protocol agreement between united states and japan

7/29/2019 PROTOCOL agreement between United States and Japan

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PROTOCOLAMENDING THE CONVENTION

BETWEEN THE GOVERNMENT OF JAPANAND THE GOVERNMENT OF THE UNITED STATES OF AMERICAFOR THE AVOIDANCE OF DOUBLE TAXATIONAND THE PREVENTION OF FISCAL EVASION

WITH RESPECT TO TAXES ON INCOME

The Government of Japan and the Government of theUnited States of America,

Desiring to amend the Convention between theGovernment of Japan and the Government of the United States

of America for the Avoidance of Double Taxation and thePrevention of Fiscal Evasion with respect to Taxes onIncome signed at Washington on 6 November 2003 (hereinafterreferred to as the Convention) and the Protocol, whichforms an integral part of the Convention, signed atWashington on 6 November 2003 (hereinafter referred to asthe Protocol of 2003),

Have agreed as follows:

ARTICLE I

Paragraph 5 of Article 1 of the Convention shall bedeleted and replaced by the following:

5. The provisions of paragraph 4 shall not affectthe benefits conferred by a Contracting State underparagraphs 2 and 3 of Article 9, paragraph 3 ofArticle 17, and Articles 18, 19, 23, 24, 25 and 28,but in the case of benefits conferred by the UnitedStates under Articles 18 and 19 only if theindividuals claiming the benefits are neither citizensof, nor have been lawfully admitted for permanentresidence in, the United States.

ARTICLE II


4. Where by reason of the provisions of paragraph 1a person other than an individual is a resident ofboth Contracting States, such person shall not beconsidered a resident of either Contracting State forthe purposes of its claiming any benefits provided bythis Convention.


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ARTICLE III

1. Subparagraph (a) of paragraph 3 of Article 10 of theConvention shall be amended by deleting the terms morethan 50 percent and replacing them with the terms atleast 50 percent, and deleting the words twelve monthsand replacing them with the words six months.

2. Paragraph 9 of Article 10 of the Convention shall beamended by deleting the terms or 2 everywhere they appearwithin the paragraph.

ARTICLE IV

Article 11 of the Convention shall be deleted and

replaced by the following:

ARTICLE 11

1. Interest arising in a Contracting State andbeneficially owned by a resident of the otherContracting State may be taxed only in that otherContracting State.

2. Notwithstanding the provisions of paragraph 1:

(a) interest arising in a Contracting State that

is determined by reference to receipts,sales, income, profits or other cash flow ofthe debtor or a related person, to anychange in the value of any property of thedebtor or a related person or to anydividend, partnership distribution orsimilar payment made by the debtor or arelated person, or any other interestsimilar to such interest arising in aContracting State, may be taxed in theContracting State in which it arises, andaccording to the laws of that ContractingState, but if the beneficial owner of theinterest is a resident of the otherContracting State, the tax so charged shallnot exceed 10 percent of the gross amount ofthe interest; and


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(b) a Contracting State may tax, in accordancewith its domestic law, interest paid with

respect to the ownership interests in anentity used for the securitization of realestate mortgages or other assets, to theextent that the amount of interest paidexceeds the return on comparable debtinstruments as specified by the law of thatContracting State.

3. Interest shall be deemed to arise in aContracting State when the payor is a resident of thatContracting State. Where, however, the person payingthe interest, whether such person is a resident of aContracting State or not, has in a state other than

that of which such person is a resident a permanentestablishment in connection with which theindebtedness on which the interest is paid wasincurred, and such interest is borne by such permanentestablishment, then:

(a) if the permanent establishment is situatedin a Contracting State, such interest shallbe deemed to arise in that ContractingState, and

(b) if the permanent establishment is situated

in a state other than the ContractingStates, such interest shall not be deemed toarise in either Contracting State.

4. The term interest as used in this Article meansincome from debt-claims of every kind, whether or notsecured by mortgage and whether or not carrying aright to participate in the debtors profits, and inparticular, income from government securities andincome from bonds or debentures, including premiumsand prizes attaching to such securities, bonds ordebentures, and all other income that is subjected tothe same taxation treatment as income from money lentby the tax laws of the Contracting State in which theincome arises. Income dealt with in Article 10 shallnot be regarded as interest for the purposes of thisConvention.


