Japan: Tax treatment of income from U.S. limited partnerships is treated as fiscally transparent entity

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On 9 February 2017, Japan’s National Tax Agency (NTA) released a report on its website confirming that a US limited partnership (US LP) is treated as fiscally transparent for Japanese tax purposes when applying the US-Japan Income Tax Treaty.

The announcement was released in response to concerns that a U.S. limited partnership would be treated as an “opaque entity” after a 2015 decision of Japan’s Supreme Court. In that decision, the Supreme Court held that a U.S. Delaware limited partnership was to be treated as a corporation for Japanese tax purposes. By this announcement, the NTA clarified:

-That it would treat a U.S. limited partnership that has not made an election to be classified as a corporation for U.S. federal tax purposes as a fiscally transparent entity; and

-That a Japanese resident (1) that derives income through a U.S. limited partnership, and (2) that meets all other requirements under the income tax treaty between Japan and the United States would be eligible to claim treaty benefits.

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