Signing of the Tax Convention between Japan and the Russian Federation
September 7, 2017
1. On September 7, 2017, “Convention between the Government of Japan and the Government of the Russian Federation for the Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance” (hereinafter referred to as the Convention)(English(PDF) / Japanese (PDF)) was signed in Vladivostok, Russia by Mr. Kozuki Toyohisa, Ambassador of Japan in Russia and Mr. Ilya Vyacheslavovich Trunin, Deputy Minister of Finance of the Russian Federation.
2. This Convention wholly amends the existing Convention (Convention between the Government of Japan and the Government of the Union of Soviet Socialist Republics for the Avoidance of Double Taxation with respect to Taxes on Income), which entered into force in 1986, by expanding the extent of reduction of taxation on investment income, introducing measures for prevention of abuse of this Convention and assistance in the collection of tax claims, and reinforcing the exchange of information concerning tax matters. It is expected that, while eliminating double taxation and preventing international tax evasion and tax avoidance, this Convention promotes further mutual investments and economic exchanges between the two countries.
3. The following are the key points of the Convention.
(1) Taxation on Business Profits
Where an enterprise of one of the two countries has in the other country a permanent establishment (such as a branch) through which the enterprise carries on business, only the profits attributable to the permanent establishment may be taxed in that other country.
(2)Further Reduction of Taxation on Investment Income Taxation on investment income (dividends, interest and royalties) in the source country will be subjected to the reduced maximum rates or exempted as follows:
Existing Convention New Convention Dividends 15% Exempted (beneficially owned by pension funds) 5% (holding at least 15% of voting power for 365 days) 15% (shares deriving at least 50% of their value from immovable property) 10% (others) Interest Exempted (received by the Governments, etc.) 10% (others) Exempted Royalties Exempted (for use of copyright, etc.) 10%（for use of patent, or equipment, etc.） Exempted
In order to prevent abuse of benefits under this Convention, it is provided that only residents who satisfy specified conditions, such as qualified persons, may be entitled to the exemption from tax on investment income. In addition, any benefit under this Convention will not be granted if it is reasonable to conclude that obtaining such a benefit was one of the principal purposes of any transaction, or if the income is attributable to a permanent establishment in a third country and does not satisfy specified conditions.
(4) Mutual Agreement Procedure
Taxation not in accordance with the provisions of this Convention may be resolved by mutual agreement between the tax authorities of the two countries.
(5) Exchange of Information and Assistance in the Collection of Tax Claims
In order to effectively prevent international tax evasion and tax avoidance, the scope of cases and taxes subject to the exchange of information concerning tax matters is expanded and the mutual assistance in the collection of tax claims between the two countries is introduced.
4. After the approval in accordance with the domestic procedures of the two countries (in the case of Japan, approval by the Diet is necessary), this Convention will enter into force on the thirtieth day after the date of exchange of diplomatic notes indicating such approval and will have effect in the two countries:
(1) with respect to taxes levied on the basis of a taxable year, for taxes for any taxable years beginning on or after January 1 in the calendar year next following that in which the Convention enters into force;
(2) with respect to taxes levied not on the basis of a taxable year, for taxes levied on or after January 1 in the calendar year next following that in which the Convention enters into force;
(3) The provisions concerning the exchange of information and assistance in the collection of taxes have effect from the date of entry into force of this Convention without regard to the date on which the taxes are levied or the taxable year to which the taxes relate.
* This new Convention will not affect the application of the existing Convention between Japan and the countries other than the Russian Federation.