laws in force in the United States;
(k) the
term “competent authority” means:
(i) in
the case of Japan, the Minister of Finance or his authorized representative;
and
(ii) in
the case of the United States, the Secretary of the Treasury or his delegate;
(1) the
term “business” includes the performance of professional services and of other
activities of an independent character; and
(m) the
term “pension fund” means any person that:
(i) is
organized under the laws of a Contracting State;
(ii) is
established and maintained in that Contracting State primarily to administer or
provide pensions or other similar remuneration, including social security
payments; and
(iii) is
exempt from tax in that Contracting State with respect to the activities
described in clause (ii).
2. As
regards the application of this Convention at any time by a Contracting State
any term not defined therein shall, unless the context otherwise requires, or
the competent authorities agree otherwise on the meaning of a term for the
purposes of applying the Convention pursuant to Article 25, have the meaning which
it has at that time under the laws of that Contracting State for the purposes
of the taxes to which the Convention applies, any meaning under the applicable
tax laws of that Contracting State prevailing over a meaning given to the term
under other laws of that Contracting State.
ARTICLE 4
1. For
the purposes of this Convention, the term “resident of a Contracting State”
means any person who, under the laws of that Contracting State, is liable to tax
therein by reason of his domicile, residence, citizenship, place of head or
main office, place of incorporation, or any other criterion of a similar
nature, and also includes:
(a) that
Contracting State and any political subdivision or local authority thereof;
(b) a
pension fund organized under the laws of that Contracting State; and
(c) a
person organized under the laws of that Contracting State and established and
maintained in that Contracting State exclusively for a religious, charitable,
educational, scientific, artistic, cultural or public purpose, even if the
person is exempt from tax in that Contracting State.
This term, however, does not include any person who is
liable to tax in that Contracting State in respect only of income from sources in
that Contracting State, or of profits attributable to a permanent establishment
in that Contracting State.
2. Notwithstanding
the provisions of paragraph 1, an individual who is a United States citizen or
an alien lawfully admitted for permanent residence in the United States under
the laws of the United States shall be regarded as a resident of the United
States only if the individual:
(a) is
not a resident of Japan under paragraph 1;
(b) has
a substantial presence, permanent home or habitual abode in the United States;
and
(c) for
the purposes of a convention or agreement for the avoidance of double taxation
between Japan and a state other than the United States, is not a resident of
that state.
3. Where
by reason of the provisions of paragraph 1 an individual not described in
paragraph 2 is a resident of both Contracting States, then his status shall be
determined as follows:
(a) he
shall be deemed to be a resident of the Contracting State in which he has a
permanent home available to him; if he has a permanent home available to him in
both Contracting States, he shall be deemed to be a resident of the Contracting
State with which his personal and economic relations are closer (center of vital
interests);
(b) if
the Contracting State in which he has his center of vital interests cannot be
determined, or if he does not have a permanent home available to him in either
Contracting State, he shall be deemed to be a resident of the Contracting State
in which he has an habitual abode;
(c) if
he has an habitual abode in both Contracting States or in neither of them, he
shall be deemed to be a resident of the Contracting State of which he is a
national;
(d) if
he is a national of both Contracting States or of neither of them, the
competent authorities of the Contracting States shall settle the question by
mutual agreement.
An individual who is deemed to be a resident of a
Contracting State by reason of the provisions of this paragraph shall be deemed
to be a resident only of that Contracting State for the purposes of this
Convention.
4. Where
by reason of the provisions of paragraph 1 a person other than an individual is
a resident of both Contracting States, then the competent authorities of the
Contracting States shall determine by mutual agreement the Contracting State of
which that person shall be deemed to be a resident for the purposes of this
Convention. In the absence of a
mutual agreement by the competent authorities of the Contracting States, the
person shall not be considered a resident of either Contracting State for the
purposes of claiming any benefits provided by the Convention.
5. Where,
pursuant to any provision of this Convention, a Contracting State reduces the
rate of tax on, or exempts from tax, income of a resident of the other
Contracting State and under the laws in force in that other Contracting State
the resident is subject to tax by that other Contracting State only on that
part of such income which is remitted to or received in that other Contracting
State, then the reduction or exemption shall apply only to so much of such
income as is remitted to or received in that other Contracting State.
6. For
the purposes of applying this Convention:
(a) An
item of income:
(i) derived
from a Contracting State through an entity that is organized in the other
Contracting State; and
(ii) treated
as the income of the beneficiaries, members or participants of that entity
under the tax laws of that other Contracting State;
shall be eligible for the benefits of
the Convention that would be granted if it were directly derived by a
beneficiary, member or participant of that entity who is a resident of that
other Contracting State, to the extent that such beneficiaries, members or
participants are residents of that other Contracting State and satisfy any
other conditions specified in the Convention, without regard to whether the
income is treated as the income of such beneficiaries, members or participants
under the tax laws of the first-mentioned Contracting State.
(b) An
item of income:
(i) derived
from a Contracting State through an entity that is organized in the other
Contracting State; and
(ii) treated
as the income of that entity under the tax laws of that other Contracting
State;
shall be eligible for the benefits of
the Convention that would be granted to a resident of that other Contracting
State, without regard to whether the income is treated as the income of the
entity under the tax laws of the first-mentioned Contracting State, if such
entity is a resident of that other Contracting State and satisfies any other
conditions specified in the Convention.
(c) An
item of income:
(i) derived
from a Contracting State through an entity that is organized in a state other
than the Contracting States; and
(ii) treated
as the income of the beneficiaries, members or participants of that entity
under the tax laws of the other Contracting State;
shall be eligible for the benefits of
the Convention that would be granted if it were directly derived by a
beneficiary, member or participant of that entity who is a resident of that
other Contracting State, to the extent that such beneficiaries, members or
participants are residents of that other Contracting State and satisfy any
other conditions specified in the Convention, without regard to whether the
income is treated as the income of such beneficiaries, members or participants
under the tax laws of the first-mentioned Contracting State or such state.
(d) An
item of income:
(i) derived
from a Contracting State through an entity that is organized in a state other
than the Contracting States; and
(ii) treated
as the income of that entity under the tax laws of the other Contracting State;
shall not be
eligible for the benefits of the Convention.
(e) An
item of income:
(i) derived
from a Contracting State through an entity that is organized in that
Contracting State; and
(ii) treated
as the income of that entity under the tax laws of the other Contracting State;
shall not be
eligible for the benefits of the Convention.
ARTICLE 5
1. For
the purposes of this Convention, the term “permanent establishment” means a
fixed place of business through which the business of an enterprise is wholly
or partly carried on.
2. The
term “permanent establishment” includes especially:
(a) a
place of management;
(b) a
branch;
(c) an
office;
(d) a
factory;
(e) a
workshop; and
(f) a
mine, an oil or gas well, a quarry or any other place of extraction of natural
resources.
3. A
building site, a construction or installation project, or an installation or
drilling rig or ship used for the exploration of natural resources, constitutes
a permanent establishment only if it lasts or the activity continues for a
period of more than twelve months.
4. Notwithstanding
the preceding provisions of this Article, the term “permanent establishment”
shall be deemed not to include:
(a) the
use of facilities solely for the purpose of storage, display or delivery of
goods or merchandise belonging to the enterprise;
(b) the
maintenance of a stock of goods or merchandise belonging to the enterprise
solely for the purpose of storage, display or delivery;
(c) the
maintenance of a stock of goods or merchandise belonging to the enterprise
solely for the purpose of processing by another enterprise;
(d) the
maintenance of a fixed place of business solely for the purpose of purchasing
goods or merchandise or of collecting information, for the enterprise;
(e) the
maintenance of a fixed place of business solely for the purpose of carrying on,
for the enterprise, any other activity of a preparatory or auxiliary character;
(f) the
maintenance of a fixed place of business solely for any combination of
activities mentioned in subparagraphs (a) to (e), provided that the overall
activity of the fixed place of business resulting from this combination is of a
preparatory or auxiliary character.
