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Key Points of New Tax Agreement with Germany

[Provisional translation]

1. Introduction of New Provisions of Taxation on Business Profits

In respect of taxation on business profits that are attributable to a permanent establishment (such as a branch) of a foreign company and a non-resident, the new provisions apply the arm’s length principle to internal transactions between its head office and branches more strictly and modify the way of calculating the profits attributable to the permanent establishment by recognizing internal transactions between the head office and branches comprehensively.


2. Reduction and Exemption of Taxation on Investment Income

Taxation on investment income (dividends, interest and royalties) in the source country is further reduced or exempted as follows:

Prior Agreement New Agreement
Dividends 10% (paid by a company resident of Japan, holding at least 25% for 12 months)
15% (others)
Exempted (holding at least 25% for 18 months)
5% (holding at least 10% for 6 months)
15% (others)
Interest Exempted (paid on Government bonds, etc.)
10% (Others)
Royalties 10% Exempted


3. Introduction of Provisions for Prevention of Abuse of the Agreement

From the viewpoint of preventing abuse of the Agreement, the new provisions which provides that only a resident who is a qualified person satisfying certain conditions in the relevant provisions of the Agreement may be entitled to the benefits under the Agreement is introduced.


4. Introduction of Arbitration Proceedings in Mutual Agreement Procedures

From the viewpoint of facilitating dispute resolution regarding taxation not in accordance with the Agreement, arbitration proceedings in mutual agreement procedures is introduced, in which the cases not being resolved between the tax authorities of the two countries will be resolved pursuant to decisions made by third party arbitrators.


5. Exchange of Information and Assistance in the Collection of Taxes

For preventing international tax evasion and tax avoidance more effectively, the scope of cases and taxes being subjected to the provisions for the exchange of information concerning tax matters is expanded and the provisions for mutual assistance in the collection of taxes between the two countries are introduced.


6. Others

The Agreement also includes among others the provisions on:
(1) the application of the Agreement to entities being subject to different treatment in taxation between the two countries;
(2) the corresponding adjustment for transfer pricing taxation; and
(3) the taxation on income derived in respect of a silent partnership contract.