CONVENTION BETWEEN 
 

THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
 

THE GOVERNMENT OF JAPAN 
 

FOR THE AVOIDANCE OF DOUBLE TAXATION 
 

AND THE PREVENTION OF FISCAL EVASION 
 

WITH RESPECT TO TAXES ON INCOME
 

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

Desiring to conclude a new Convention for the avoidance of double taxation and the 

prevention of fiscal evasion with respect to taxes on income, 

Have agreed as follows: 
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ARTICLE 1 

1. This Convention shall apply only to persons who are residents of one or both of the 

Contracting States, except as otherwise provided in the Convention. 

2. The provisions of this Convention shall not be construed to restrict in any manner any 

exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded: 

(a) by the laws of a Contracting State in the determination of the tax imposed by 

that Contracting State; or 

(b) by any other bilateral agreement between the Contracting States or any 

multilateral agreement to which the Contracting States are parties. 

3. (a) Notwithstanding the provisions of subparagraph (b) of paragraph 2: 

(i) any question arising as to the interpretation or application of this 

Convention and, in particular, whether a measure is within the scope of this 

Convention, shall be determined exclusively in accordance with the provisions 

of Article 25 of this Convention; and 

(ii) the provisions of Article XVII of the General Agreement on Trade in 

Services shall not apply to a measure unless the competent authorities agree that 

the measure is not within the scope of Article 24 of this Convention. 

(b) For the purposes of this paragraph, the term “measure” means a law, regulation, 

rule, procedure, decision, administrative action, or any similar provision or action, as 

related to taxes of every kind and description imposed by a Contracting State without 

regard to Article 2 and subparagraph (d) of paragraph 1 of Article 3. 

4. 	 (a) Except to the extent provided in paragraph 5, this Convention shall not affect the 

taxation by a Contracting State of its residents (as determined under Article 4) and, in 

the case of the United States, its citizens. 

(b) Notwithstanding the other provisions of this Convention, a former citizen or 

long-term resident of the United States may, for the period of ten years following the 

loss of such status, be taxed in accordance with the laws of the United States, if the loss 

of such status had as one of its principal purposes the avoidance of tax (as defined under 

the laws of the United States). 
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5. The provisions of paragraph 4 shall not affect the benefits conferred by a Contracting 

State under paragraphs 2 and 3 of Article 9, paragraph 3 of Article 17, and Articles 18, 19, 20, 

23, 24, 25 and 28, but in the case of benefits conferred by the United States under Articles 18, 

19 and 20 only if the individuals claiming the benefits are neither citizens of, nor have been 

lawfully admitted for permanent residence in, the United States. 

ARTICLE 2 

1. This Convention shall apply to the following taxes: 

(a) 	 in the case of Japan: 

(i) the income tax; and 

(ii) the corporation tax 

(hereinafter referred to as “Japanese tax”); 
 

(b) in the case of the United States, the Federal income taxes imposed by the 
 

Internal Revenue Code but excluding social security taxes (hereinafter referred to as 
 

“United States tax”). 
 

2. This Convention shall also apply to any identical or substantially similar taxes which 

are imposed after the date of signature of the Convention in addition to, or in place of, those 

referred to in paragraph 1. The competent authorities of the Contracting States shall notify 

each other of any substantial changes which have been made in their respective tax laws, or 

changes in other laws that significantly affect their obligations under the Convention, within a 

reasonable period of time after such changes. 

ARTICLE 3 

1. 	 For the purposes of this Convention, unless the context otherwise requires: 

(a) the term “Japan”, when used in a geographical sense, means all the territory of 

Japan, including its territorial sea, in which the laws relating to Japanese tax are in 

force, and all the area beyond its territorial sea, including the seabed and subsoil 
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thereof, over which Japan has jurisdiction in accordance with international law and in 
 

which the laws relating to Japanese tax are in force; 
 

(b) the term “United States” means the United States of America. When used in a 
 

geographical sense, the term includes the states thereof and the District of Columbia; 
 

such term also includes the territorial sea thereof and the seabed and subsoil of the 
 

submarine areas adjacent to that territorial sea, over which the United States exercises
 

sovereign rights in accordance with international law; the term, however, does not 
 

include Puerto Rico, the Virgin Islands, Guam or any other United States possession or 
 

territory; 
 

(c) the terms “a Contracting State” and “the other Contracting State” mean Japan or 
 

the United States, as the context requires; 
 

(d) the term “tax” means Japanese tax or United States tax, as the context requires; 
 

(e) the term “person” includes an individual, a company and any other body of 
 

persons; 
 