5. Notwithstanding
the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent
status to whom the provisions of paragraph 6 apply - is acting on behalf of an enterprise and
has, and habitually exercises, in a Contracting State an authority to conclude
contracts in the name of the enterprise, that enterprise shall be deemed to
have a permanent establishment in that Contracting State in respect of any
activities that the person undertakes for the enterprise, unless the activities
of such person are limited to those mentioned in paragraph 4 that, if exercised
through a fixed place of business, would not make this fixed place of business
a permanent establishment under the provisions of that paragraph.
6. An
enterprise shall not be deemed to have a permanent establishment in a
Contracting State merely because it carries on business in that Contracting
State through a broker, general commission agent or any other agent of an
independent status, provided that such persons are acting in the ordinary course
of their business.
7. The
fact that a company which is a resident of a Contracting State controls or is
controlled by a company which is a resident of the other Contracting State, or
which carries on business in that other Contracting State (whether through a
permanent establishment or otherwise), shall not constitute either company a
permanent establishment of the other.
ARTICLE 6
1. Income
derived by a resident of a Contracting State from real property (including income
from agriculture or forestry) situated in the other Contracting State may be
taxed in that other Contracting State.
2. The
term “real property” as used in this Convention shall have the meaning which it
has under the laws of the Contracting State in which the property in question
is situated. The term shall in any
case include property accessory to real property, livestock and equipment used
in agriculture and forestry, rights to which the provisions of general law
respecting real property apply, usufruct of real property and rights to
variable or fixed payments as consideration for the working of, or the right to
work, mineral deposits and other natural resources; ships and aircraft shall
not be regarded as real property.
3. The
provisions of paragraph 1 shall apply to income derived from the direct use,
letting, or use in any other form of real property.
4. The
provisions of paragraphs 1 and 3 shall also apply to the income from real
property of an enterprise.
ARTICLE 7
1. The
profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other
Contracting State through a permanent establishment situated therein. If the enterprise carries on business as
aforesaid, the profits of the enterprise may be taxed in that other Contracting
State but only so much of them as is attributable to the permanent
establishment.
2. Subject
to the provisions of paragraph 3, where an enterprise of a Contracting State
carries on business in the other Contracting State through a permanent
establishment situated therein, there shall in each Contracting State be
attributed to that permanent establishment the profits which it might be
expected to make if it were a distinct and separate enterprise engaged in the
same or similar activities under the same or similar conditions and dealing
wholly independently with the enterprise of which it is a permanent
establishment.
3. In
determining the profits of a permanent establishment, there shall be allowed as
deductions expenses which are incurred for the purposes of the permanent
establishment, including executive and general administrative expenses so
incurred, whether in the Contracting State in which the permanent establishment
is situated or elsewhere.
4. Nothing
in this Article shall affect the application of any law of a Contracting State
relating to the determination of the tax liability of a person in cases where
the information available to the competent authority of that Contracting State
is inadequate to determine the profits to be attributed to a permanent
establishment, provided that, on the basis of the available information, the
determination of the profits of the permanent establishment is consistent with
the principles stated in this Article.
5. No
profits shall be attributed to a permanent establishment by reason of the mere
purchase by that permanent establishment of goods or merchandise for the
enterprise.
6. For
the purposes of the preceding paragraphs of this Article, the profits to be
attributed to the permanent establishment shall be determined by the same
method year by year unless there is good and sufficient reason to the contrary.
7. Where
profits include items of income which are dealt with separately in other
Articles of this Convention, then the provisions of those Articles shall not be
affected by the provisions of this Article.
ARTICLE 8
3. Notwithstanding
the provisions of Article 2 and subparagraph (d) of paragraph 1 of Article 3,
provided that no political subdivision or local authority of the United States
levies a tax similar to the local inhabitant taxes or the enterprise tax in
Japan in respect of the operation of ships or aircraft in international traffic
carried on by an enterprise of Japan, an enterprise of the United States shall
be exempt from the local inhabitant taxes and the enterprise tax in Japan in
respect of the operation of ships or aircraft in international traffic.
4. Profits
of an enterprise of a Contracting State from the use, maintenance or rental of
containers, including trailers, barges and related equipment for the transport
of containers, shall be taxable only in that Contracting State except where
such containers are used solely within the other Contracting State.
5. The
provisions of the preceding paragraphs of this Article shall also apply to
profits from the participation in a pool, a joint business or an international
operating agency.
ARTICLE 9
1. Where
(a) an
enterprise of a Contracting State participates directly or indirectly in the
management, control or capital of an enterprise of the other Contracting State,
or
(b) the
same persons participate directly or indirectly in the management, control or
capital of an enterprise of a Contracting State and an enterprise of the other
Contracting State, and in either case conditions are made or imposed between
the two enterprises in their commercial or financial relations which differ
from those which would be made between independent enterprises, then any
profits which would, but for those conditions, have accrued to one of the
enterprises, but, by reason of those conditions, have not so accrued, may be
included in the profits of that enterprise and taxed accordingly.
2. Where
a Contracting State includes in the profits of an enterprise of that
Contracting State -
and taxes accordingly -
profits on which an enterprise of the other Contracting State has been charged
to tax in that other Contracting State and that other Contracting State agrees
that the profits so included are profits which would have accrued to the
enterprise of the first-mentioned Contracting State if the conditions made
between the two enterprises had been those which would have been made between
independent enterprises, then that other Contracting State shall make an
appropriate adjustment to the amount of the tax charged therein on those
profits. In determining such
adjustment, due regard shall be had to the other provisions of this Convention.
3. Notwithstanding
the provisions of paragraph 1, a Contracting State shall not change the profits
of an enterprise of that Contracting State in the circumstances referred to in that
paragraph, if an examination of that enterprise is not initiated within seven
years from the end of the taxable year in which the profits that would be
subject to such change would, but for the conditions referred to in that
paragraph, have accrued to that enterprise. The provisions of this paragraph shall
not apply in the case of fraud or willful default or if the inability to
initiate an examination within the prescribed period is attributable to the
actions or inaction of that enterprise.
ARTICLE 10
1. Dividends
paid by a company which is a resident of a Contracting State to a resident of
the other Contracting State may be taxed in that other Contracting State.
2. However,
such dividends may also be taxed in the Contracting State of which the company
paying the dividends is a resident and according to the laws of that
Contracting State, but if the dividends are beneficially owned by a resident of
the other Contracting State, except as provided in paragraphs 4 and 5, the tax
so charged shall not exceed:
This paragraph shall not affect the
taxation of the company in respect of the profits out of which the dividends
are paid.
3. Notwithstanding
the provisions of paragraph 2, such dividends shall not be taxed in the
Contracting State of which the company paying the dividends is a resident if
the beneficial owner of the dividends is:
(a) a
company that is a resident of the other Contracting State, that has owned,
directly or indirectly through one or more residents of either Contracting
State, more than 50 percent of the voting stock of the company paying the
dividends for the period of twelve months ending on the date on which
entitlement to the dividends is determined, and that either:
(i) satisfies
the conditions described in clause (i) or (ii) of subparagraph (c) of paragraph
1 of Article 22;
(ii) satisfies
the conditions described in clauses (i) and (ii) of subparagraph (f) of
paragraph 1 of Article 22, provided that the company satisfies the conditions
described in paragraph 2 of that Article with respect to the dividends; or
(iii) has
received a determination pursuant to paragraph 4 of Article 22 with respect to
this paragraph; or
(b) a
pension fund that is a resident of the other
4. The
provisions of subparagraph (a) of paragraph 2 and subparagraph (a) of paragraph
3 shall not apply in the case of dividends paid by a United States Regulated
Investment Company (hereinafter referred to as a “RIC”) or a United States Real
Estate Investment Trust (hereinafter referred to as a “REIT”). The provisions of subparagraph (b) of
paragraph 2 and subparagraph (b) of paragraph 3 shall apply in the case of
dividends paid by a RIC. In the
case of dividends paid by a REIT, the provisions of subparagraph (b) of paragraph
2 and subparagraph (b) of paragraph 3 shall apply only if:
(a) the
beneficial owner of the dividends is an individual holding an interest of not
more than 10 percent in the REIT or a pension fund holding an interest of not
more than 10 percent in the REIT;
(b) the
dividends are paid with respect to a class of stock that is publicly traded and
the beneficial owner of the dividends is a person holding an interest of not
more than 5 percent of any class of the stock of the REIT; or
(c) the
beneficial owner of the dividends is a person holding an interest of not more
than 10 percent in the REIT and that REIT is diversified.
