New Japan-Ukraine Convention: Taxes and Investments

On February 19th, a new agreement titled “Convention between the Government of Japan and the Government of Ukraine for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance” was signed in Tokyo. The agreement, referred to as the New Convention, was signed by H.E. Mr. MATSUDA Kuninori, Ambassador Extraordinary and Plenipotentiary of Japan to Ukraine, and H.E. Mr. Sergii Marchenko, Minister of Finance of Ukraine.

The New Convention marks a significant overhaul of the existing agreement, the “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 came into effect in 1986. The revisions primarily focus on taxation concerning business profits and investment income. Additionally, measures have been introduced to prevent abuse of the Convention, establish arbitration proceedings in mutual agreement procedures, facilitate assistance in the collection of tax claims, and enhance the exchange of information related to tax matters. The overarching aim is to eliminate double taxation, combat international tax evasion and avoidance, and foster increased mutual investments and economic exchanges between Japan and Ukraine.

Key highlights of the New Convention include:

Taxation on Business Profits: Profits attributable to a permanent establishment in either country will be taxed only in that country. The calculation of such profits will consider internal transactions between the head office and branches, adhering strictly to the arm’s length principle.

Taxation on Investment Income: Investment income, including dividends, interest, and royalties, will be subject to maximum rates or exemptions as outlined in the agreement.

Mutual Agreement Procedure and Arbitration Proceedings: Disputes regarding taxation inconsistent with the Convention can be resolved through mutual agreement between the tax authorities of both countries. If such disputes remain unresolved after two years of consultation, they will be settled by an arbitration panel composed of third parties.

Exchange of Information and Assistance in Tax Collection: The scope of information exchange related to tax matters will be broadened, and mutual assistance in tax collection between the two countries will be facilitated to effectively combat international tax evasion and avoidance.

Prevention of Abuse of the Convention: Provisions are in place to prevent the misuse of Convention benefits, denying such benefits if it is determined that obtaining them was a primary objective of any transaction or if income is attributed to a permanent establishment in a third country under specific conditions.

The New Convention will come into force after the completion of domestic procedures in both countries. In Japan, approval by the Diet is required. Once ratified, each country will notify the other through diplomatic channels, and the Convention will take effect 30 days after the latter notification.

Importantly, the New Convention will not affect the existing Tax Convention between Japan and certain former Soviet Union countries other than Ukraine.

Original text you can find via this link.

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