(f) the term “company” means any body corporate or any entity that is treated as a 
 

body corporate for tax purposes; 
 

(g) the term “enterprise” applies to the carrying on of any business; 
 

(h) the terms “enterprise of a Contracting State” and “enterprise of the other 
 

Contracting State” mean respectively an enterprise carried on by a resident of a 
 

Contracting State and an enterprise carried on by a resident of the other Contracting 
 

State; 
 

(i) the term “international traffic” means any transport by a ship or aircraft operated 
 

by an enterprise of a Contracting State, except when such transport is solely between 
 

places in the other Contracting State; 
 

(j) the term “national” of a Contracting State means: 
 

(i) in relation to Japan, any individual possessing the nationality of Japan 

and any juridical person or other organization deriving its status as such from 

the laws in force in Japan; and 
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(ii) in relation to the United States, any individual possessing the citizenship 

of the United States and any legal person, partnership or association deriving its 

status as such from the laws in force in the United States; 

(k) 	 the term “competent authority” means: 

(i) in the case of Japan, the Minister of Finance or his authorized 

representative; and 

(ii) in the case of the United States, the Secretary of the Treasury or his 

delegate; 

(l) the term “business” includes the performance of professional services and of 

other activities of an independent character; and 

(m) the term “pension fund” means any person that: 

(i) is organized under the laws of a Contracting State; 
 

(ii) is established and maintained in that Contracting State primarily to 
 

administer or provide pensions or other similar remuneration, including social 
 

security payments; and 
 

(iii) is exempt from tax in that Contracting State with respect to the activities
 

described in clause (ii). 
 

2. As regards the application of this Convention at any time by a Contracting State any 

term not defined therein shall, unless the context otherwise requires, or the competent 

authorities agree otherwise on the meaning of a term for the purposes of applying the 

Convention pursuant to Article 25, have the meaning which it has at that time under the laws of 

that Contracting State for the purposes of the taxes to which the Convention applies, any 

meaning under the applicable tax laws of that Contracting State prevailing over a meaning 

given to the term under other laws of that Contracting State. 

ARTICLE 4 

1. For the purposes of this Convention, the term “resident of a Contracting State” means 

any person who, under the laws of that Contracting State, is liable to tax therein by reason of 
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his domicile, residence, citizenship, place of head or main office, place of incorporation, or any 

other criterion of a similar nature, and also includes: 

(a) that Contracting State and any political subdivision or local authority thereof; 

(b) a pension fund organized under the laws of that Contracting State; and 

(c) a person organized under the laws of that Contracting State and established and 

maintained in that Contracting State exclusively for a religious, charitable, educational, 

scientific, artistic, cultural or public purpose, even if the person is exempt from tax in 

that Contracting State. 

This term, however, does not include any person who is liable to tax in that Contracting State in 

respect only of income from sources in that Contracting State, or of profits attributable to a 

permanent establishment in that Contracting State. 

2. Notwithstanding the provisions of paragraph 1, an individual who is a United States 

citizen or an alien lawfully admitted for permanent residence in the United States under the 

laws of the United States shall be regarded as a resident of the United States only if the 

individual: 

(a) is not a resident of Japan under paragraph 1; 
 

(b) has a substantial presence, permanent home or habitual abode in the United 
 

States; and 
 

(c) for the purposes of a convention or agreement for the avoidance of double 
 

taxation between Japan and a state other than the United States, is not a resident of that 
 

state. 
 

3. Where by reason of the provisions of paragraph 1 an individual not described in 

paragraph 2 is a resident of both Contracting States, then his status shall be determined as 

follows: 

(a) he shall be deemed to be a resident of the Contracting State in which he has a 

permanent home available to him; if he has a permanent home available to him in both 

Contracting States, he shall be deemed to be a resident of the Contracting State with 

which his personal and economic relations are closer (center of vital interests); 
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(b) if the Contracting State in which he has his center of vital interests cannot be 
 

determined, or if he does not have a permanent home available to him in either 
 

Contracting State, he shall be deemed to be a resident of the Contracting State in which 
 

he has an habitual abode; 
 

(c) if he has an habitual abode in both Contracting States or in neither of them, he 
 

shall be deemed to be a resident of the Contracting State of which he is a national; 
 

(d) if he is a national of both Contracting States or of neither of them, the competent 
 

authorities of the Contracting States shall settle the question by mutual agreement. 
 

An individual who is deemed to be a resident of a Contracting State by reason of the provisions 

of this paragraph shall be deemed to be a resident only of that Contracting State for the 

purposes of this Convention. 