5. The
provisions of subparagraph (a) of paragraph 2 and subparagraph (a) of paragraph
3 shall not apply in the case of dividends paid by a company which is entitled
to a deduction for dividends paid to its beneficiaries in computing its taxable
income in Japan. The provisions of
subparagraph (b) of paragraph 2 and subparagraph (b) of paragraph 3 shall apply
in the case of dividends paid by such company, provided that not more than 50
percent of its assets consist, directly or indirectly, of real property
situated in Japan. Where more than
50 percent of the assets of such company consist, directly or indirectly, of
real property situated in Japan, the provisions of subparagraph (b) of
paragraph 2 and subparagraph (b) of paragraph 3 shall apply only if:
(a) the
beneficial owner of the dividends is an individual holding an interest of not
more than 10 percent in such company or a pension fund holding an interest of
not more than 10 percent in such company;
(b) the
dividends are paid with respect to a class of interest in such company that is
publicly traded and the beneficial owner of the dividends is a person holding
an interest of not more than 5 percent of any class of interest in the company;
or
(c) the
beneficial owner of the dividends is a person holding an interest of not more
than 10 percent in the company and the company is diversified.
6. The
term “dividends” as used in this Article means income from shares or other
rights, not being debt-claims, participating in profits, as well as income
which is subjected to the same taxation treatment as income from shares by the
tax laws of the
7. The
provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of
the dividends, being a resident of a Contracting State, carries on business in
the other Contracting State of which the company paying the dividends is a
resident, through a permanent establishment situated therein, and the holding
in respect of which the dividends are paid is effectively connected with such
permanent establishment. In such
case the provisions of Article 7 shall apply.
8. A
Contracting State shall not impose any tax on the dividends paid by a company
that is a resident of the other Contracting State, except insofar as the
dividends are paid to a resident of the first-mentioned Contracting State or
insofar as the holding in respect of which the dividends are paid is
effectively connected with a permanent establishment situated in that
Contracting State, nor shall it impose tax on a company’s undistributed
profits, except as provided in paragraph 9, even if the dividends paid or the
undistributed profits consist wholly or partly of profits or income arising in
that Contracting State.
9. A
company that is a resident of a Contracting State and that has a permanent
establishment in the other Contracting State or that is subject to tax in that
other Contracting State on its income that may be taxed in that other
Contracting State under Article 6 or under paragraph 1 or 2 of Article 13 may
be subject in that other Contracting State to a tax in addition to any tax that
may be imposed in that other Contracting State in accordance with the other
provisions of this Convention. Such
tax, however, may be imposed on only the portion of the profits of the company
attributable to the permanent establishment and the portion of the income
referred to in the preceding provisions of this paragraph that is subject to
tax under Article 6 or under paragraph 1 or 2 of Article 13 that represents the
amount of such income that is equivalent to the amount of dividends that would
have been paid if such activities had been conducted in a separate legal
entity. The provisions of this
paragraph shall not apply in the case of a company which:
(a) satisfies
the conditions described in clause (i) or (ii) of subparagraph (c) of paragraph
1 of Article 22;
(b) satisfies
the conditions described in clauses (i) and (ii) of subparagraph (f) of
paragraph 1 of Article 22, provided that the company satisfies the conditions
described in paragraph 2 of that Article with respect to the income; or
(c) has
received a determination pursuant to paragraph 4 of Article 22 with respect to
this paragraph.
10. The
tax referred to in paragraph 9 shall not be imposed at a rate in excess of the
rate specified in subparagraph (a) of paragraph 2.
11. A
resident of a
(a) that
is not entitled to benefits with respect to dividends paid by a resident of the
other Contracting State which are equivalent to, or more favorable than, those
available under this Convention to a resident of the first-mentioned
Contracting State; and
(b) that
is not a resident of either
held equivalent preferred stock or other similar interest in the
first-mentioned resident.
ARTICLE 11
1. Interest
arising in a
2. However,
such interest may also be taxed in the Contracting State in which it arises and
according to the laws of that Contracting State, but if the beneficial owner of
the interest is a resident of the other Contracting State, the tax so charged
shall not exceed 10 percent of the gross amount of the interest.
3. Notwithstanding
the provisions of paragraph 2, interest arising in a
(a) the
interest is beneficially owned by that other Contracting State, a political
subdivision or local authority thereof, or the central bank of that other
Contracting State or any institution wholly owned by that other Contracting
State;
(b) the
interest is beneficially owned by a resident of that other Contracting State
with respect to debt-claims guaranteed, insured or indirectly financed by the
Government of that other Contracting State, a political subdivision or local
authority thereof, or the central bank of that other Contracting State or any
institution wholly owned by that other Contracting State;
(c) the
interest is beneficially owned by a resident of that other
(i) a
bank (including an investment bank);
(ii) an
insurance company;
(iii) a
registered securities dealer; or
(iv) any
other enterprise, provided that in the three taxable years preceding the
taxable year in which the interest is paid, the enterprise derives more than 50
percent of its liabilities from the issuance of bonds in the financial markets
or from taking deposits at interest, and more than 50 percent of the assets of
the enterprise consist of debt-claims against persons that do not have with the
resident a relationship described in subparagraph (a) or (b) of paragraph 1 of
Article 9;
(d) the
interest is beneficially owned by a pension fund that is a resident of that
other Contracting State, provided that such interest is not derived from the
carrying on of a business, directly or indirectly, by such pension fund; or
(e) the
interest is beneficially owned by a resident of that other
4. For
the purposes of paragraph 3, the terms “the central bank” and “institution
wholly owned by a
(a) in
the case of
(i) the
Bank of
(ii) the
Japan Bank for International Cooperation;
(iii) the
Nippon Export and Investment Insurance; and
(iv) such
other similar institution the capital of which is wholly owned by
(b) in
the case of the
(i) the
Federal Reserve Banks;
(ii) the
U.S. Export-Import Bank;
(iii) the
Overseas Private Investment Corporation; and
(iv) such
other similar institution the capital of which is wholly owned by the
5. The
term “interest” as used in this Article means income from debt-claims of every
kind, whether or not secured by mortgage and whether or not carrying a right to
participate in the debtor’s profits, and in particular, income from government
securities and income from bonds or debentures, including premiums and prizes
attaching to such securities, bonds or debentures, and all other income that is
subjected to the same taxation treatment as income from money lent by the tax
laws of the Contracting State in which the income arises. Income dealt with in Article 10 shall
not be regarded as interest for the purposes of this Convention.
6. The
provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of
the interest, being a resident of a Contracting State, carries on business in
the other Contracting State in which the interest arises, through a permanent
establishment situated therein and the debt-claim in respect of which the
interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7
shall apply.
7. Interest
shall be deemed to arise in a
(a) if
the permanent establishment is situated in a
(b) if
the permanent establishment is situated in a state other than the Contracting
States, such interest shall not be deemed to arise in either
8. Where,
by reason of a special relationship between the payor and the beneficial owner
or between both of them and some other person, the amount of the interest,
having regard to the debt-claim for which it is paid, exceeds the amount which
would have been agreed upon by the payor and the beneficial owner in the
absence of such relationship, the provisions of this Article shall apply only
to the last-mentioned amount. In
such case, the excess part of the payment may be taxed in the
9. Notwithstanding
the provisions of paragraphs 2 and 3, a Contracting State may tax, in accordance
with its domestic law, interest paid with respect to the ownership interests in
an entity used for the securitization of real estate mortgages or other assets,
to the extent that the amount of interest paid exceeds the return on comparable
debt instruments as specified by the domestic law of that Contracting State.
10. Where
interest expense is deductible in determining the income of a company that is a
resident of a
(a) is
attributable to a permanent establishment of that company situated in the other
(b) may
be taxed in the other
and that interest expense exceeds the interest paid by that permanent establishment
or paid with respect to the debt secured by real property situated in that
other Contracting State, the amount of that excess shall be deemed to be
interest arising in that other Contracting State and beneficially owned by a
resident of the first-mentioned Contracting State. That deemed interest may be taxed in
that other Contracting State at a rate not to exceed the rate provided for in
paragraph 2, unless the company is described in paragraph 3 in which case it
shall be exempt from such taxation in that other Contracting State.