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5. The provisions of paragraphs 1 and 2 shall notapply if the beneficial owner of the interest, being a

resident of a Contracting State, carries on businessin the other Contracting State in which the interestarises, through a permanent establishment situatedtherein and the debt-claim in respect of which theinterest is paid is effectively connected with suchpermanent establishment. In such case the provisionsof Article 7 shall apply.

6. Where, by reason of a special relationshipbetween the payor and the beneficial owner or betweenboth of them and some other person, the amount of theinterest, having regard to the debt-claim for which itis paid, exceeds the amount which would have been

agreed upon by the payor and the beneficial owner inthe absence of such relationship, the provisions ofthis Article shall apply only to the last-mentionedamount. In such case, the excess part of the paymentmay be taxed in the Contracting State in which itarises at a rate not to exceed 5 percent of the grossamount of the excess.

7. A resident of a Contracting State shall not beconsidered the beneficial owner of interest in respectof a debt-claim if such debt-claim would not have beenestablished unless a person:

(a) that is not entitled to benefits withrespect to interest arising in the otherContracting State which are equivalent to,or more favorable than, those availableunder this Convention to a resident of thefirst-mentioned Contracting State; and

(b) that is not a resident of either ContractingState;

held an equivalent debt-claim against thefirst-mentioned resident.

ARTICLE V

1. Paragraph 2 of Article 13 of the Convention shall bedeleted and replaced by the following:

2. For the purposes of this Article the term realproperty situated in the other Contracting Stateshall include:

(a) real property referred to in Article 6;


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(b) where that other Contracting State is Japan,shares or interests in a company,

partnership or trust deriving the value ofits property directly or indirectlyprincipally from real property referred toin Article 6 and situated in Japan; and

(c) where that other Contracting State is theUnited States, a United States real propertyinterest.

2. Paragraph 4 of Article 13 of the Convention shall bedeleted and replaced by the following:

4. Notwithstanding the provisions of paragraph 3,

gains from the alienation of any property, other thanreal property, forming part of the business propertyof a permanent establishment which an enterprise of aContracting State has in the other Contracting State,including such gains from the alienation of such apermanent establishment (alone or with the wholeenterprise), may be taxed in that other ContractingState.

ARTICLE VI

Article 15 of the Convention shall be deleted and

replaced by the following:

ARTICLE 15

Directors fees and other similar paymentsderived by a resident of a Contracting State in hiscapacity as a member of the board of directors of acompany which is a resident of the other ContractingState may be taxed in that other Contracting State.

ARTICLE VII

Article 20 of the Convention shall be deleted andreplaced by the following:

ARTICLE 20 (Deleted)

ARTICLE VIII

Clause (i) of subparagraph (b) of paragraph 5 ofArticle 22 of the Convention shall be amended by deletingthe words the Securities and Exchange Law and replacingthem with the words the Financial Instruments and ExchangeLaw.


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ARTICLE IX


1. (a) Subject to the provisions of the laws ofJapan regarding the allowance as a creditagainst the Japanese tax of tax payable inany country other than Japan, where aresident of Japan derives income from theUnited States which may be taxed in theUnited States in accordance with theprovisions of this Convention, the amount ofthe United States tax payable in respect ofthat income shall be allowed as a credit

against the Japanese tax imposed on thatresident. The amount of credit, however,shall not exceed the amount of the Japanesetax which is appropriate to that income.For the purposes of the preceding provisionsof this subparagraph, income beneficiallyowned by a resident of Japan which may betaxed in the United States in accordancewith the Convention shall be deemed to arisefrom sources in the United States.

(b) Subject to the provisions, other than the

provisions with regard to ownershiprequirements of shares, of the laws of Japanregarding the exclusion of dividends fromthe basis upon which the Japanese tax isimposed, where the income derived from theUnited States is dividends paid by a companywhich is a resident of the United States toa company which is a resident of Japan andhas owned at least 10 percent of the totalshares issued by that company, during theperiod of six months immediately before theday when the obligation to pay dividends isconfirmed, such dividends shall be excludedfrom the basis upon which the Japanese taxis imposed.

ARTICLE X

1. Paragraph 3 of Article 24 of the Convention shall beamended by deleting the words paragraph 8 of Article 11and replacing them with the words paragraph 6 of Article11.

