WASHINGTON -- Last November, with little fanfare, the governments of the United States and Japan concluded and signed a treaty for "the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income."
The treaty is a great step forward in modernizing economic relations between the two nations. The treaty it replaces had been put in place in the 1970s when Japan was a "developing economy," when a trade deficit of just a few billion dollars was considered a major problem and when cross-border investment flows were just a fraction of what they are today. Two-way trade has grown to $180 billion per year, and more significantly as far as this treaty is concerned, direct investment by U.S. and Japanese companies in the other economy has soared.
The new treaty accommodates the reality of the financial and trade relationship that exists between the U.S. and Japan today and makes doing business and investing in the other country easier and more convenient. Major companies of both nations sought the changes because the impact of the old regime worked hardships on both American and Japanese companies.