11. A
resident of a
(a) that
is not entitled to benefits with respect to interest arising in the other
Contracting State which are equivalent to, or more favorable than, those
available under this Convention to a resident of the first-mentioned
Contracting State; and
(b) that
is not a resident of either
held an equivalent debt-claim against
the first-mentioned resident.
ARTICLE 12
1. Royalties
arising in a
2. The
term “royalties” as used in this Article means payments of any kind received as
a consideration for the use of, or the right to use, any copyright of literary,
artistic or scientific work including cinematograph films and films or tapes
for radio or television broadcasting, any patent, trade mark, design or model,
plan, or secret formula or process, or for information concerning industrial,
commercial or scientific experience.
5. A
resident of a
(a) that
is not entitled to benefits with respect to royalties arising in the other
Contracting State which are equivalent to, or more favorable than, those
available under this Convention to a resident of the first-mentioned Contracting
State; and
(b) that
is not a resident of either
ARTICLE 13
1. Gains
derived by a resident of a
2. (a) Gains
derived by a resident of a Contracting State from the alienation of shares or
other comparable rights in a company that is a resident of the other
Contracting State and that derives at least 50 percent of its value directly or
indirectly from real property situated in that other Contracting State may be
taxed in that other Contracting State, unless the relevant class of shares is
traded on a recognized stock exchange specified in subparagraph (b) of
paragraph 5 of Article 22 and the resident, and persons related thereto, own in
the aggregate 5 percent or less of that class of shares.
(b) Gains
derived by a resident of a Contracting State from the alienation of an interest
in a partnership, trust or estate may be taxed in the other Contracting State
to the extent that its assets consist of real property situated in that other
Contracting State.
3. (a) Where
(i) a
Contracting State (including, for this purpose in the case of Japan, the Deposit
Insurance Corporation of Japan) provides, pursuant to the domestic law
concerning failure resolution involving imminent insolvency of financial
institutions in that Contracting State, substantial financial assistance to a
financial institution that is a resident of that Contracting State, and
(ii) a
resident of the other
the first-mentioned
(b) The
provisions of subparagraph (a) shall not apply if the resident of that other
4. Notwithstanding
the provisions of paragraphs 2 and 3, gains from the alienation of any
property, other than real property, forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the
other Contracting State, including such gains from the alienation of such a
permanent establishment (alone or with the whole enterprise), may be taxed in
that other Contracting State.
5. Gains
derived by a resident of a Contracting State from the alienation of ships or
aircraft operated by that resident in international traffic and any property,
other than real property, pertaining to the operation of such ships or aircraft
shall be taxable only in that Contracting State.
6. Gains
derived by a resident of a Contracting State from the alienation of containers,
including trailers, barges and related equipment for the transport of
containers, shall be taxable only in that Contracting State except where such
containers were used solely within the other Contracting State.
7. Gains
from the alienation of any property other than that referred to in the
preceding paragraphs of this Article shall be taxable only in the
ARTICLE 14
1. Subject
to the provisions of Articles 15, 17 and 18, salaries, wages and other similar
remuneration derived by a resident of a
2. Notwithstanding
the provisions of paragraph 1, remuneration derived by a resident of a
Contracting State in respect of an employment exercised in the other
Contracting State shall be taxable only in the first-mentioned Contracting
State if:
(a) the
recipient is present in that other Contracting State for a period or periods
not exceeding in the aggregate 183 days in any twelve month period commencing
or ending in the taxable year concerned;
(b) the
remuneration is paid by, or on behalf of, an employer who is not a resident of
that other
(c) the
remuneration is not borne by a permanent establishment which the employer has
in that other
3. Notwithstanding
the provisions of the preceding paragraphs of this Article, remuneration
derived in respect of an employment exercised aboard a ship or aircraft
operated in international traffic by an enterprise of a
ARTICLE 15
Directors’ fees and other similar payments derived by a
resident of a
ARTICLE 16
1. Income
derived by an individual who is a resident of a Contracting State as an
entertainer, such as a theater, motion picture, radio or television artiste, or
a musician, or as a sportsman, from his personal activities as such exercised
in the other Contracting State, which income would be exempt from tax in that
other Contracting State under the provisions of Articles 7 and 14, may be taxed
in that other Contracting State, except where the amount of the gross receipts
derived by such entertainer or sportsman, including expenses reimbursed to him
or borne on his behalf, from such activities does not exceed ten thousand
United States dollars ($10,000) or its equivalent in Japanese yen for the
taxable year concerned.
2. Where
income in respect of personal activities exercised in a Contracting State by an
individual in his capacity as an entertainer or a sportsman accrues not to the
individual himself but to another person that is a resident of the other
Contracting State, that income may, notwithstanding the provisions of Articles
7 and 14, be taxed in the Contracting State in which the activities of the
individual are exercised, unless the contract pursuant to which the personal
activities are performed allows that other person to designate the individual
who is to perform the personal activities.
ARTICLE 17
1. Subject
to the provisions of paragraph 2 of Article 18, pensions and other similar
remuneration, including social security payments, beneficially owned by a
resident of a Contracting State shall be taxable only in that Contracting
State.
2. Annuities
derived and beneficially owned by an individual who is a resident of a
3. Periodic
payments, made pursuant to a written separation agreement or a decree of
divorce, separate maintenance, or compulsory support, including payments for
the support of a child, paid by a resident of a
ARTICLE 18
1. (a) Salaries,
wages and other similar remuneration, other than a pension and other similar
remuneration, paid by a Contracting State or a political subdivision or local
authority thereof to an individual in respect of services rendered to that
Contracting State or political subdivision or local authority thereof, in the
discharge of functions of a governmental nature, shall be taxable only in that
Contracting State.
(b) However,
such salaries, wages and other similar remuneration shall be taxable only in
the other Contracting State if the services are rendered in that other
Contracting State and the individual is a resident of that other Contracting
State who:
(i) is
a national of that other
(ii) did
not become a resident of that other
2. (a) Any
pension and other similar remuneration paid by, or out of funds to which
contributions are made by, a Contracting State or a political subdivision or
local authority thereof to an individual in respect of services rendered to
that Contracting State or a political subdivision or local authority thereof,
other than payments made by the United States under provisions of the social
security or similar legislation, shall be taxable only in that Contracting
State.
(b) However,
such pension and other similar remuneration shall be taxable only in the other
3. The
provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages and
other similar remuneration, and to pensions and other similar remuneration, in
respect of services rendered in connection with a business carried on by a
ARTICLE 19
Payments which a student or business apprentice who is,
or was immediately before visiting a Contracting State, a resident of the other
Contracting State and who is present in the first-mentioned Contracting State
for the primary purpose of his education or training receives for the purpose
of his maintenance, education or training shall be exempt from tax in the
first-mentioned Contracting State, provided that such payments are made to him
from outside that first-mentioned Contracting State. The exemption from tax provided by this
Article shall apply to a business apprentice only for a period not exceeding
one year from the date he first begins his training in the first-mentioned
ARTICLE 20
1. An
individual who visits a Contracting State temporarily for the purpose of
teaching or conducting research at a university, college, school or other
educational institution in that Contracting State, and who continues to be a
resident, within the meaning of paragraph 1 of Article 4, of the other
Contracting State, shall be exempt from tax in the first-mentioned Contracting
State on any remuneration for such teaching or research for a period not
exceeding two years from the date of his arrival.
2. The
provisions of paragraph 1 shall not apply to income from research if such
research is undertaken primarily for the private benefit of one or more
specific persons.
ARTICLE 21
1. Items
of income beneficially owned by a resident of a
2. The
provisions of paragraph 1 shall not apply to income, other than income from
real property, if the beneficial owner of such income, being a resident of a
Contracting State, carries on business in the other Contracting State through a
permanent establishment situated therein and the right or property in respect
of which the income is paid is effectively connected with such permanent
establishment. In such case the
provisions of Article 7 shall apply.