2. Paragraph 5 of Article 24 of the Convention shall beamended by deleting the words or paragraph 10 of Article

11.


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ARTICLE XI

Article 25 of the Convention shall be amended byadding the following after paragraph 4:

5. Where, pursuant to this Article, a person haspresented a case to the competent authority of theContracting State of which he is a resident or, if hiscase comes under paragraph 1 of Article 24, to that ofthe Contracting State of which he is a national, onthe basis that the actions of one or both of theContracting States have resulted for that person intaxation not in accordance with the provisions of thisConvention, and the competent authorities of theContracting States are unable to reach an agreement to

resolve that case, the case shall be resolved througharbitration conducted in the manner prescribed by, andsubject to the requirements of, this paragraph,paragraphs 6 and 7, and any rules or procedures agreedupon by the competent authorities of both ContractingStates pursuant to subparagraph (i) of paragraph 7,if:

(a) the presenter of the case has submitted awritten request to the relevant competentauthority for resolution of the case througharbitration; and

(b) all concerned persons and their authorizedrepresentatives or agents have providedwritten statements not to disclose to anyperson (except other concerned persons) anyinformation received during the course ofthe arbitration proceeding from thecompetent authorities of either ContractingState or the arbitration panel, other thanthe determination of such panel.

6. Notwithstanding the provisions of paragraph 5, a

case shall not be submitted to arbitration if:

(a) a decision with respect to such case hasalready been rendered by a court oradministrative tribunal of eitherContracting State;

(b) the competent authorities of bothContracting States have agreed that the caseis not suitable for resolution througharbitration and have notified the presenterof the case of such agreement no later thantwo years after the commencement date; or


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(c) the case is the subject only of theprovisions set forth in the final sentence

of paragraph 3.

7. For the purposes of paragraphs 5, 6 and thisparagraph, the following rules and definitions shallapply:

(a) The term concerned person means thepresenter of a case to a competent authorityfor consideration under this Article and allother persons, if any, whose tax liabilityto either Contracting State may be directlyaffected by a mutual agreement arising fromthat consideration.

(b) The commencement date for a case is theearliest date on which the informationnecessary to undertake substantiveconsideration for a mutual agreement hasbeen received by the competent authoritiesof both Contracting States.

(c) An arbitration proceeding pursuant to thisArticle with respect to a case (other than acase described in subparagraph (d)) shallbegin on the later of:

(i) two years after the commencement dateof that case, unless the competentauthorities of both Contracting Stateshave agreed to a different date andnotified the presenter of the case ofsuch agreement; and

(ii) the earliest date upon which therequirements of subparagraphs (a) and(b) of paragraph 5 have been satisfied.

(d) An arbitration proceeding pursuant to thisArticle with respect to a case that is thesubject of a request for an advance pricingarrangement, shall begin on the later of:


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(i) six months after an officialnotification has been issued by the tax

authority of either Contracting Stateof a correction of, or an intent toadjust, the pricing of a transaction ortransfer covered by a request for anadvance pricing arrangement regarding aconcerned person, unless the competentauthorities of both Contracting Stateshave agreed to a different date andnotified the presenter of the case ofsuch agreement; and

(ii) the earliest date upon which therequirements of subparagraphs (a) and

(b) of paragraph 5 have been satisfied.

However, in no event shall the arbitrationproceeding begin any earlier than two yearsafter the date on which the informationnecessary to undertake substantiveconsideration for a mutual agreement on theadvance pricing arrangement has beenreceived by the competent authorities ofboth Contracting States.

(e) Unless the presenter of the case does not

accept the determination of the arbitrationpanel, such determination shall constitute aresolution by mutual agreement of the entirecase under this Article at the time it istimely accepted by the presenter and shallbe binding on both Contracting States. Theresolution resulting from the determinationof the arbitration panel shall beimplemented notwithstanding any time limitsor procedural limitations in the law of theContracting States, except such limitationsas apply for the purposes of giving effectto such a resolution.

(f) For the purposes of an arbitrationproceeding under paragraph 5 and thisparagraph, the members of the arbitrationpanel and their staff shall be considered tobe persons or authorities to whominformation may be disclosed under Article26.


