- Reduction or exemption of taxes on investment income in the source country
Taxation on investment income (dividends, interest and royalties) in the source country is reduced or exempted as below:
Dividends Interest Royalties Current Convention 5% (Shareholding: at least 25%)
Exemption (governments, etc.)
10% New Convention Exemption (Shareholding: at least 50%)
5% (Shareholding: at least10%)
Exemption (governments, banks, etc.)
- Introduction of provisions for prevention of tax avoidance
With regard to investment income, since the scope of exemption from taxes in the source country is significantly expanded, the risk of tax avoidance by abusing the benefits of the Convention will be increased, and therefore, the following provisions are specified to prevent such cases:
(1) Provision on the limitation of benefits
Persons who are entitled to the benefits of the Convention are limited to those who meet certain conditions.
(2) Provision on transactions considered to be abuse of the benefits of the Convention
With regard to investment income, no benefits of the Convention shall be granted if transactions are considered to be abuse of the benefits of the Convention in the light of transaction forms.
- Introduction of arbitration procedure for dispute resolution between the tax authorities
If a taxpayer considers that any tax imposed on him/her is not in accordance with the provisions of the Convention, he/she may, as before, request for dispute resolution between the tax authorities (mutual agreement procedure).
The New Convention introduces the provision that a taxpayer may, as part of mutual agreement procedure, request for arbitration with respect to issues not resolved between the tax authorities within two years.
In addition to the above, the following provisions are also included:
(1) Provisions concerning entities differently dealt with in terms of taxation between the two countries
(2) Provisions concerning the time limits for transfer pricing taxation (7 years from the end of the taxable year)
(3) Provisions concerning taxation on income derived by a sleeping partner in respect of a sleeping partnership contract