3. Where,
by reason of a special relationship between the resident referred to in
paragraph 1 and the payor, or between both of them and some other person, the
amount of other income, having regard to the right or property in respect of
which it is paid, exceeds the amount which would have been agreed upon between
them in the absence of such relationship, the provisions of this Article shall
apply only to the last-mentioned amount.
In such case, the excess part of the payment may be taxed in the
Contracting State in which it arises at a rate not to exceed 5 percent of the
gross amount of the excess.
4. A
resident of a Contracting State shall not be considered the beneficial owner of
other income in respect of the right or property if such other income would not
have been paid to the resident unless the resident pays other income in respect
of the same right or property to a person:
(a) that
is not entitled to benefits with respect to other income arising in the other
Contracting State which are equivalent to, or more favorable than, those
available under this Convention to a resident of the first-mentioned
Contracting State; and
(b) that
is not a resident of either Contracting State.
ARTICLE 22
1. Except
as otherwise provided in this Article, a resident of a Contracting State that
derives income from the other Contracting State shall be entitled to all the
benefits accorded to residents of a Contracting State for a taxable year by the
provisions of other Articles of this Convention only if such resident satisfies
any other specified conditions for the obtaining of such benefits and is
either:
(a) an
individual;
(b) a
Contracting State, any political subdivision or local authority thereof, the
Bank of Japan or the Federal Reserve Banks;
(c) a
company, if:
(i) the
principal class of its shares, and any disproportionate class of its shares, is
listed or registered on a recognized stock exchange specified in clause (i) or
(ii) of subparagraph (b) of paragraph 5 and is regularly traded on one or more
recognized stock exchanges; or
(ii) at
least 50 percent of each class of shares in the company is owned directly or
indirectly by five or fewer residents entitled to benefits under clause (i),
provided that, in the case of indirect ownership, each intermediate owner is a
person entitled to the benefits of this Convention under this paragraph;
(d) a
person described in subparagraph (c) of paragraph 1 of Article 4;
(e) a
pension fund, provided that as of the end of the prior taxable year more than
50 percent of its beneficiaries, members or participants are individuals who
are residents of either Contracting State; or
(f) a
person other than an individual, if:
(i) residents
that are described in subparagraph (a), (b), (d) or (e), or clause (i) of
subparagraph (c), own, directly or indirectly, at least 50 percent of each
class of shares or other beneficial interests in the person, and
ii) less
than 50 percent of the person’s gross income for the taxable year is paid or
accrued by the person in that taxable year, directly or indirectly, to persons
who are not residents of either Contracting State in the form of payments that
are deductible in computing its taxable income in the Contracting State of
which it is a resident (but not including arm’s length payments in the ordinary
course of business for services or tangible property and payments in respect of
financial obligations to a commercial bank, provided that where such a bank is
not a resident of a Contracting State such payment is attributable to a
permanent establishment of that bank situated in one of the Contracting
States).
2. (a) A
resident of a Contracting State shall be entitled to benefits of this
Convention with respect to an item of income derived from the other Contracting
State if the resident is engaged in the first-mentioned Contracting State in
the active conduct of a trade or business, other than the business of making or
managing investments for the resident’s own account, unless these activities
are banking, insurance or securities activities carried on by a commercial
bank, insurance company or registered securities dealer, the income derived
from the other Contracting State is derived in connection with, or is
incidental to, that trade or business and that resident satisfies any other
specified conditions for the obtaining of such benefits.
(b) If
a resident of a Contracting State derives an item of income from a trade or
business activity in the other Contracting State, or derives an item of income
arising in the other Contracting State from a person that has with the resident
a relationship described in subparagraph (a) or (b) of paragraph 1 of Article
9, the conditions described in subparagraph (a) shall be considered to be
satisfied with respect to such item only if the trade or business activity
carried on by the resident in the first-mentioned Contracting State is
substantial in relation to the trade or business activity carried on by the
resident or such person in the other Contracting State. Whether a trade or business activity is
substantial for the purposes of this paragraph will be determined based on all
the facts and circumstances.
3. (a) Where
the provisions of clause (ii) of subparagraph (c) of paragraph 1 apply in
respect of taxation by withholding at source, a resident of a Contracting State
shall be considered to satisfy the conditions described in that clause for a
taxable year in which the payment is made if such resident satisfies those
conditions during the part of that taxable year which precedes the date of
payment of the item of income (or, in the case of dividends, the date on which
entitlement to the dividends is determined) and, unless that date is the last
day of that taxable year, during the whole of the preceding taxable year.
(b) Where
the provisions of clause (i) of subparagraph (f) of paragraph 1 apply:
(i) in
respect of taxation by withholding at source, a resident of a Contracting State
shall be considered to satisfy the conditions described in that clause for a
taxable year in which the payment is made if such resident satisfies those
conditions during the part of that taxable year which precedes the date of
payment of the item of income (or, in the case of dividends, the date on which
entitlement to the dividends is determined) and, unless that date is the last
day of that taxable year, during the whole of the preceding taxable year; and
(ii) in
all other cases, a resident of a Contracting State shall be considered to
satisfy the conditions described in that clause for a taxable year in which the
payment is made if such resident satisfies those conditions on at least half
the days of the taxable year.
(c) Where
the provisions of clause (ii) of subparagraph (f) of paragraph 1 apply in respect
of taxation by withholding at source in Japan, a resident of the United States
shall be considered to satisfy the conditions described in that subparagraph
for a taxable year in which the payment is made if such resident satisfies
those conditions for the three taxable years preceding that taxable year.
4. A
resident of a Contracting State that is not described in paragraph 1 and is not
entitled to benefits with respect to an item of income under paragraph 2 shall,
nevertheless, be granted benefits of this Convention if the competent authority
of the Contracting State from which benefits are claimed determines, in
accordance with its domestic law or administrative practice, that the
establishment, acquisition or maintenance of such resident and the conduct of
its operations are considered as not having the obtaining of benefits under the
Convention as one of its principal purposes.
5. For
the purposes of this Article:
(a) the
term “disproportionate class of shares” means any class of shares of a company
that is a resident of a Contracting State which is subject to terms or other
arrangements that entitle the holders of that class of shares to a portion of
the income of the company derived from the other Contracting State that is
larger than the portion such holders would receive absent such terms or
arrangements;
(b) the
term “recognized stock exchange” means:
(i) any
stock exchange established under the terms of the Securities and Exchange Law
(Law No. 25 of 1948) of Japan;
(ii) the
NASDAQ System and any stock exchange registered with the Securities and
Exchange Commission as a national securities exchange under the Securities
Exchange Act of 1934 of the United States; and
(iii) any
other stock exchange agreed upon by the competent authorities; and
(c) the
term “gross income” means the total revenues derived by a resident of a
Contracting State from its business, less the direct costs of obtaining such
revenues.
ARTICLE 23
1. Subject
to the provisions of the laws of Japan regarding the allowance as a credit
against the Japanese tax of tax payable in any country other than Japan:
(a) Where
a resident of Japan derives income from the United States which may be taxed in
the United States in accordance with the provisions of this Convention, the
amount of the United States tax payable in respect of that income shall be
allowed as a credit against the Japanese tax imposed on that resident. The amount of credit, however, shall not
exceed that part of the Japanese tax which is appropriate to that income.
(b) Where
the income derived from the United States is dividends paid by a company which
is a resident of the United States to a company which is a resident of Japan and
which owns not less than 10 percent of the voting shares issued by the company
paying the dividends during the period of six months immediately before the day
when the obligation to pay dividends is confirmed, the credit shall take into
account the United States tax payable by the company paying the dividends in
respect of its income.
For the purposes of this paragraph, income beneficially
owned by a resident of Japan which may be taxed in the United States in
accordance with the Convention shall be deemed to arise from sources in the
United States.
2, In
accordance with the provisions and subject to the limitations of the laws of
the United States (as it may be amended from time to time without changing the
general principle hereof), the United States shall allow to a resident or
citizen of the United States as a credit against the United States tax on
income:
(a) the
Japanese tax paid or accrued by or on behalf of such citizen or resident; and
(b) in
the case of a company that is a resident of the United States and that owns at
least 10 percent of the voting stock of a company that is a resident of Japan
and from which the first-mentioned company receives dividends, the Japanese tax
paid or accrued by or on behalf of the payor with respect to the profits out of
which the dividends are paid.
