Finance Minister Masajuro Shiokawa announced Wednesday that Japan and the United States have agreed to revise the bilateral tax treaty for the first time in 30 years in a bid to encourage trans-Pacific investment and exchange of human resources.

"Reflecting the close economic relations between the two strategic partners, the agreement will encourage mutual investment as well as prevent tax evasion," Shiokawa said.

Under the new rules, certain types of cross-boarder income transfers will be tax-exempt, including royalties, certain dividends from subsidiaries to parent firms and some interest charges. Details will be decided later, the ministry said.

The existing treaty, established in 1954 and last revised in 1972, aims to avoid double taxation and prevent tax evasion.

There has been strong demand by corporations involved in cross-boarder trade to update the treaty.

The two economic powers first began negotiating a revision to the treaty in October 2001.

The rates under the current treaty are higher than global standards, ministry officials said.

At present, interest and royalties each attract a 10 percent withholding tax. There is also a 10 percent tax on dividends from subsidiaries that are owned 10 percent or more by their parent company.

Under the OECD model treaty, the tax on dividends is 5 percent, while that applied to royalties is zero percent.