4. Where by reason of the provisions of paragraph 1 a person other than an individual is a 

resident of both Contracting States, then the competent authorities of the Contracting States 

shall determine by mutual agreement the Contracting State of which that person shall be 

deemed to be a resident for the purposes of this Convention. In the absence of a mutual 

agreement by the competent authorities of the Contracting States, the person shall not be 

considered a resident of either Contracting State for the purposes of claiming any benefits 

provided by the Convention. 

5. Where, pursuant to any provision of this Convention, a Contracting State reduces the 

rate of tax on, or exempts from tax, income of a resident of the other Contracting State and 

under the laws in force in that other Contracting State the resident is subject to tax by that other 

Contracting State only on that part of such income which is remitted to or received in that other 

Contracting State, then the reduction or exemption shall apply only to so much of such income 

as is remitted to or received in that other Contracting State. 

6. For the purposes of applying this Convention: 

(a)	 An item of income: 

(i) derived from a Contracting State through an entity that is organized in 

the other Contracting State; and 
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(ii) treated as the income of the beneficiaries, members or participants of that 

entity under the tax laws of that other Contracting State; 

shall be eligible for the benefits of the Convention that would be granted if it were 

directly derived by a beneficiary, member or participant of that entity who is a resident 

of that other Contracting State, to the extent that such beneficiaries, members or 

participants are residents of that other Contracting State and satisfy any other conditions 

specified in the Convention, without regard to whether the income is treated as the 

income of such beneficiaries, members or participants under the tax laws of the firstmentioned Contracting State. 

(b) An item of income: 

(i) derived from a Contracting State through an entity that is organized in 
 

the other Contracting State; and 
 

(ii) treated as the income of that entity under the tax laws of that other 
 

Contracting State; 
 

shall be eligible for the benefits of the Convention that would be granted to a resident of 
 

that other Contracting State, without regard to whether the income is treated as the 
 

income of the entity under the tax laws of the first-mentioned Contracting State, if such 
 

entity is a resident of that other Contracting State and satisfies any other conditions 
 

specified in the Convention. 
 

(c) An item of income: 
 

(i) derived from a Contracting State through an entity that is organized in a 
 

state other than the Contracting States; and 
 

(ii) treated as the income of the beneficiaries, members or participants of that 
 

entity under the tax laws of the other Contracting State; 
 

shall be eligible for the benefits of the Convention that would be granted if it were 

directly derived by a beneficiary, member or participant of that entity who is a resident 

of that other Contracting State, to the extent that such beneficiaries, members or 

participants are residents of that other Contracting State and satisfy any other conditions 

specified in the Convention, without regard to whether the income is treated as the 
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income of such beneficiaries, members or participants under the tax laws of the firstmentioned Contracting State or such state. 

(d) An item of income: 

(i) derived from a Contracting State through an entity that is organized in a 
 

state other than the Contracting States; and 
 

(ii) treated as the income of that entity under the tax laws of the other 
 

Contracting State; 
 

shall not be eligible for the benefits of the Convention. 

(e)	 An item of income: 

(i) derived from a Contracting State through an entity that is organized in 

that Contracting State; and 

(ii) treated as the income of that entity under the tax laws of the other 

Contracting State; 

shall not be eligible for the benefits of the Convention. 

ARTICLE 5 

1. For the purposes of this Convention, the term “permanent establishment” means a fixed 

place of business through which the business of an enterprise is wholly or partly carried on. 

2. 	 The term “permanent establishment” includes especially: 

(a) a place of management; 

(b) a branch; 

(c) an office; 

(d) a factory; 

(e) a workshop; and 

(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural 

resources. 
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3. A building site, a construction or installation project, or an installation or drilling rig or 

ship used for the exploration of natural resources, constitutes a permanent establishment only if 

it lasts or the activity continues for a period of more than twelve months. 

4. Notwithstanding the preceding provisions of this Article, the term “permanent 

establishment” shall be deemed not to include: 

(a) the use of facilities solely for the purpose of storage, display or delivery of 

goods or merchandise belonging to the enterprise; 

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise 

solely for the purpose of storage, display or delivery; 

(c) the maintenance of a stock of goods or merchandise belonging to the enterprise 

solely for the purpose of processing by another enterprise; 

(d) the maintenance of a fixed place of business solely for the purpose of purchasing 

goods or merchandise or of collecting information, for the enterprise; 

(e) the maintenance of a fixed place of business solely for the purpose of carrying 

on, for the enterprise, any other activity of a preparatory or auxiliary character; 

(f) the maintenance of a fixed place of business solely for any combination of 

activities mentioned in subparagraphs (a) to (e), provided that the overall activity of the 

fixed place of business resulting from this combination is of a preparatory or auxiliary 

character. 