For the purposes of this paragraph, the taxes referred to
in subparagraph (a) of paragraph 1 and paragraph 2 of Article 2 shall be
considered Japanese taxes imposed on the beneficial owner of the income. For the purposes of this paragraph, an
item of gross income, as determined under the laws of the United States,
derived by a resident of the United States that, under this Convention, may be
taxed in Japan shall be deemed to be income from sources in Japan.
3. For
the purposes of applying the preceding paragraphs of this Article, where the
United States taxes, in accordance with paragraph 4 of Article 1, a citizen, or
a former citizen or long-term resident, of the United States who is a resident
of Japan:
(a) Japan
shall take into account for the purposes of computing the credit to be allowed
under paragraph 1 only the amount of tax that the United States may impose on
income under the provisions of this Convention that is derived by a resident of
Japan who is neither a citizen, nor a former citizen nor long-term resident, of
the United States;
(b) for
the purposes of computing the United States tax on income referred to in
subparagraph (a), the United States shall allow as a credit against the United
States tax the Japanese tax after the credit referred to in that subparagraph;
the credit so allowed shall not reduce the portion of the United States tax
that is creditable against the Japanese tax in accordance with that
subparagraph; and
(c) for
the exclusive purpose of allowing the credit by the United States provided for
under subparagraph (b), income referred to in subparagraph (a) shall be deemed
to arise in Japan to the extent necessary to allow the United States to grant
the credit provided for in subparagraph (b).
ARTICLE 24
1. Nationals
of a Contracting State shall not be subjected in the other Contracting State to
any taxation or any requirement connected therewith, which is other or more
burdensome than the taxation and connected requirements to which nationals of
that other Contracting State in the same circumstances, in particular with
respect to taxation on worldwide income, are or may be subjected. The provisions of this paragraph shall
also apply to persons who are not residents of one or both of the Contracting
States.
2. The
taxation on a permanent establishment which an enterprise of a Contracting
State has in the other Contracting State shall not be less favorably levied in
that other Contracting State than the taxation levied on enterprises of that
other Contracting State carrying on the same activities. The provisions of this paragraph shall
not be construed as obliging a Contracting State to grant to residents of the
other Contracting State any personal allowances, reliefs and reductions for
taxation purposes on account of civil status or family responsibilities which
it grants to its own residents.
3. Except
where the provisions of paragraph 1 of Article 9, paragraph 8 of Article 11,
paragraph 4 of Article 12, or paragraph 3 of Article 21 apply, interest,
royalties and
other disbursements paid by a resident of a Contracting State to a
resident of the other Contracting State shall, for the purposes of determining
the taxable profits of the first-mentioned resident, be deductible under the same
conditions as if they had been paid to a resident of the first-mentioned
Contracting State. Similarly, any
debts of a resident of a Contracting State to a resident of the other
Contracting State shall, for the purposes of determining the taxable capital of
the first-mentioned resident, be deductible under the same conditions as if
they had been contracted to a resident of the first-mentioned Contracting
State.
4. Enterprises
of a Contracting State, the capital of which is wholly or partly owned or controlled,
directly or indirectly, by one or more residents of the other Contracting
State, shall not be subjected in the first- mentioned Contracting State to any
taxation or any requirement connected therewith which is other or more
burdensome than the taxation and connected requirements to which other similar
enterprises of the first-mentioned Contracting State are or may be subjected.
5. Nothing
in this Article shall be construed as preventing either
6. The
provisions of this Article shall, notwithstanding the provisions of Article 2
and subparagraph (d) of paragraph 1 of Article 3, apply to taxes of every kind
and description imposed by a Contracting State or a political subdivision or
local authority thereof.
ARTICLE 25
1. Where
a person considers that the actions of one or both of the Contracting States
result or will result for him in taxation not in accordance with the provisions
of this Convention, he may, irrespective of the remedies provided by the
domestic law of those Contracting States, present his case to the competent
authority of the Contracting State of which he is a resident or, if his case
comes under paragraph 1 of Article 24, to that of the Contracting State of
which he is a national. The case
must be presented within three years from the first notification of the action
resulting in taxation not in accordance with the provisions of the Convention.
2. The
competent authority shall endeavor, if the objection appears to it to be
justified and if it is not itself able to arrive at a satisfactory solution, to
resolve the case by mutual agreement with the competent authority of the other
Contracting State, with a view to the avoidance of taxation which is not in
accordance with the provisions of this Convention. Any agreement reached shall be
implemented notwithstanding any time limits or other procedural limitations in
the domestic law of the Contracting States, except such limitations as apply
for the purposes of giving effect to such an agreement.
3. The
competent authorities of the Contracting States shall endeavor to resolve by
mutual agreement any difficulties or doubts arising as to the interpretation or
application of this Convention. In
particular the competent authorities of the Contracting States may agree:
(a) to
the same attribution of income, deductions, credits, or allowances of an
enterprise of a Contracting State to its permanent establishment situated in
the other Contracting State;
(b) to
the same allocation of income, deductions, credits, or allowances between
persons;
(c) to
the settlement of conflicting application of the Convention, including
conflicts regarding:
(i) the
characterization of particular items of income;
(ii) the
characterization of persons;
(iii) the
application of source rules with respect to particular items of income; and
(iv) the
meaning of any term used in the Convention; and
(d) to
advance pricing arrangements.
They may also consult together for the elimination of
double taxation in cases not provided for in the Convention.
4. The
competent authorities of the Contracting States may communicate with each other
directly for the purposes of reaching an agreement in the sense of the
preceding paragraphs of this Article.
ARTICLE 26
1. The
competent authorities of the Contracting States shall exchange such information
as is relevant for carrying out the provisions of this Convention or of the domestic
law of the Contracting States concerning taxes of every kind and description
imposed by a
2. Any
information received under paragraph 1 by a Contracting State shall be treated
as secret in the same manner as information obtained under the domestic law of
that Contracting State and shall be disclosed only to persons or authorities
(including courts and administrative bodies) involved in the assessment,
collection or administration of, the enforcement or prosecution in respect of,
or the determination of appeals in relation to, the taxes referred to in the
first sentence of paragraph 1, or to supervisory bodies, and only to the extent
necessary for those persons, authorities or supervisory bodies to perform their
respective responsibilities. Such
persons, authorities or supervisory bodies shall use the information only for
the purposes of discharging such responsibilities. They may disclose the information in
public court proceedings or in judicial decisions.
3. In
no case shall the provisions of the preceding paragraphs of this Article be
construed so as to impose on a Contracting State the obligation:
(a) to
carry out administrative measures at variance with the laws and administrative
practice of that or of the other Contracting State;
(b) to
supply information which is not obtainable under the laws or in the normal
course of the administration of that or of the other Contracting State;
(c) to
supply information which would disclose any trade, business, industrial,
commercial or professional secret or trade process, or information, the
disclosure of which would be contrary to public policy (ordre public).
4. In
order to effectuate the exchange of information as provided in paragraph 1,
each Contracting State shall take necessary measures, including legislation,
rule-making, or administrative arrangement, to ensure that its competent
authority has sufficient powers under its domestic law to obtain information
for the exchange of information regardless of whether that Contracting State
may need such information for purposes of its own tax.
5. The
provisions of this Article shall, notwithstanding the provisions of Article 2
and subparagraph (d) of paragraph 1 of Article 3, apply to taxes of every kind
and description imposed by a Contracting State insofar as the taxation
thereunder is not contrary to the provisions of this Convention.
ARTICLE 27
1. Each
of the Contracting States shall endeavor to collect such taxes imposed by the
other Contracting State as will ensure that any exemption or reduced rate of tax
granted under this Convention by that other Contracting State shall not be
enjoyed by persons not entitled to such benefits. The Contracting State making such
collections shall be responsible to the other Contracting State for the sums
thus collected.
