Japan Seeks Regional Double Taxation Treaty Network

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

01 April 2004

Following ratification of the new tax treaty with the United States this week, the Japanese government is being urged to pursue similar double taxation agreements with its Asian trading partners.

"There are strong calls among Japanese businesses to move ahead with tax treaties with countries in Asia, which is not surprising given their huge investments in the region," stated a Japanese Finance Ministry official, according to the Japan Times.

However, whilst the tax treaty with the US was largely mutually beneficial, Japan’s Asian neighbours may not be so keen to enter into similar agreements as they stand to gain little from the exercise, and indeed, their governments may lose tax revenues.

This is because Asian nations have a comparatively small stake in the Japanese economy, whilst Japanese firms are well established abroad, enabling them to take advantage of provisions seen in the tax treaty with the US eliminating the 10% dividend tax on income remitted back to parent companies from overseas subsidiaries. Whilst Japanese firms would gain significantly from this, other Asian governments would stand to gain very little.

"In the case of tax treaties between Japan and other Asian nations, Asian nations face the threat of a drop in tax revenue, at least over a short period," the Finance Ministry official acknowledged.

As a way round this, the Japanese government is seeking to link double taxation treaties with potential free trade agreements, hoping that giving concessions in the latter will make Asian governments more willing to accept tax agreements.

Japan is at present attempting to negotiate such deals with Thailand and the Philippines.

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