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Eric Roose |
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Takeo Mizutani |
On December 18 2009, the Japanese Ministry of Finance and the Netherlands Ministry of Finance announced that they have agreed in principle on a new tax convention for the avoidance of double taxation. The new tax treaty will replace the existing tax treaty, which was originally concluded in 1970. The announcement comes after a period of negotiation between Japan and the Netherlands spanning a number of years.
The new tax treaty will significantly reduce maximum withholding tax rates applicable to dividends and royalties. The new treaty is expected to provide for a zero withholding tax rate on dividends in the case where 50% or more of the shares of the dividend paying company are held by a qualifying treaty resident shareholder, and a 5% rate in the case where at least 10% of the shares are held by a qualifying treaty resident shareholder. The treaty provides for a 5% rate in the case where 25% or more of the shares of the dividend paying company are held by a treaty resident shareholder.
Under the new treaty, the maximum withholding rate on royalties is expected to be reduced to zero, a reduction from the treaty rate of 10%.
The maximum interest withholding rate under the new treaty will continue the 10% rate allowed under the existing treaty, but will provide for a zero percent rate in the case of interest paid to certain banks.
The new treaty will now permit Japan to tax other income derived from a silent partnership (Tokumei Kumiai) contract, which means that such income will now be subject to a 20% withholding tax under Japanese local tax law.
Keeping with the trend of Japan's recently renegotiated treaties with the US and the UK, the new treaty will contain limitation on benefit provisions to prevent the abuse of the treaty.
Upon ratification and signing by both Japan and the Netherlands, the new treaty is expected to have an effective date of January 1 2011.
Eric Roose (eroose@tokyo.whitecase.com) & Takeo Mizutani (tmizutani@tokyo.whitecase.com)