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(g) No information relating to an arbitrationproceeding (including the determination of

the arbitration panel) may be disclosed bythe competent authorities of the ContractingStates, except as permitted by thisConvention and the laws of the ContractingStates. In addition, all material preparedin the course of, or relating to, anarbitration proceeding shall be consideredto be information exchanged between thecompetent authorities of the ContractingStates pursuant to Article 26.

(h) The competent authorities of bothContracting States shall ensure that all

members of the arbitration panel and theirstaff agree in written statements sent toeach of the competent authorities of theContracting States not to disclose anyinformation relating to an arbitrationproceeding (including the determination ofthe arbitration panel), and to abide by andbe subject to the confidentiality andnondisclosure provisions of Article 26 andsimilar provisions of relevant laws of theContracting States. Such statements shallalso include their acceptance to serve on

the arbitration panel. Notwithstanding theprovisions of this subparagraph, the membersof the arbitration panel or their staffshall disclose the determination of thearbitration panel to the competentauthorities of both Contracting States.

(i) The competent authorities of bothContracting States shall agree in writing,before the date that the first arbitrationproceeding commences, on time periods andprocedures that are consistent withparagraphs 5, 6 and this paragraph for:

(i) notifying the presenter of the case ofa modified date for the beginning of anarbitration proceeding under clause (i)of subparagraph (c) and clause (i) ofsubparagraph (d);


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(ii) the appropriate application ofarbitration in the context of advance

pricing arrangements, including rulesconcerning the date on which anarbitration proceeding shall begin withrespect to such arrangements;

(iii) obtaining the nondisclosure statementsrequired by subparagraph (b) ofparagraph 5 and subparagraph (h) ofthis paragraph from each concernedperson, authorized representative oragent, and member of the arbitrationpanel (including their staff);

(iv) the appointment of the members of thearbitration panel;

(v) the submission of proposed resolutions,position papers, and reply submissionsby the competent authorities of theContracting States to the arbitrationpanel;

(vi) the submission by the presenter of thecase of a paper setting forth thepresenters views and analysis of the

case for consideration by thearbitration panel;

(vii) the delivery by the arbitration panelof its determination to the competentauthorities of both Contracting States;

(viii) the acceptance or rejection by thepresenter of the case of thedetermination of the arbitration panel;and

(ix) the adoption by the arbitration panelof any additional procedures necessaryfor the conduct of its business.

The competent authorities of both ContractingStates may agree in writing on such other rules andprocedures as may be necessary for the effective andtimely implementation of the provisions of paragraphs5, 6 and this paragraph.


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ARTICLE XII


ARTICLE 26

1. The competent authorities of the ContractingStates shall exchange such information as isforeseeably relevant for carrying out the provisionsof this Convention or to the administration orenforcement of the domestic laws concerning taxes ofevery kind and description imposed on behalf of theContracting States, insofar as the taxation thereunderis not contrary to the Convention. The exchange of

information is not restricted by paragraph 1 ofArticle 1 and Article 2. If specifically requested bythe competent authority of a Contracting State, thecompetent authority of the other Contracting Stateshall provide information under this Article in theform of authenticated copies of original documents(including books, papers, statements, records,accounts, and writings).

2. Any information received under paragraph 1 by aContracting State shall be treated as secret in thesame manner as information obtained under the laws of

that Contracting State and shall be disclosed only topersons or authorities (including courts andadministrative bodies) involved in the assessment,collection or administration of, the enforcement orprosecution in respect of, or the determination ofappeals in relation to, the taxes referred to inparagraph 1, or the oversight of such functions. Suchpersons or authorities shall use the information onlyfor such purposes. They may disclose the informationin public court proceedings or in judicial decisions.

3. In no case shall the provisions of paragraphs 1and 2 be construed so as to impose on a ContractingState the obligation:

(a) to carry out administrative measures atvariance with the laws and administrativepractice of that or of the other ContractingState;

(b) to supply information which is notobtainable under the laws or in the normalcourse of the administration of that or ofthe other Contracting State;


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(c) to supply information which would discloseany trade, business, industrial, commercial

or professional secret or trade process, orinformation the disclosure of which would becontrary to public policy; or

(d) to obtain or provide information that wouldreveal confidential communications between aclient and an attorney, solicitor or otheradmitted legal representative where suchcommunications are:

(i) produced for the purposes of seeking orproviding legal advice; or

(ii) produced for the purposes of use inexisting or contemplated legalproceedings.

