Japan To Start New Tax Treaty Talks With India And The Phippines

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

10 January 2005

Japanese Finance Minister Sadakazu Tanigaki is due to hold a series of talks with the governments of the Philippines and India this week, with a view to kick-starting negotiations that will lead to new tax treaties with the two countries.

Of particular interest to companies in both India and Japan is the 20% cap on withholding tax on income derived from technical assistance, which includes computer software sold to Japanese firms by Indian developers and Japanese consulting services sold to Indian companies.

This cap is considerably higher than in other bilateral tax treaties, such as between India and Germany, in which it is 10%, and Japan and the U.S., which is tax free, and many companies would like to see it reduced or removed altogether.

The interpretation of existing tax arrangements between India and Japan by the latter country’s tax authorities has also become a major source of concern for Indian firms, many of which have found themselves locked in tax disputes with the Japanese government.

“Interpretation of the Indo-Japan tax treaty by the Japanese tax authorities is a big challenge to the growing business in Japan. Thus, the intervention of the Indian government in renegotiating the treaty is most welcome,” TV Mohandas Pai, CFO at IT consulting firm Infosys told the Economic Times last month.

After meeting with Philippine President Gloria Macapagal Arroyo, Finance Secretary Juanita Amatong and central bank chief Rafael Buenaventura in Manilla on Monday, Tanigaki is due to hold talks with Indian Finance Minister P. Chidambaram in New Delhi on Wednesday.

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