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International Businesses, Tax & Assurance Guidance

US Tax Treaty Updates Japan and Spain

Posted on September 9, 2019 by

Sue Tuson

Sue Tuson

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Long-awaited treaty protocols, signed in 2013, were finally ratified in July 2019.  The details for Japan and Spain are below:

Japan

The protocol with Japan entered into force on August 30, 2019, provides the following amendments to the 2003 tax treaty:

  • Broadens exemptions from source country withholding on most interest, limits source country withholding on contingent interest to 10%
  • Allows for the taxation of gains from the sale of real property and real property interests by the country in which the real property is located
  • Expands the exemption from source country withholding on dividends. Under the existing convention, dividends were exempt from withholding if a company beneficially owned greater than 50% of the voting stock of the company paying the dividends with a 12 month holding period.  The new protocol provides an exemption if a company beneficially owns 50% or more of the voting stock of the company paying the dividends with a 6 month holding period.
  • Updates provisions for dispute resolution through binding arbitration
  • Enables the revenue authority of each country to request the assistance of the other revenue authority in the collection of taxes
  • Provides for the exchange of information

Withholding tax provisions will be in effect beginning November 1, 2019, other tax provisions January 1, 2020.

Spain

The protocol with Spain is due to enter into force on November 27, 2019, and provides for the following amendments to the 1990 treaty:

  • Provides an exemption from source country withholding on dividends if a company beneficially owns at least 80% of the voting stock of the company paying the dividends for at least 12 months
  • Limits source country withholding to 5% on dividends beneficially owned by a company that owns at least 10% of the voting stock of the company paying the dividends and limits the rate of source country withholding to 15% in other cases
  • Exempts source country withholding on most interest, limits source country withholding on contingent interest to 10%
  • Exempts source country withholding on royalties and capital gains
  • Updates provisions for dispute resolution through binding arbitration
  • Provides protection against Treaty Shopping
  • Provides for an exchange of information

To learn more about issues impacting US and international entities, contact Clayton & McKervey.

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Sue Tuson

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As an international tax advisor, Sue helps businesses structure their operations globally to mitigate tax costs and maximize profits.

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