Diplomatic Notes Exchanged with UK concerning the Application of the New Article on Business Profits under the Amended Tax Convention
July 23, 2015
- On July 22, the Government of Japan and the Government of the United Kingdom of Great Britain and Northern Ireland exchanged diplomatic notes in London concerning the application of the new Article 7 of “the Convention between Japan and the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains” (entered into force on October 12, 2006 and amended by the Protocol on December 12, 2014).
- The new Article 7 of the Convention provides that the amount of tax on business profits attributable to a permanent establishment of a foreign enterprise is calculated by recognizing internal dealings between its head office and branches and by applying the arm’s length principle.
- Through the exchange of the diplomatic notes, both Governments agreed that the new Article 7 of the Convention will be applicable:
(a) in Japan:
with respect to profits for any taxable year beginning on or after April 1, 2016; and
(b) in the United Kingdom:
(i) in respect of profits charged to income tax or capital gains tax, for any year of assessment beginning on or after April 6, 2016; and
(ii) in respect of profits charged to corporation tax, for any financial year beginning on or after April 1, 2016.