• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 12/18/2013

Japan - Protocol amending income tax treaty with UK 

December 18:  Representatives of the governments of Japan and the United Kingdom on 17 December 2013 signed a Protocol amending the current income tax treaty between the two countries.

The Protocol must be ratified by both countries before it enters into force.

Among the changes in the Protocol are the following measures:

  • The threshold of the shareholding requirement for dividends that are exempt from tax in a residence country of the dividend paying company would be reduced from 50% to 10%.
  • In principle, interest payments would be exempt from tax in a country where the interest arises.
  • Under the current tax treaty, when a parent company holding 25% or more of shares in a company located in the other treaty-partner country sells 5% or more of the shares in a tax year, capital gains from the sale that are not subject to tax in the parent company’s country of residence may be subject to tax in the subsidiary company’s country of residence. This clause would be eliminated by the Protocol. Note that the right to tax capital gains from sales of shares in a real estate holding company by the country where the real estate is located will continue.
  • Article 7 (Business Profits) will be amended to reflect Article 7 of the OECD Model Tax Convention (amended in 2010), which is in line with the Authorised OECD Approach as an approach to calculate income attributable to a permanent establishment.

Read a December 2013 report [PDF 73 KB] (in both Japanese and English) prepared by the KPMG member firm in Japan: Protocol Amending the Japan-UK Tax Treaty

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