Signing of the Tax Convention between Japan and Estonia
August 30, 2017
1. On August 30, 2017, “Convention between Japan and the Republic of Estonia 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) / Jaoanese (PDF)) was signed in Tallinn by Ms. Yoko Yanagisawa, Ambassador of Japan to the Republic of Estonia and H.E. Mr. Toomas Tõniste, Minister of Finance of the Republic of Estonia.
2. For the purpose of eliminating double taxation arising between the two countries, this Convention clarifies the scope of taxable income in the two countries. In addition, this Convention will enable the tax authorities of the two countries to consult each other on taxation not in accordance with the provisions of this Convention, exchange information concerning tax matters and mutually lend assistance in the collection of tax claims. 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 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 profits attributable to a permanent establishment will be calculated by comprehensively recognizing internal dealings between its head office and branches and by strictly applying the 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 or exempted as follows:
Dividends Interest Royalties Exempted (holding at least 10% of the voting power for 6 months)
Exempted (received by Governments, etc.)
(3) Provision for prevention of abuse of the Convention
In order to prevent tax treaty abuse, 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 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) Consultation and dispute resolution between the tax authorities
Taxation which does not comply 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 within two years, the unresolved issue shall be submitted to an 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 necessary domestic procedures in each of the two countries (in the case of Japan, approval by the Diet), 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:
(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 following calendar year after the year in which the Convention enters into force; and
(2) with respect to taxes levied not on the basis of a taxable year, for taxes levied on or after January 1 in the following calendar year after the year in which the Convention enters into force.