Signing of the Tax Convention between Japan and Slovenia
September 30, 2016
1. On September 30, 2016, “Convention between Japan and the Republic of Slovenia 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 by Mr. Nobuo Kishi, State Secretary for Foreign Affairs and H.E. Ms. Simona Leskovar, Ambassador of the Republic of Slovenia in Tokyo.
2. The Convention aims to further promote investment and economic exchanges between the two countries by clarifying taxation on cross-border investment and economic activities between the two countries and adjusting international double taxation as well as introducing mutual agreement procedures (including arbitration proceedings) for the tax authorities to resolve disputes on tax matters between the two countries. The Convention also provides for effective exchange of information in accordance with the international standards and the mutual assistance in the collection of tax, which are expected to contribute to the prevention of international avoidance of taxation and collection.
3. The following are the key points of the Convention.
(1) Taxation on Profits from Business Activities
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. The Convention introduces provisions concerning taxation on business profits attributable to a permanent establishment, under which business profits are calculated by recognizing internal dealings between its head office and branches and by applying arm’s length principle.
(2) Taxation on Investment Income in the Source Country
As for investment income (dividends, interest and royalties), taxation in the source country is limited to the maximum rates or exempted as follows:
Dividends Interest Royalties 5%Exemption (received by Governments, etc.)5% (others) 5%
(3) The Provision for Prevention of Abuse of the Convention
In order to prevent tax treaty abuse, a benefit under the Convention shall not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any transaction.
(4) Dispute Resolution between the Tax Authorities
Taxation not in accordance with the provisions of the Convention may be resolved by mutual agreement between the tax authorities of the two countries. Where the issue has not been resolved by the consultation between the tax authorities of the two countries within two years, the unresolved issue shall be submitted to arbitration and resolved by the decision of an arbitration panel composed of third parties.
(5) Exchange of Information and Assistance in the Collection of Taxes
In order to prevent international tax evasion and tax avoidance effectively, the exchange of information concerning tax matters and the mutual assistance in the collection of tax claims between the two countries are introduced.
4. After the completion of the necessary domestic procedures in each of the two countries (in the case of Japan, approval by the Diet), diplomatic notes indicating such completion are to be exchanged. The Convention will enter into force on the thirtieth day after the date of receipt of the latter notification.
In Japan, this Convention will be applicable:
(1) with respect to taxes levied on the basis of a taxable period, for taxes for any taxable period beginning on or after January 1 in the calendar year next following that in which the Convention enters into force; and
(2) with respect to taxes levied not on the basis of a taxable period, for taxes levied on or after January 1 in the calendar year next following that in which the Convention enters into force.