US Tax Treaty Updates Japan and Spain

Posted on September 9, 2019 by

Sue Tuson

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.

Sue Tuson

Shareholder

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

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