2. In
no case shall the provisions of paragraph 1 be construed so as to impose upon
either of the Contracting States endeavoring to collect the taxes the
obligation to carry out administrative measures at variance with the laws and
administrative practice of that Contracting State or which would be contrary to
the public policy (ordre public) of that Contracting State.
ARTICLE 28
Nothing in this Convention shall affect the fiscal
privileges of members of diplomatic missions or consular posts under the general
rules of international law or under the provisions of special agreements.
ARTICLE 29
If a Contracting State considers that a substantial
change in the laws relevant to this Convention has been or will be made in the
other Contracting State, the first-mentioned Contracting State may make a
request to that other Contracting State in writing for consultations with a
view to determining the possible effect of such change on the balance of
benefits provided by the Convention and, if appropriate, to amending the
provisions of the Convention to arrive at an appropriate balance of
benefits. The requested Contracting
State shall enter into consultations with the requesting Contracting State
within three months from the date on which the request is received by the
requested Contracting State.
ARTICLE 30
1. This
Convention shall be subject to ratification, and the instruments of
ratification shall be exchanged as soon as possible. It shall enter into force on the date of
the exchange of instruments of ratification.
2. This
Convention shall be applicable:
(a) in
Japan:
(i) with
respect to taxes withheld at source:
(aa) for
amounts taxable on or after July 1 of the calendar year in which the Convention
enters into force, if the Convention enters into force before April 1 of a
calendar year; or
(bb) for
amounts taxable on or after January 1 of the calendar year next following the
year in which the Convention enters into force, if the Convention enters into force
after March 31 of a calendar year; and
(ii) with
respect to taxes on income which are not withheld at source and the enterprise
tax, as regards income for any taxable year beginning on or after January 1 of
the calendar year next following that in which the Convention enters into
force; and
(b) in
the United States:
(i) with
respect to taxes withheld at source:
3. Notwithstanding
the entry into force of this Convention, an individual who was entitled to the
benefits of Article 19 or 20 of the Convention between Japan and the United
States of America for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to Taxes on Income, signed on March 8, 1971
(hereinafter referred to as “the prior Convention”) at the time of the entry
into force of this Convention shall continue to be entitled to such benefits
until such time as the individual would cease to be entitled to such benefits
if the prior Convention remained in force.
4. The
prior Convention shall cease to have effect in relation to any tax from the
date on which this Convention has effect in relation to that tax in accordance
with paragraphs 1 and 2.
Notwithstanding the preceding provisions of this paragraph, where any
person entitled to benefits under the prior Convention would have been entitled
to greater benefits thereunder than under this Convention, the prior Convention
shall, at the election of such person, continue to have effect in its entirety
for the period of twelve months from the date on which the provisions of this
Convention otherwise would have effect under paragraph 2. The prior Convention shall terminate on
the last date on which it has effect in relation to any tax in accordance with
the preceding provisions of this paragraph.
ARTICLE 31
This Convention shall remain in force until terminated by
a Contracting State. Either
Contracting State may terminate the Convention after the expiration of a period
of five years from the date of its entry into force, by giving to the other
Contracting State, through the diplomatic channel, six months prior written
notice of termination. In such
event, the Convention shall cease to have effect:
(a) in
Japan:
(i) with
respect to taxes withheld at source, for amounts taxable on or after January 1
of the calendar year next following the expiration of the six month period; and
(ii) with
respect to taxes on income which are not withheld at source and the enterprise
tax, as regards income for any taxable year beginning on or after January 1 of
the calendar year next following the expiration of the six month period; and
(b) in
the United States:
(i) with
respect to taxes withheld at source, for amounts paid or credited on or after
January 1 of the calendar year next following the expiration of the six month
period; and
(ii) with
respect to other taxes, for taxable periods beginning on or after January 1 of
the calendar year next following the expiration of the six month period.
IN
WITNESS WHEREOF the undersigned, being duly authorized thereto by their
respective Governments, have signed this Convention.
DONE
in duplicate at Washington this sixth day of November, 2003, in the Japanese
and English languages, each text being equally authentic.
FOR THE GOVERNMENT FOR
THE GOVERNMENT
OF
OF
Ryozo
Kato John
W. Snow
PROTOCOL
At the signing of the Convention between the Government of
Japan and the Government of the United States of America for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on
Income (hereinafter referred to as “the Convention”), the Government of Japan
and the Government of the United States of America have agreed upon the
following provisions, which shall form an integral part of the Convention.
1. Notwithstanding
the provisions of Article 2 of the Convention :
(a) the
United States excise tax on insurance policies issued by foreign insurers shall
not be imposed on insurance or reinsurance policies, the premiums on which are
the receipts of a business of insurance carried on by an enterprise of Japan,
to the extent that the risks covered by such premiums are not reinsured with a
person not entitled to the benefits of the Convention or any other tax
convention entered into by the United States that provides exemption from such
tax; and
(b) the
United States excise tax with respect to private foundations shall not be
imposed on:
(i) dividends
or interest derived by private foundations organized in Japan at a rate in
excess of the rates provided for in Articles 10 and 11 of the Convention,
respectively; and
(ii) royalties
or other income derived by private foundations organized in Japan.
2. With
reference to subparagraph (e) of paragraph 1 of Article 3 of the Convention,
the term “any other body of persons” includes an estate, trust, and
partnership.
3. With
reference to subparagraph (m) of paragraph 1 of Article 3 of the Convention, it
is understood that a pension fund shall be treated as exempt from tax with
respect to the activities described in clause (ii) of that subparagraph even
though it is subject to the tax stipulated in Articles 8 or 10-2 of the
Corporation Tax Law (Law No. 34 of 1965) of Japan or paragraph 1 of Article 20
of its supplementary provisions.
4. In
general, where an enterprise of a Contracting State which has carried on business
in the other Contracting State through a permanent establishment situated
therein, receives, after the enterprise has ceased to carry on business as
aforesaid, profits attributable to the permanent establishment, such profits
may be taxed in that other Contracting State in accordance with the principles
stated in Article 7 of the Convention.
5. With
reference to Article 9 of the Convention, it is understood that, in determining
the profits of an enterprise, application of the arm’s length principle under
that Article is generally based on a comparison of the conditions in the
transaction made between the enterprise and an enterprise associated with it
and the conditions in transactions between independent enterprises. It is also understood that the factors
affecting comparability shall include:
(a) the
characteristics of the property or services transferred;
(b) the
functions of the enterprise and the enterprise associated with it, taking into
account the assets used and risks assumed by the enterprise and the enterprise
associated with it;
(c) the
contractual terms between the enterprise and the enterprise associated with it;
(d) the
economic circumstances of the enterprise and the enterprise associated with it;
and
(e) the
business strategies pursued by the enterprise and the enterprise associated
with it.
6. With
reference to paragraphs 4 and 5 of Article 10 of the Convention, a United
States Real Estate Investment Trust (hereinafter referred to as a “REIT”) or a
company which is entitled to a deduction for dividends paid to its
beneficiaries in computing its taxable income in Japan is “diversified” if the
value of no single interest in real property exceeds 10 percent of the total
interests of such person in real property.
For purposes of this paragraph, foreclosure property will not be
considered an interest in real property.
Where such person holds an interest in a partnership, it shall be
treated as owning directly a proportion of the partnership’s interests in real
property corresponding to the proportion of its interest in the partnership.
7. With
reference to paragraph 9 of Article 10 of the Convention, it is understood that
the amount of such income that is equivalent to the amount of dividends that would
have been paid if such activities had been conducted in a separate legal entity
shall be, for any taxable year, the after-tax earnings from the company’s
activities described in that paragraph, adjusted to take into account changes
in the company’s investment in the Contracting State imposing the tax referred
to in that paragraph.
8. Fees
received in connection with a loan of securities, guarantee fees and commitment
fees paid by a resident of a Contracting State and beneficially owned by a
resident of the other Contracting State shall be taxable only in that other
Contracting State unless the beneficial owner of such fees carries on business
in the first-mentioned Contracting State through a permanent establishment
situated therein and such fees are attributable to, or the right in respect of
which such fees are paid is effectively connected with, such permanent
establishment.
