Japan Ready To Ratify New US Tax Treaty

by Mary Swire, Tax-News.com, Hong Kong

23 March 2004

The updated US-Japan tax treaty could be ratified by the Japanese government this week, allowing the new pact to come into force on schedule from July of this year, a Japanese diplomat indicated last Friday.

The new tax treaty will replace the existing income tax treaty between the United States and Japan, which dates back to 1971. The most dramatic advances in the new treaty are reflected in the reciprocal reductions in source-country withholding taxes on income from cross-border investments, and provide for the complete elimination of withholding taxes on all royalty income.

The new agreement also provides for the complete elimination of withholding taxes on certain interest income, including interest income earned by financial institutions, and on dividend income paid to parent companies with a controlling interest in the paying company.

The pact has already received the consent of the US Congress, and the business community has welcomed the news that the Japanese Cabinet is on the verge of approving the measures, after diplomats said that Japan’s ratification before the end of March would be a “close call.”

If both governments exchange their ratification documents by the end of this month, then the treaty will come into force on schedule, and should take effect from July 1, 2004.

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