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person – other than an 

agent of an independent status to whom the provisions of paragraph 6 apply – is acting on 

behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to 

conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a 

permanent establishment in that Contracting State in respect of any activities that the person 

undertakes for the enterprise, unless the activities of such person are limited to those mentioned 

in paragraph 4 that, if exercised through a fixed place of business, would not make this fixed 

place of business a permanent establishment under the provisions of that paragraph. 

6. An enterprise shall not be deemed to have a permanent establishment in a Contracting 

State merely because it carries on business in that Contracting State through a broker, general 
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commission agent or any other agent of an independent status, provided that such persons are 

acting in the ordinary course of their business. 

7. The fact that a company which is a resident of a Contracting State controls or is 

controlled by a company which is a resident of the other Contracting State, or which carries on 

business in that other Contracting State (whether through a permanent establishment or 

otherwise), shall not constitute either company a permanent establishment of the other. 

ARTICLE 6 

1. Income derived by a resident of a Contracting State from real property (including 

income from agriculture or forestry) situated in the other Contracting State may be taxed in that 

other Contracting State. 

2. The term “real property” as used in this Convention shall have the meaning which it has 

under the laws of the Contracting State in which the property in question is situated. The term 

shall in any case include property accessory to real property, livestock and equipment used in 

agriculture and forestry, rights to which the provisions of general law respecting real property 

apply, usufruct of real property and rights to variable or fixed payments as consideration for the 

working of, or the right to work, mineral deposits and other natural resources; ships and aircraft 

shall not be regarded as real property. 

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, 

or use in any other form of real property. 

4. The provisions of paragraphs 1 and 3 shall also apply to the income from real property 

of an enterprise. 

ARTICLE 7 

1. The profits of an enterprise of a Contracting State shall be taxable only in that 

Contracting State unless the enterprise carries on business in the other Contracting State 

through a permanent establishment situated therein. If the enterprise carries on business as 
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aforesaid, the profits of the enterprise may be taxed in that other Contracting State but only so 

much of them as is attributable to the permanent establishment. 

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State 

carries on business in the other Contracting State through a permanent establishment situated 

therein, there shall in each Contracting State be attributed to that permanent establishment the 

profits which it might be expected to make if it were a distinct and separate enterprise engaged 

in the same or similar activities under the same or similar conditions and dealing wholly 

independently with the enterprise of which it is a permanent establishment. 

3. In determining the profits of a permanent establishment, there shall be allowed as 

deductions expenses which are incurred for the purposes of the permanent establishment, 

including executive and general administrative expenses so incurred, whether in the 

Contracting State in which the permanent establishment is situated or elsewhere. 

4. Nothing in this Article shall affect the application of any law of a Contracting State 

relating to the determination of the tax liability of a person in cases where the information 

available to the competent authority of that Contracting State is inadequate to determine the 

profits to be attributed to a permanent establishment, provided that, on the basis of the available 

information, the determination of the profits of the permanent establishment is consistent with 

the principles stated in this Article. 

5. No profits shall be attributed to a permanent establishment by reason of the mere 

purchase by that permanent establishment of goods or merchandise for the enterprise. 

6. For the purposes of the preceding paragraphs of this Article, the profits to be attributed 

to the permanent establishment shall be determined by the same method year by year unless 

there is good and sufficient reason to the contrary. 

7. Where profits include items of income which are dealt with separately in other Articles 

of this Convention, then the provisions of those Articles shall not be affected by the provisions 

of this Article. 
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ARTICLE 8 

1. Profits from the operation of ships or aircraft in international traffic carried on by an 

enterprise of a Contracting State shall be taxable only in that Contracting State. 

2. For the purposes of this Article, profits from the operation of ships or aircraft include 

profits derived from the rental of ships or aircraft on a full basis. They also include profits 

from the rental of ships or aircraft on a bareboat basis if such rental activities are incidental to 

the operation of ships or aircraft in international traffic. Profits from the inland transport of 

property or passengers within either Contracting State shall be treated as profits from the 

operation of ships or aircraft in international traffic if such transport is undertaken as part of 

international traffic. 

3. Notwithstanding the provisions of Article 2 and subparagraph (d) of paragraph 1 of 

Article 3, provided that no political subdivision or local authority of the United States levies a 

tax similar to the local inhabitant taxes or the enterprise tax in Japan in respect of the operation 

of ships or aircraft in international traffic carried on by an enterprise of Japan, an enterprise of 

the United States shall be exempt from the local inhabitant taxes and the enterprise tax in Japan 

in respect of the operation of ships or aircraft in international traffic. 

