Signing of Tax Convention with the Kingdom of Belgium
October 12, 2016
1. On October 12, the Convention between Japan and the Kingdom of Belgium for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (English (PDF) / Japanese (PDF)) was signed in Tokyo by the Government of Japan and the Government of the Kingdom of Belgium. The new convention replaces the existing Convention which entered into force in 1970 (as partially amended in 1990 and 2013).
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 key points of the Convention.
(1) Amendment of Taxation on Business Profits
The business profits attributable to a permanent establishment (such as a branch) of an enterprise situated in the other country which may be taxed in that other country shall be calculated, based on comprehensively recognized internal dealings between its head office and branches and strictly following the arm’s length principle.
(2) Further Reduction of Taxation on Investment Income in the source country
Taxation on investment income (dividends, interest and royalties) in the source country is further limited to the maximum rates or exempted as follows:
Existing Convention New Convention Dividends 5% (Dividends paid by a company of Belgium to a company which holds at least 25% of voting shares for 6 months of the Belgian company)
10% (Dividends paid by a company of Japan to a company which holds at least 25% of voting shares for 6 months of the Japanese company)
Exempted (Dividends paid by a company to a company which holds at least 10% of voting power for 6 months of the company paying the dividends)
Exempted (Dividends beneficially owned by pension funds)
Interest 10% Exempted (Interest paid and beneficially owned by enterprises, etc)
Royalties 10% Exempted
(3) Prevention of Abuse of the Convention
In order to prevent abuse of benefits under this Convention, it is provided that only residents who satisfy specified conditions may be entitled to such benefits. In addition, benefits under this Convention shall not be granted if it is reasonable to conclude that obtaining such benefits was one of the principal purposes of any transaction.
(4) Arbitration Proceeding in Mutual Agreement Procedure
Where taxation not in accordance with the provisions of this Convention has not been resolved through the consultation between the tax authorities of the two countries within two years, the unresolved issue shall be submitted to arbitration and resolved pursuant to a decision of an arbitration panel composed of third parties.
(5) Assistance in the Collection of Tax Claims
In order to prevent international tax evasion and tax avoidance effectively, 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.