Amendment of tax treaty between US and Japan

1.  Overview of the amendment

On 24 January 2013 (US time), the United States and Japan signed a new protocol to amend the current income tax treaty. It has been nine years since the last revision of the tax treaty between US and Japan proclaimed on 30 March 2004. The purpose of the amendment is to widen the scope of tax exemption for dividend and interest income and reduce administrative burdens. In addition, a new provision has been introduced. The provision will enable the taxpayer to call for an arbitration held by a third party to solve the disputes concerning transfer pricing and other cross-border transactions when the competent authorities are unable to reach agreement under the Mutual Agreement Procedure within two years.

Main amendments in the protocol are as follows:

2. Applicable period

The amended tax treaty will come into effect on the date both countries approve the protocol. Thus, the applicable period will be as follows:

• Income tax withheld at source: applied to income incurred on or after the first day following the day on which three months has lapsed since the effective date of the amended tax treaty.
• Other income taxes: applied to income incurred in the taxable years beginning on or after the 1st of the January next to the year the amended tax treaty put into force.