4. Profits of an enterprise of a Contracting State from the use, maintenance or rental of 

containers, including trailers, barges and related equipment for the transport of containers, shall 

be taxable only in that Contracting State except where such containers are used solely within 

the other Contracting State. 

5. The provisions of the preceding paragraphs of this Article shall also apply to profits 

from the participation in a pool, a joint business or an international operating agency. 

ARTICLE 9 

1. Where 

(a) an enterprise of a Contracting State participates directly or indirectly in the 

management, control or capital of an enterprise of the other Contracting State, or 
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(b) the same persons participate directly or indirectly in the management, control or 

capital of an enterprise of a Contracting State and an enterprise of the other Contracting 

State, 

and in either case conditions are made or imposed between the two enterprises in their 

commercial or financial relations which differ from those which would be made between 

independent enterprises, then any profits which would, but for those conditions, have accrued 

to one of the enterprises, but, by reason of those conditions, have not so accrued, may be 

included in the profits of that enterprise and taxed accordingly. 

2. Where a Contracting State includes in the profits of an enterprise of that Contracting 

State – and taxes accordingly – profits on which an enterprise of the other Contracting State has 

been charged to tax in that other Contracting State and that other Contracting State agrees that 

the profits so included are profits which would have accrued to the enterprise of the firstmentioned Contracting State if the conditions made between the two enterprises had been those 

which would have been made between independent enterprises, then that other Contracting 

State shall make an appropriate adjustment to the amount of the tax charged therein on those 

profits. In determining such adjustment, due regard shall be had to the other provisions of this 

Convention. 

3. Notwithstanding the provisions of paragraph 1, a Contracting State shall not change the 

profits of an enterprise of that Contracting State in the circumstances referred to in that 

paragraph, if an examination of that enterprise is not initiated within seven years from the end 

of the taxable year in which the profits that would be subject to such change would, but for the 

conditions referred to in that paragraph, have accrued to that enterprise. The provisions of this 

paragraph shall not apply in the case of fraud or willful default or if the inability to initiate an 

examination within the prescribed period is attributable to the actions or inaction of that 

enterprise. 
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ARTICLE 10 

1. Dividends paid by a company which is a resident of a Contracting State to a resident of 

the other Contracting State may be taxed in that other Contracting State. 

2. However, such dividends may also be taxed in the Contracting State of which the 

company paying the dividends is a resident and according to the laws of that Contracting State, 

but if the dividends are beneficially owned by a resident of the other Contracting State, except 

as provided in paragraphs 4 and 5, the tax so charged shall not exceed: 

(a) 5 percent of the gross amount of the dividends if the beneficial owner is a 
 

company that owns directly or indirectly, on the date on which entitlement to the 
 

dividends is determined, at least 10 percent of the voting stock of the company paying 
 

the dividends; 
 

(b) 10 percent of the gross amount of the dividends in all other cases. 
 

This paragraph shall not affect the taxation of the company in respect of the profits out of 

which the dividends are paid. 

3. Notwithstanding the provisions of paragraph 2, such dividends shall not be taxed in the 

Contracting State of which the company paying the dividends is a resident if the beneficial 

owner of the dividends is: 

(a) a company that is a resident of the other Contracting State, that has owned, 

directly or indirectly through one or more residents of either Contracting State, more 

than 50 percent of the voting stock of the company paying the dividends for the period 

of twelve months ending on the date on which entitlement to the dividends is 

determined, and that either: 

(i) satisfies the conditions described in clause (i) or (ii) of subparagraph (c) 
 

of paragraph 1 of Article 22; 
 

(ii) satisfies the conditions described in clauses (i) and (ii) of subparagraph 
 

(f) of paragraph 1 of Article 22, provided that the company satisfies the 
 

conditions described in paragraph 2 of that Article with respect to the dividends; 
 

or 
 
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(iii) has received a determination pursuant to paragraph 4 of Article 22 with 

respect to this paragraph; or 

(b) a pension fund that is a resident of the other Contracting State, provided that 

such dividends are not derived from the carrying on of a business, directly or indirectly, 

by such pension fund. 