4. If information is requested by a ContractingState in accordance with this Article, the otherContracting State shall use its information gatheringmeasures to obtain the requested information, eventhough that other Contracting State may not need suchinformation for its own tax purposes. The obligationcontained in the preceding sentence is subject to thelimitations of paragraph 3 but in no case shall such

limitations be construed to permit a Contracting Stateto decline to supply information solely because it hasno domestic interest in such information.

5. In no case shall the provisions of paragraph 3 beconstrued to permit a Contracting State to decline tosupply information solely because the information isheld by a bank, other financial institution, nomineeor person acting in an agency or a fiduciary capacityor because it relates to ownership interests in aperson.

ARTICLE XIII



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ARTICLE 27

1. Subject to the provisions of this Article, theContracting States shall lend assistance to each otherin the collection of taxes, insofar as the taxation isnot contrary to this Convention or any other agreementto which the Contracting States are parties, togetherwith interest, costs of collection, additions to suchtaxes, and civil or administrative penalties relatedto such taxes (hereinafter referred to in this Articleas a revenue claim). This assistance is notrestricted by paragraph 1 of Article 1 and Article 2.Any assistance provided by a Contracting State shallbe only to the extent allowable under the law of thatContracting State.

2. The assistance under paragraph 1 shall be lentonly in the collection of the following revenueclaims:

(a) a revenue claim in respect of a company:

(i) the determination of which is noteligible to be resolved by mutualagreement procedure pursuant to Article25;

(ii) the determination of which has beenmutually agreed upon pursuant toArticle 25; or

(iii) with respect to the determination ofwhich the company has terminated themutual agreement procedure;

(b) a revenue claim in respect of an individual.However, if the individual is a national ofthe Contracting State from which assistanceis requested (hereinafter referred to as therequested State) at the time theapplication for assistance is received,assistance shall be lent only for revenueclaims with respect to which the individualor a person acting on behalf of theindividual:

(i) has filed a fraudulent tax return or afraudulent claim for refund;

(ii) has willfully failed to file a taxreturn to evade taxes; or


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(iii) has transferred assets into therequested State to avoid collection of

the revenue claim.

3. Notwithstanding the provisions of paragraph 2,the assistance under paragraph 1 shall be lent in thecollection of revenue claims that is necessary toensure that any exemption or reduced rate of taxgranted under this Convention shall not be enjoyed bypersons not entitled thereto, provided that therequested State agrees with such determination ofimproper granting of benefits.

4. The provisions of this Article shall only applyto revenue claims in respect of the taxes covered by

Article 2 and in addition, the following taxes:

(a) in the case of Japan:

(i) the consumption tax;

(ii) the inheritance tax; and

(iii) the gift tax;

(b) in the case of the United States:

(i) the Federal estate and gift taxes;

(ii) the Federal excise tax on insurancepolicies issued by foreign insurers;

(iii) the Federal excise taxes imposed withrespect to private foundations; and

(iv) the Federal taxes related to employmentand self-employment.

5. An application for assistance in the collectionof a revenue claim, other than the collection of arevenue claim described in paragraph 3, shall includea certification by the competent authority of theContracting State applying for such assistance(hereinafter referred to as the applicant State)that, under the laws of the applicant State, therevenue claim has been finally determined. For thepurposes of this Article, a revenue claim is finallydetermined when the applicant State has the rightunder its domestic law to collect the revenue claimand all applicable administrative and judicial rightsof the taxpayer to dispute or appeal the revenue claimhave lapsed or been exhausted.


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6. When an application for assistance by theapplicant State has been accepted for collection by

the requested State pursuant to the provisions of thisArticle, the revenue claim of the applicant Stateshall be treated, to the extent necessary forcollection under the laws of the requested State, asassessed under the laws of the requested State (as ofthe time the application is received), and shall becollected by the requested State as though suchrevenue claim were the requested States own revenueclaim in accordance with the laws applicable to thecollection of the requested States own revenueclaims.

