Press Releases

1. The New 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 revising the taxation on business profits and investment income, introducing measures for prevention of abuse of this Convention, arbitration proceedings in mutual agreement procedures 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.
2. The following are the key points of the New 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. The profits attributable to a permanent establishment will be calculated by comprehensively recognising internal dealings between its head office and branches and by strictly applying the arm’s length principle.
   2. Taxation on Investment Income Taxation on investment income (dividends, interest and royalties) in the source country will be subjected to the maximum rates or exempted as follows:
      
      Existing Convention
      Dividends　　15%
      Interest　　　Exempted (received by the Governments, etc.)
      　　　　　　10% (others)
      Royalties　　Exempted (copyright)
      　　　　　　10% (others)
      
      New Convention
      Dividends　　5% (holding for 6 months at least 25% of:where paid by a company of Japan, voting power;where paid by a company of Ukraine, capital)
      　　　　　　15% (others)
      Interest　　　Exempted (received by the Governments, etc.)
      　　　　　　5% (received by financial institutions, etc.)
      　　　　　　10% (others)
      Royalties　　5%
      
      
   3. Mutual Agreement Procedure and Arbitration Proceedings Taxation not in accordance with the provisions of the Convention may be resolved by mutual agreement between the tax authorities of the two countries. In addition, where such taxation has not been resolved through the consultation between the tax authorities of the two countries within two years, the unresolved issue will be resolved pursuant to a decision of an arbitration panel composed of third parties.
   4. Exchange of Information and Assistance in Collection of Tax Claims In order to effectively prevent international tax evasion and tax avoidance, the scope of taxes and cases 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 are introduced.
   5. Prevention of Abuse of the Convention In order to prevent abuse of benefits under the Convention, any benefit under the 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.
3. After the completion of the domestic procedures in each of the two countries (in Japan, approval by the Diet is necessary), each of the two countries shall send through diplomatic channels to the other country the notification confirming the completion of its internal procedures. This Convention will enter into force on the thirtieth day after the date of receipt of the latter notification and will have effect:
   • (a) in Japan:
     　 (i) with respect to taxes levied on the basis of a taxable year, for taxes for any taxable years beginning on or after 1 January in the calendar year next following that in which this Convention enters into force;
     　 (ii) with respect to taxes levied not on the basis of a taxable year, for taxes levied on or after 1 January in the calendar year next following that in which this Convention enters into force;
   • (b) in Ukraine:
     　 (i) with respect to taxes withheld at source, for amounts paid on or after 1 January in the calendar year next following that in which this Convention enters into force;
     　 (ii) with respect to other taxes, for any taxable year beginning on or after 1 January in the calendar year next following that in which this Convention enters into force.
   • (c) The provisions concerning the exchange of information and the assistance in the collection of taxes will 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.

[Note] The new Convention will not affect the current Tax 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) applicable between Japan and some of the former Soviet Union countries other than Ukraine.