4. The provisions of subparagraph (a) of paragraph 2 and subparagraph (a) of paragraph 3 

shall not apply in the case of dividends paid by a United States Regulated Investment Company 

(hereinafter referred to as a “RIC”) or a United States Real Estate Investment Trust (hereinafter 

referred to as a “REIT”). The provisions of subparagraph (b) of paragraph 2 and subparagraph 

(b) of paragraph 3 shall apply in the case of dividends paid by a RIC. In the case of dividends 

paid by a REIT, the provisions of subparagraph (b) of paragraph 2 and subparagraph (b) of 

paragraph 3 shall apply only if: 

(a) the beneficial owner of the dividends is an individual holding an interest of not 
 

more than 10 percent in the REIT or a pension fund holding an interest of not more than 
 

10 percent in the REIT; 
 

(b) the dividends are paid with respect to a class of stock that is publicly traded and 
 

the beneficial owner of the dividends is a person holding an interest of not more than 5 
 

percent of any class of the stock of the REIT; or 
 

(c) the beneficial owner of the dividends is a person holding an interest of not more 
 

than 10 percent in the REIT and that REIT is diversified. 
 

5. The provisions of subparagraph (a) of paragraph 2 and subparagraph (a) of paragraph 3 

shall not apply in the case of dividends paid by a company which is entitled to a deduction for 

dividends paid to its beneficiaries in computing its taxable income in Japan. The provisions of 

subparagraph (b) of paragraph 2 and subparagraph (b) of paragraph 3 shall apply in the case of 

dividends paid by such company, provided that not more than 50 percent of its assets consist, 

directly or indirectly, of real property situated in Japan. Where more than 50 percent of the 

assets of such company consist, directly or indirectly, of real property situated in Japan, the 

provisions of subparagraph (b) of paragraph 2 and subparagraph (b) of paragraph 3 shall apply 

only if: 
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(a) the beneficial owner of the dividends is an individual holding an interest of not 
 

more than 10 percent in such company or a pension fund holding an interest of not more 
 

than 10 percent in such company; 
 

(b) the dividends are paid with respect to a class of interest in such company that is 
 

publicly traded and the beneficial owner of the dividends is a person holding an interest 
 

of not more than 5 percent of any class of interest in the company; or 
 

(c) the beneficial owner of the dividends is a person holding an interest of not more 
 

than 10 percent in the company and the company is diversified. 
 

6. The term “dividends” as used in this Article means income from shares or other rights, 

not being debt-claims, participating in profits, as well as income which is subjected to the same 

taxation treatment as income from shares by the tax laws of the Contracting State of which the 

payor is a resident. 

7. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the 

dividends, being a resident of a Contracting State, carries on business in the other Contracting 

State of which the company paying the dividends is a resident, through a permanent 

establishment situated therein, and the holding in respect of which the dividends are paid is 

effectively connected with such permanent establishment. In such case the provisions of 

Article 7 shall apply. 

8. A Contracting State shall not impose any tax on the dividends paid by a company that is 

a resident of the other Contracting State, except insofar as the dividends are paid to a resident 

of the first-mentioned Contracting State or insofar as the holding in respect of which the 

dividends are paid is effectively connected with a permanent establishment situated in that 

Contracting State, nor shall it impose tax on a company’s undistributed profits, except as 

provided in paragraph 9, even if the dividends paid or the undistributed profits consist wholly 

or partly of profits or income arising in that Contracting State. 

9. A company that is a resident of a Contracting State and that has a permanent 

establishment in the other Contracting State or that is subject to tax in that other Contracting 

State on its income that may be taxed in that other Contracting State under Article 6 or under 

paragraph 1 or 2 of Article 13 may be subject in that other Contracting State to a tax in addition 
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to any tax that may be imposed in that other Contracting State in accordance with the other 

provisions of this Convention. Such tax, however, may be imposed on only the portion of the 

profits of the company attributable to the permanent establishment and the portion of the 

income referred to in the preceding provisions of this paragraph that is subject to tax under 

Article 6 or under paragraph 1 or 2 of Article 13 that represents the amount of such income that 

is equivalent to the amount of dividends that would have been paid if such activities had been 

conducted in a separate legal entity. The provisions of this paragraph shall not apply in the 

case of a company which: 

(a) satisfies the conditions described in clause (i) or (ii) of subparagraph (c) of
 

paragraph 1 of Article 22; 
 

(b) satisfies the conditions described in clauses (i) and (ii) of subparagraph (f) of 
 

paragraph 1 of Article 22, provided that the company satisfies the conditions described 
 

in paragraph 2 of that Article with respect to the income; or 
 

(c) has received a determination pursuant to paragraph 4 of Article 22 with respect 
 

to this paragraph. 
 

10. The tax referred to in paragraph 9 shall not be imposed at a rate in excess of the rate 

specified in subparagraph (a) of paragraph 2. 

