Agreement in Principle on the New Income Tax Treaty between Japan and the U.S.A.

The fourth round of negotiations between Japan and the United States of America on the new income tax treaty to replace the Convention between Japan and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, signed on March 8, 1971, ("the current Convention") were held from May 27 through June 3 and an agreement has been reached in principle.

The proposed new treaty, while taking the OECD model as a basis, comprehensively revises the current convention and, reflecting the importance of the economic relationship between the two countries as strategic partners, aims to promote investment between them as well as to prevent tax avoidance. The proposed new treaty would substantially reduce the withholding taxes imposed on dividends, interest and royalties paid between the two countries. In particular, it would eliminate the withholding taxes on royalties, certain inter-company dividends, and certain interest.

After the governments of the two countries have completed the necessary procedures, the new treaty will be signed and become ready for submission to the Diet. The new treaty will enter into force after it has been approved by the Diet.