7. Notwithstanding the provisions of paragraph 6,

acts of collection carried out by the requested Statein pursuance of an application for assistance, which,according to the laws of the applicant State, wouldhave the effect of suspending or interrupting theperiod of limitation on the collection of a revenueclaim in the applicant State if carried out by theapplicant State, shall also have this effect withrespect to the revenue claim under the laws of theapplicant State. The requested State shall inform theapplicant State about such acts.

8. A revenue claim with respect to which assistance

is being lent by the requested State shall not, inthat Contracting State, be subject to the time limits,or accorded any priority, applicable to a revenueclaim under the laws of that Contracting State byreason of its nature as such.

9. Nothing in this Article shall be construed ascreating or providing any rights of administrative orjudicial review by the requested State of theapplicant States finally determined revenue claim,irrespective of any such rights that may be availableunder the laws of either Contracting State.

10. If, at any time pending execution of anapplication for assistance under this Article, theapplicant State loses the right under its domestic lawto collect the revenue claim or otherwise terminatescollection, the competent authority of the applicantState shall promptly withdraw the application forassistance in collection and the requested State shallcease all measures of collection of the revenue claim.


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11. If, at any time pending execution of anapplication for assistance under this Article, the

applicant State suspends collection of the revenueclaim according to the laws of the applicant State,the competent authority of the applicant State shallpromptly notify the competent authority of therequested State of that fact, and the competentauthority of the applicant State shall either suspendor withdraw its request at the option of the competentauthority of the requested State and the requestedState shall suspend or cease all measures ofcollection of the revenue claim accordingly.

12. Amounts collected by the requested State pursuantto this Article shall be remitted to the competent

authority of the applicant State.

13. Unless the competent authorities of bothContracting States otherwise agree, the ordinary costsincurred in providing assistance in collection shallbe borne by the requested State and any extraordinarycosts so incurred shall be borne by the applicantState.

14. In no case shall the provisions of this Articlebe construed so as to impose on the requested Statethe obligation to carry out:

(a) administrative measures at variance with thelaws and administrative practices of therequested State or of the applicant State;or

(b) measures which would be contrary to publicpolicy.

15. In no case shall the provisions of this Articlebe construed so as to impose on the requested State anobligation to accept an application of the applicantState:

(a) if the applicant State has not pursued allappropriate measures to collect the revenueclaim that is the subject of the applicationfor assistance available under its laws oradministrative practices; or

(b) if the administrative burden for therequested State is substantiallydisproportionate to the benefit to bederived by the applicant State.


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16. Before assistance is lent under the provisions ofthis Article, other than under paragraph 3, the

competent authorities of both Contracting States shallagree upon the mode of application of this Article,including an agreement to ensure comparable levels ofassistance to each of the Contracting States. Inparticular, the competent authorities of bothContracting States shall agree on a limit to thenumber of applications for assistance that aContracting State may make in a particular year, aswell as a minimum monetary threshold for a revenueclaim for which assistance is sought, and proceduralrules related to the remittance of amounts collectedpursuant to the provisions of this Article.

ARTICLE XIV

1. Subparagraph (a) of paragraph 1 of the Protocol of2003 shall be amended by deleting the words United Statesexcise tax and replacing them with the words Federalexcise tax, and subparagraph (b) of that paragraph shallbe amended by deleting the words United States excise taxand replacing them with the words Federal excise taxes.

2. Paragraph 9 of the Protocol of 2003 shall be deletedand replaced by the following:

9. (Deleted)

3. The Protocol of 2003 shall be amended by adding thefollowing after paragraph 13:

14. With reference to paragraphs 5, 6 and 7 ofArticle 25 of the Convention:

(a) It is understood that taxation shall beconsidered to have resulted for the purposeof paragraph 5 of Article 25 of theConvention from the actions of one or bothof the Contracting States as soon as tax hasbeen paid, assessed or otherwise determined(for example, a notification of correction,determination or deficiency of a taxliability has been issued), or in caseswhere the taxpayer is officially notified bythe tax authorities that they intend to taxhim on a certain element of income (forexample, a notice of proposed adjustment hasbeen issued).