11. A resident of a Contracting State shall not be considered the beneficial owner of 

dividends in respect of preferred stock or other similar interest if such preferred stock or other 

similar interest would not have been established or acquired unless a person: 

(a) that is not entitled to benefits with respect to dividends paid by a resident of the 

other Contracting State which are equivalent to, or more favorable than, those available 

under this Convention to a resident of the first-mentioned Contracting State; and 

(b) that is not a resident of either Contracting State; 

held equivalent preferred stock or other similar interest in the first-mentioned resident. 
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ARTICLE 11 

1. Interest arising in a Contracting State and paid to a resident of the other Contracting 

State may be taxed in that other Contracting State. 

2. However, such interest may also be taxed in the Contracting State in which it arises and 

according to the laws of that Contracting State, but if the beneficial owner of the interest is a 

resident of the other Contracting State, the tax so charged shall not exceed 10 percent of the 

gross amount of the interest. 

3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State 

shall be taxable only in the other Contracting State if: 

(a) the interest is beneficially owned by that other Contracting State, a political 

subdivision or local authority thereof, or the central bank of that other Contracting State 

or any institution wholly owned by that other Contracting State; 

(b) the interest is beneficially owned by a resident of that other Contracting State 

with respect to debt-claims guaranteed, insured or indirectly financed by the 

Government of that other Contracting State, a political subdivision or local authority 

thereof, or the central bank of that other Contracting State or any institution wholly 

owned by that other Contracting State; 

(c) the interest is beneficially owned by a resident of that other Contracting State 

that is either: 

(i) a bank (including an investment bank); 
 

(ii) an insurance company; 
 

(iii) a registered securities dealer; or 
 

(iv) any other enterprise, provided that in the three taxable years preceding 
 

the taxable year in which the interest is paid, the enterprise derives more than 50 
 

percent of its liabilities from the issuance of bonds in the financial markets or 
 

from taking deposits at interest, and more than 50 percent of the assets of the 
 

enterprise consist of debt-claims against persons that do not have with the 
 

resident a relationship described in subparagraph (a) or (b) of paragraph 1 of 
 

Article 9; 
 
20
 

(d) the interest is beneficially owned by a pension fund that is a resident of that 
 

other Contracting State, provided that such interest is not derived from the carrying on 
 

of a business, directly or indirectly, by such pension fund; or 
 

(e) the interest is beneficially owned by a resident of that other Contracting State 
 

and paid with respect to indebtedness arising as a part of the sale on credit by a resident 
 

of that other Contracting State of equipment or merchandise. 
 

4. For the purposes of paragraph 3, the terms “the central bank” and “institution wholly 

owned by a Contracting State” mean: 

(a) 	 in the case of Japan: 

(i) the Bank of Japan; 

(ii) the Japan Bank for International Cooperation; 

(iii) the Nippon Export and Investment Insurance; and 

(iv) such other similar institution the capital of which is wholly owned by 

Japan as may be agreed upon from time to time between the Governments of the 

Contracting States through an exchange of diplomatic notes. 

(b)	 in the case of the United States: 

(i) the Federal Reserve Banks; 

(ii) the U.S. Export-Import Bank; 

(iii) the Overseas Private Investment Corporation; and 

(iv) such other similar institution the capital of which is wholly owned by the 

United States as may be agreed upon from time to time between the 

Governments of the Contracting States through an exchange of diplomatic notes. 

5. The term “interest” as used in this Article means income from debt-claims of every 

kind, whether or not secured by mortgage and whether or not carrying a right to participate in 

the debtor’s profits, and in particular, income from government securities and income from 

bonds or debentures, including premiums and prizes attaching to such securities, bonds or 

debentures, and all other income that is subjected to the same taxation treatment as income 

from money lent by the tax laws of the Contracting State in which the income arises. Income 

dealt with in Article 10 shall not be regarded as interest for the purposes of this Convention. 
21
 

6. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the 

interest, being a resident of a Contracting State, carries on business in the other Contracting 

State in which the interest arises, through a permanent establishment situated therein and the 

debt-claim in respect of which the interest is paid is effectively connected with such permanent 

establishment. In such case the provisions of Article 7 shall apply. 

7. Interest shall be deemed to arise in a Contracting State when the payor is a resident of 

that Contracting State. Where, however, the person paying the interest, whether such person is 

a resident of a Contracting State or not, has in a state other than that of which such person is a 

resident a permanent establishment in connection with which the indebtedness on which the 

interest is paid was incurred, and such interest is borne by such permanent establishment, then: 

(a) if the permanent establishment is situated in a Contracting State, such interest 
 

shall be deemed to arise in that Contracting State, and 
 

(b) if the permanent establishment is situated in a state other than the Contracting 
 

States, such interest shall not be deemed to arise in either Contracting State. 
 

