US Tax Treaty Updates Japan and Spain

Long-awaited treaty protocols, signed in 2013, were finally ratified in July 2019.  The details for Japan and Spain are below:

Japan

The protocol with Japan entered into force on August 30, 2019, provides the following amendments to the 2003 tax treaty:

• Broadens exemptions from source country withholding on most interest, limits source country withholding on contingent interest to 10%
• Allows for the taxation of gains from the sale of real property and real property interests by the country in which the real property is located
• Expands the exemption from source country withholding on dividends. Under the existing convention, dividends were exempt from withholding if a company beneficially owned greater than 50% of the voting stock of the company paying the dividends with a 12 month holding period.  The new protocol provides an exemption if a company beneficially owns 50% or more of the voting stock of the company paying the dividends with a 6 month holding period.
• Updates provisions for dispute resolution through binding arbitration
• Enables the revenue authority of each country to request the assistance of the other revenue authority in the collection of taxes
• Provides for the exchange of information

Withholding tax provisions will be in effect beginning November 1, 2019, other tax provisions January 1, 2020.

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Spain

The protocol with Spain is due to enter into force on November 27, 2019, and provides for the following amendments to the 1990 treaty:

• Provides an exemption from source country withholding on dividends if a company beneficially owns at least 80% of the voting stock of the company paying the dividends for at least 12 months
• Limits source country withholding to 5% on dividends beneficially owned by a company that owns at least 10% of the voting stock of the company paying the dividends and limits the rate of source country withholding to 15% in other cases
• Exempts source country withholding on most interest, limits source country withholding on contingent interest to 10%
• Exempts source country withholding on royalties and capital gains
• Updates provisions for dispute resolution through binding arbitration
• Provides protection against Treaty Shopping
• Provides for an exchange of information

To learn more about issues impacting US and international entities, contact Clayton & McKervey.