Japan and the United States signed a revised bilateral tax treaty Friday that will help boost cross-border investment by simplifying taxation for companies operating in both countries.
The two governments aim to put the accord into effect in 2005, with Japan sending a related bill to the Diet next March, the Finance Ministry said. The revision, the first since 1972, when the treaty took effect, was signed at the Treasury Department in Washington.
Under the revised treaty, for example, cross-border dividend payments by subsidiaries to parent firms that own more than 50 percent of the companies will be locally tax-exempt. Under the current treaty, a 10 percent tax is levied on such payments.
The exemption would affect more than 80 percent of Japanese companies operating in the U.S., according to the Finance Ministry.
When the ownership rates are between 10 percent and 50 percent, the tax rate will be lowered to 5 percent from 10 percent.
Cross-border transfer of interest charges by financial institutions as well as patent royalties, currently taxed at 10 percent, will be tax-exempt. The tax on portfolio income transfer across the Pacific will be 10 percent, against the current 15 percent.