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(b) The arbitration panel shall consist of threeindividual members. The members appointed

shall not be employees nor have beenemployees within the twelve-month periodprior to the date on which the arbitrationproceeding begins, of the taxadministration, the Treasury Department, orthe Ministry of Finance of the ContractingState which identifies them. Each competentauthority of the Contracting States shallselect one member of the arbitration panel.In the event that the competent authority ofa Contracting State fails to make suchselection in the manner and within the timeperiods agreed by the competent authorities

of both Contracting States pursuant tosubparagraph (i) of paragraph 7 of Article25 of the Convention, the competentauthority of the other Contracting Stateshall select a second member of thearbitration panel. The two members soselected shall select a third member, whoshall serve as Chair of the arbitrationpanel. If the two initial members of thearbitration panel fail to select the thirdmember in the manner and within the timeperiods agreed by the competent authorities

of both Contracting States pursuant tosubparagraph (i) of paragraph 7 of Article25 of the Convention, these members shall bedismissed, and each competent authority ofthe Contracting States shall select a newmember of the arbitration panel. The Chairshall not be a national or lawful permanentresident of either Contracting State.Furthermore, the members appointed shall nothave any prior involvement with the specificmatters at issue in the arbitrationproceeding for which they are beingconsidered as members of the arbitrationpanel.

(c) If at any time before the arbitration paneldelivers a determination to the competentauthorities of the Contracting States:

(i) the competent authorities of theContracting States reach a mutualagreement to resolve the case pursuantto Article 25 of the Convention;

(ii) the presenter of the case withdraws the

request for arbitration;


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(iii) a decision concerning the case isrendered by a court or administrative

tribunal of one of the ContractingStates during the arbitrationproceeding; or

(iv) if any concerned person or theirauthorized representatives or agentswillfully violates the writtennondisclosure statement required bysubparagraph (b) of paragraph 5 ofArticle 25 of the Convention, and thecompetent authorities of bothContracting States agree that suchviolation should result in the

termination of the arbitrationproceeding;

the mutual agreement procedure, includingthe arbitration proceeding, with respect tothe case shall terminate.

(d) The competent authority of each of theContracting States shall be permitted tosubmit a proposed resolution addressing eachadjustment or similar issue raised in thecase. Such proposed resolution shall be a

resolution of the entire case, and shallreflect, without modification, all mattersin the case previously agreed between thecompetent authorities of both ContractingStates. Such proposed resolution shall belimited to a disposition of specificmonetary amounts (for example, of income,profit, gain or expense) or, wherespecified, the maximum rate of tax chargedpursuant to the Convention, for eachadjustment or similar issue in the case,based on the application of the Conventionto the case. The competent authority ofeach of the Contracting States shall also bepermitted to submit a position paper forconsideration by the arbitration panel.

(e) Notwithstanding the provisions ofsubparagraph (d), in the case of anarbitration proceeding concerning:


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(i) the taxation of an individual withrespect to whom the competent

authorities of the Contracting Stateshave been unable to reach an agreementregarding the Contracting State ofwhich the individual is a resident;

(ii) the taxation of the business profits ofan enterprise with respect to which thecompetent authorities of theContracting States have been unable toreach an agreement on whether apermanent establishment exists; or

(iii) such other issues the determination of

which are contingent on resolution ofsimilar threshold questions;

the competent authorities of the ContractingStates may submit proposed resolutionsseparately addressing the relevant thresholdquestions as described in clause (i), (ii)or (iii) above (for example, the question ofwhether a permanent establishment exists),and the contingent determinations (forexample, the determination of the amount ofprofit attributable to such permanent

establishment).

(f) Where an arbitration proceeding concerns acase comprising multiple adjustments orsimilar issues each requiring a dispositionof specific monetary amounts (for example,of income, profit, gains or expense) orwhere specified, the maximum rate of taxcharged pursuant to the Convention, theproposed resolution may propose a separatedisposition for each adjustment or similarissue.

(g) Each of the competent authorities of theContracting States shall receive theproposed resolution and position papersubmitted by the other competent authority,and shall be permitted to submit a replysubmission to the arbitration panel. Eachof the competent authorities of theContracting States shall also receive thereply submission of the other competentauthority.


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(h) The presenter of the case shall be permittedto submit for consideration by the

arbitration panel a paper setting forth itsanalysis and views of the case. Suchsubmission shall not include any informationnot previously provided to the competentauthorities during the mutual agreementprocedure and shall be made available to thecompetent authorities of both ContractingStates.

