The governments of Japan and the Portuguese Republic signed an income tax treaty in December 2011. The mutual notifications of the completion of the necessary domestic procedures were completed on 28th June 2013 and in accordance with Article 28 of the treaty. Both countries are members of the Organization for Economic Cooperation and Development (OECD) and many of the treaty’s provisions follow the OECD Model Tax Convention.
The Convention will enter into force on July 28 this year, and will apply as follows in Japan:
(1) with respect to taxes withheld at source, for amounts taxable on or after January 1, 2014;
(2) with respect to taxes on income which are not withheld at source, as regards income for any taxable year beginning on or after January 1, 2014; and
(3) with respect to other taxes, for any taxable year beginning on or after January 1, 2014.
The Convention provides for a maximum withholding tax on dividends of 10%, reduced to 5% where the beneficial owner of the dividends is a company owning at least 10% of the voting shares in the paying company (if that company is resident in Japan) or 10% of the capital of the company paying the dividend (if that company is resident in Portugal). The maximum withholding tax on interest is 10% and on royalties 5%.
The Convention contains an Article providing for a mutual agreement procedure if taxation may arise that is contrary to the terms of the agreement. Where the competent authorities are unable to reach agreement within two years after the presentation of the case to them, any unresolved issues may be taken to arbitration. The Protocol to the Convention stipulates that the arbitration procedure only applies to cases where Article 9 (associated enterprises) applies. The Protocol also sets out detailed procedures for the appointment of the arbitration panel.
It is expected that the entry into force of the Convention will further strengthen the economic relations and human exchanges between two countries, and contribute to the prevention of fiscal evasion.
