Japan and the United States on Tuesday ratified a revised tax treaty in an exchange of notes, paving the way for summer tax cuts for companies that operate in both nations.
The treaty, which represents the first revision to the bilateral pact in 32 years, took effect after Senior Vice Foreign Minister Ichiro Aisawa and U.S. Ambassador Howard Baker exchanged notes during a Tokyo ceremony.
Measures in the pact — including a complete elimination or lowering of taxes on certain royalty, interest and dividend incomes — will be implemented in July.
The pact also features steps aimed at curbing tax avoidance.
A significant feature of the treaty is the complete elimination of source-country tax on dividend payments by a subsidiary in one country to a parent company in another, when the parent has a controlling stake in the subsidiary.
A 10 percent tax is currently applied.
A large portion of Japanese companies with subsidiaries in the U.S. are expected to benefit from the arrangement, Finance Ministry officials said.
Income from trademarks and patents will also be free of a 10 percent source-country tax that is currently applied.
For example, companies in Japan paying royalties to companies in the U.S. will no longer have to pay Japanese withholding tax on those payments.
Finance Minister Sadakazu Tanigaki said he hopes the tax treaty will lead to increased business opportunities and jobs, adding that Japan plans to revise its tax pacts with other countries using the new Japan-U.S. treaty as a model.
“We hope to revise our tax treaties with other countries in Europe and Asia based on the basic policy we adopted in the Japan-U.S. treaty,” he said.