(i) The arbitration panel shall deliver adetermination in writing to the competentauthorities of the Contracting States. Thedetermination of the arbitration panel shall

be limited to one of the proposedresolutions submitted by the competentauthorities of the Contracting States foreach adjustment or similar issue and anythreshold questions, and shall not include arationale or any other explanation of thedetermination. The determination of thearbitration panel shall have no precedentialvalue with respect to the application of theConvention in any other case.

(j) Unless the competent authorities of both

Contracting States agree to a longer timeperiod, the presenter of the case shall have45 days after receiving the determination ofthe arbitration panel to notify, in writing,the competent authority of the ContractingState to whom the case was presented, of hisacceptance of the determination. If thepresenter of the case fails to so advise therelevant competent authority, thedetermination shall be considered not to beaccepted. In addition, in the event thecase is pending in litigation or appeal, thedetermination of the arbitration panel shallbe considered not to be accepted by thepresenter of the case if any concernedperson who is a party to the litigation orappeal does not advise, within the same timeframe described above, the relevant court oradministrative tribunal of its intention towithdraw from consideration all issuesresolved in the arbitration proceeding.Where the determination of the arbitrationpanel is not accepted, the case will not beeligible for any further consideration bythe competent authorities.


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(k) The fees and expenses of the members of thearbitration panel, as well as any costs

incurred in connection with the proceedingby the Contracting States, shall be borneequitably by the Contracting States.

15. With reference to paragraph 5 of Article 27 ofthe Convention:

(a) For the purposes of evaluating the finaldetermination of a revenue claim:

(i) in the case of the United States, anyadministrative or judicial rightsavailable to the taxpayer in connection

with the revenue claim that arise afterthe collection of the revenue claim;

(ii) in the case of Japan, the right to takeaction pursuant to Article 36 of theAdministrative Case Litigation Act (LawNo. 139 of 1962) of Japan;

shall not be taken into account.

(b) A Contracting State may suspend assistanceif it determines that the actions of the

other Contracting State have resulted in animbalance in the levels of assistancebetween the Contracting States contemplatedin Article 27 of the Convention. In suchcase, the Contracting States shall enterinto consultations with a view to restoringcomparable levels of assistance consistentwith paragraph 16 of Article 27 of theConvention.

ARTICLE XV

1. This Protocol shall be subject to ratification, andthe instruments of ratification shall be exchanged as soonas possible. It shall enter into force on the date of theexchange of instruments of ratification.


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2. This Protocol shall have effect:

(a) in respect of taxes withheld at source, foramounts paid or credited on or after the firstday of the third month next following the date onwhich the Protocol enters into force;

(b) in respect of other taxes, for taxable yearsbeginning on or after the first day of Januarynext following the date on which the Protocolenters into force;

3. Notwithstanding the provisions of paragraph 2, theprovisions of paragraphs 5, 6 and 7 of Article 25 of theConvention, as amended by Article XI of this Protocol,

shall have effect with respect to:

(a) Cases that are under consideration by thecompetent authorities as of the date on whichthis Protocol enters into force. For such cases,the commencement date shall be the date on whichthis Protocol enters into force.

(b) Cases that come under consideration after thedate on which this Protocol enters into force.

4. Notwithstanding the provisions of paragraph 2, the

provisions of Article 26 of the Convention, as amended byArticle XII of this Protocol, and Article 27 of theConvention, as amended by Article XIII of this Protocol,shall have effect from the date of entry into force of thisProtocol.

5. Notwithstanding the entry into force of this Protocol,an individual who is entitled to the benefits of Article 20of the Convention at the time of the entry into force ofthis Protocol shall continue to be entitled to suchbenefits until such time as the individual would haveceased to be entitled to such benefits if this Protocol hadnot entered into force.

6. This Protocol shall remain in effect as long as theConvention remains in force.


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IN WITNESS WHEREOF the undersigned, being dulyauthorized thereto by their respective Governments, have

signed this Protocol.

DONE in duplicate at Washington this twenty-fourthday of January, 2013, in the Japanese and Englishlanguages, each text being equally authentic.

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OFJAPAN: THE UNITED STATES OF AMERICA:

Kenichiro Sasae Neal S. Wolin

protocol agreement between united states and japan

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