Updates on the Japan–US Tax Treaty

On July 17, 2019, the U.S. Senate approved an amendment to the US-Japan Tax Treaty and on August 30, 2019 the exchange of instruments of ratification between the United States. and Japan was completed. The amended US-Japan Tax Treaty became effective immediately.

 

The protocol amending the tax treaty with Japan was signed on January 24, 2013 by both the U.S. and Japanese governments and ratified in Japan in the same year. However, due to opposition in the U.S. Senate, it was not ratified until July 2019 and signed by the president on August 6, 2019.

 

The purpose of the amendment is to foster stronger economic growth through trade and investment activities between both countries. The major changes are noted below:

 

(Dividends) Enlargement of exemption of taxes withheld at source.

 

(Interest) Enlargement of exemption of taxes withheld at source

 

(Arbitration system to mutual agreement procedures)

The mandatory binding arbitration system is introduced.

 

(Reinforcement of assistance in tax collection)

The scope of the system to lend assistance to each other in the collection of taxes is expanded to delinquent general revenue claims while it was limited to cases of abuse before the amendment. 

 

The amendment is effective on August 30, 2019 when the exchange of protocols ratification was complete and will apply as follows: 

(1) in respect to taxes withheld at source, for amounts paid or credited on or after November 1, 2019;
(2) in respect to other taxes, for taxable years beginning on or after January 1, 2020.
(3) the provisions concerning arbitration, exchange of information and assistance in tax collection is effective from August 30, 2019

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