9. With
reference to Article 13 of the Convention, it is understood that distributions
made by a REIT shall be taxable under paragraph 1 of that Article, to the
extent that they are attributable to gains derived from the alienation by the
REIT of real property situated in the United States.
10. (a) With
reference to Article 14 of the Convention, it is understood that the benefits
enjoyed by employees under stock option plans relating to the period between
grant and exercise of an option are regarded as “other similar remuneration”
for the purposes of that Article.
(b) It
is further understood that where an employee:
(i) has
been granted a stock option in the course of an employment;
(ii) has
exercised that employment in both Contracting States during the period between
grant and exercise of the option;
(iii) remains
in that employment at the date of the exercise; and
(iv) under
the domestic law of the Contracting States, would be taxable in both
Contracting States in respect of such benefits, then, in order to avoid double
taxation, a Contracting State of which, at the time of the exercise of the
option, the employee is not a resident may tax only that proportion of such
benefits which relates to the period or periods between grant and exercise of
the option during which the individual has exercised the employment in that
Contracting State. With the aim of
ensuring that no unrelieved double taxation arises the competent authorities of
the Contracting States shall endeavor to resolve by mutual agreement under
Article 25 of the Convention any difficulties or doubts arising as to the
interpretation or application of Articles 14 and 23 of the Convention in
relation to such stock option plans.
11. With
reference to subparagraph (c) of paragraph 1 of Article 22 of the Convention,
the shares in a class of shares are considered to be regularly traded on one or
more recognized stock exchanges in a taxable year if the aggregate number of
shares of that class traded on such stock exchange or exchanges during the
preceding taxable year is at least 6 percent of the average number of shares
outstanding in that class during that preceding taxable year.
12. With
reference to paragraph 2 of Article 22 of the Convention, in determining
whether a person is “engaged ... in the active conduct of a trade or business”
in a Contracting State under that paragraph, activities conducted by a
partnership in which such person is a partner and activities conducted by
persons connected to such person shall be deemed to be conducted by such
person. A person shall be connected
to another if one possesses at least 50 percent of the beneficial interest in
the other (or, in the case of a company, at least 50 percent of the aggregate
vote and value of the company’s shares) or if another person possesses,
directly or indirectly, at least 50 percent of the beneficial interest (or, in
the case of a company, at least 50 percent of the aggregate vote and value of
the company’s shares) in each person.
13. (a) For
the purposes of applying the Convention, the United States may treat an
arrangement created by a sleeping partnership (Tokumei Kumiai) contract or
similar contract as not a resident of Japan, and may treat income derived
subject to the arrangement as not derived by any participant in the
arrangement. In that event, neither
the arrangement nor any of the participants in the arrangement will be entitled
to benefits of the Convention with respect to income derived subject to the
arrangement.
(b) Nothing
in the Convention shall prevent Japan from imposing tax at source, in
accordance with its domestic law, on distributions that are made by a person pursuant
to a sleeping partnership (Tokumei Kumiai) contract or other similar contract
and that are deductible in computing the taxable income in Japan of that
person.
IN WITNESS WHEREOF the undersigned, being duly authorized
thereto by their respective Governments, have signed this Protocol.
DONE in duplicate at Washington this sixth day of
November, 2003, in the Japanese and English languages, each text being equally
authentic.
FOR THE GOVERNMENT FOR THE GOVERNMENT
OF JAPAN: OF
THE UNITED STATES
OF
Ryozo
Kato John
W. Snow
(Japanese Note)
Translation
Excellency:
I
have the honor to refer to the Convention between the Government of Japan and the
Government of the United States of America for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with respect to Taxes on Income which was
signed today (hereinafter referred to as “the Convention”) and to the Protocol
also signed today which forms an integral part of the Convention, and to
confirm, on behalf of the Government of Japan, the following understanding
reached between the Government of Japan and the Government of the United States
of America:
1. In
order to avoid application of the local inhabitant taxes or the enterprise tax
as provided for in paragraph 3 of Article 8 of the Convention, if a political
subdivision or local authority of the United States seeks to levy a tax similar
to the local inhabitant taxes or the enterprise tax in Japan on the profits of
any enterprise of Japan from the operation of ships or aircraft in
international traffic in circumstances where the Convention would preclude the
imposition of a Federal income tax on those profits, the Government of the
United States will use its best endeavors to persuade that political
subdivision or local authority to refrain from imposing such tax.
2. It
is understood that the principle as set out in paragraph 1 of Article 9 of the
Convention may apply for the purposes of determining the profits to be
attributed to a permanent establishment.
It is understood that the provisions of Article 7 of the Convention
shall not prevent the Contracting States from treating the permanent
establishment as having the same amount of capital that it would need to
support its activities if it were a distinct and separate enterprise engaged in
the same or similar activities.
With respect to financial institutions other than insurance companies, a
3. With
reference to Article 9 of the Convention, it is understood that double taxation
can be avoided only if tax authorities share a common understanding of the
principles to be applied in resolving transfer pricing cases. Therefore, the Contracting States shall
undertake to conduct transfer pricing examinations of enterprises and evaluate
applications for advance pricing arrangements in accordance with the Transfer
Pricing Guidelines for Multinational Enterprises and Tax Administrations of the
Organisation for Economic Cooperation and Development (hereinafter referred to
as “the OECD Transfer Pricing Guidelines”) , which reflect the international
consensus with respect to these issues.
The domestic transfer pricing rules, including the transfer pricing methods,
of each
4. With
reference to paragraphs 2 and 3 of Article 10 of the Convention, it is
understood that, in the case of
5. With
reference to subparagraph (c) of paragraph 3 of Article 11 of the Convention:
(a) it
is understood that the term “bonds” includes bonds, commercial paper, and
medium-term notes, whether collateralized or not; and
(b) it
is understood that bonds that are subject to transfer restrictions applicable
to private placements shall not be considered to have been issued in the
financial markets. The preceding
sentence shall not apply to offerings qualifying for exemption from securities
registration requirements pursuant to Rule 144A promulgated under the
Securities Act of 1933 of the
6. It
is understood that the term “authorities (including courts and administrative
bodies) involved in the administration of the taxes” as referred to in
paragraph 2 of Article 26 of the Convention includes such authorities as
provide legal advice to those governmental entities that are directly involved
in the assessment or collection, the enforcement or prosecution in respect of,
or the determination of appeals in relation to, the taxes, but are not
themselves a part of such entities, and includes, in the case of the United
States, the Office of Chief Counsel for the Internal Revenue Service.
7. It
is understood that the term “supervisory bodies” as referred to in paragraph 2
of Article 26 of the Convention includes authorities that supervise the general
administration of the government of a
8. It
is understood that the powers of the competent authority of each Contracting
State to obtain information include powers to obtain information held by
financial institutions, nominees, or persons acting in an agency or fiduciary
capacity (not including information relating to communications between a legal
representative in its role as such and its client to the extent that the
communications are protected under domestic law) , and information relating to
the ownership of legal persons, and that the competent authority of each
Contracting State is able to exchange such information in accordance with
Article 26 of the Convention.
If
the foregoing understanding is acceptable to the Government of the United
States of America, I have the honor to suggest that the present note and Your
Excellency’s reply to that effect should be regarded as constituting an
agreement between the two Governments in this matter, which shall enter into
force at the same time as the Convention.
I
avail myself of this opportunity to renew to Your Excellency the assurance of
my highest consideration.
Ryozo Kato
Ambassador Extraordinary
and Plenipotentiary of
to the
His Excellency
Mr. Colin L. Powell
The Secretary of State
of the
(
Excellency:
I
have the honor to acknowledge receipt of Your Excellency’s note of today’s date
which reads as follows:
“(Japanese Note)”
I
have further the honor to confirm on behalf of the Government of the United
States of America that the foregoing understanding is acceptable and to agree
that Your Excellency’s note and this note shall be regarded as constituting an
agreement between the two Governments which shall enter into force at the same
time as the Convention.
I
avail myself of this opportunity to renew to Your Excellency the assurance of
my highest consideration.
For the Secretary of State,
James A. Kelly
His Excellency
Mr. Ryozo Kato
Ambassador Extraordinary
and Plenipotentiary of
to the