Outline of Tax Convention
A tax convention contributes to promoting investment and economic exchanges between two countries through avoiding international double taxation, and through preventing tax evasion and tax avoidance.
As the international standard for a tax convention, there is the OECD Model Tax Convention. This is used as a model when countries, mainly member countries of OECD, conclude a tax convention with other countries. Japan, a member country of OECD, adopts provisions in line with this model.
[Major contents of the OECD Model Tax Convention]
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Avoiding international double taxation -
Clarification of the scope of taxable income in the source country (where the income arises)
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-- With respect to business profits, the profits of an enterprise may be taxed but only so much of them as is resulting from the business activities of branches, etc.
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-- With respect to investment income (dividends, interest and royalties), the rate of withholding tax is limited.
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Methods to eliminate international double taxation in the residence country
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-- Foreign tax credit, etc.
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Resolution of taxation not in accordance with the Convention by mutual agreement procedure (including an arbitration system) between tax authorities
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- Measures for preventing tax evasion and tax avoidance
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Exchange of information on taxpayers (including bank secrecy) between tax authorities
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Assistance in the collection of taxes
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(Reference) Major flow up to concluding a tax convention (under the jurisdiction of the Ministry of Foreign Affairs)
Initiation of negotiations → Agreement in principle → Signing → Diet approval (discussed at the Committee on Foreign Affairs of the House of Representatives and at the Committee on Foreign Affairs and Defense of the House of Councillors) → Exchange of diplomatic notes → Effectuation/Promulgation
(Note) Prior to signing, submission to the Diet, exchange of diplomatic notes and promulgation, decisions shall be made at a Cabinet meeting upon a request from the Ministry of Foreign Affairs.