8. Where, by reason of a special relationship between the payor and the beneficial owner 

or between both of them and some other person, the amount of the interest, having regard to the 

debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the 

payor and the beneficial owner in the absence of such relationship, the provisions of this Article 

shall apply only to the last-mentioned amount. In such case, the excess part of the payment 

may be taxed in the Contracting State in which it arises at a rate not to exceed 5 percent of the 

gross amount of the excess. 

9. Notwithstanding the provisions of paragraphs 2 and 3, a Contracting State may tax, in 

accordance with its domestic law, interest paid with respect to the ownership interests in an 

entity used for the securitization of real estate mortgages or other assets, to the extent that the 

amount of interest paid exceeds the return on comparable debt instruments as specified by the 

domestic law of that Contracting State. 

10. Where interest expense is deductible in determining the income of a company that is a 

resident of a Contracting State, being income which: 
22
 

(a) is attributable to a permanent establishment of that company situated in the other 

Contracting State; or 

(b) may be taxed in the other Contracting State under Article 6 or paragraph 1 or 2 

of Article 13; 

and that interest expense exceeds the interest paid by that permanent establishment or paid with 

respect to the debt secured by real property situated in that other Contracting State, the amount 

of that excess shall be deemed to be interest arising in that other Contracting State and 

beneficially owned by a resident of the first-mentioned Contracting State. That deemed interest 

may be taxed in that other Contracting State at a rate not to exceed the rate provided for in 

paragraph 2, unless the company is described in paragraph 3 in which case it shall be exempt 

from such taxation in that other Contracting State. 

11. A resident of a Contracting State shall not be considered the beneficial owner of interest 

in respect of a debt-claim if such debt-claim would not have been established unless a person: 

(a) that is not entitled to benefits with respect to interest arising in the other 

Contracting State which are equivalent to, or more favorable than, those available under 

this Convention to a resident of the first-mentioned Contracting State; and 

(b) that is not a resident of either Contracting State; 

held an equivalent debt-claim against the first-mentioned resident. 

ARTICLE 12 

1. Royalties arising in a Contracting State and beneficially owned by a resident of the 

other Contracting State may be taxed only in that other Contracting State. 

2. The term “royalties” as used in this Article means payments of any kind received as a 

consideration for the use of, or the right to use, any copyright of literary, artistic or scientific 

work including cinematograph films and films or tapes for radio or television broadcasting, any 

patent, trade mark, design or model, plan, or secret formula or process, or for information 

concerning industrial, commercial or scientific experience. 
23
 

3. The provisions of paragraph 1 shall not apply if the beneficial owner of the royalties, 

being a resident of a Contracting State, carries on business in the other Contracting State in 

which the royalties arise, through a permanent establishment situated therein, and the right or 

property in respect of which the royalties are paid is effectively connected with such permanent 

establishment. In such case the provisions of Article 7 shall apply. 

4. Where, by reason of a special relationship between the payor and the beneficial owner 

or between both of them and some other person, the amount of the royalties, having regard to 

the use, right or information for which they are paid, exceeds the amount which would have 

been agreed upon by the payor and the beneficial owner in the absence of such relationship, the 

provisions of this Article shall apply only to the last-mentioned amount. In such case, the 

excess part of the payment may be taxed in the Contracting State in which it arises at a rate not 

to exceed 5 percent of the gross amount of the excess. 

5. A resident of a Contracting State shall not be considered the beneficial owner of 

royalties in respect of the use of intangible property if such royalties would not have been paid 

to the resident unless the resident pays royalties in respect of the same intangible property to a 

person: 

(a) that is not entitled to benefits with respect to royalties arising in the other 
 

Contracting State which are equivalent to, or more favorable than, those available under 
 

this Convention to a resident of the first-mentioned Contracting State; and 
 

(b) that is not a resident of either Contracting State. 
 

ARTICLE 13 

1. Gains derived by a resident of a Contracting State from the alienation of real property 

situated in the other Contracting State may be taxed in that other Contracting State. 

2. 	 (a) Gains derived by a resident of a Contracting State from the alienation of shares 

or other comparable rights in a company that is a resident of the other Contracting State 

and that derives at least 50 percent of its value directly or indirectly from real property 

situated in that other Contracting State may be taxed in that other Contracting State, 
24
 

unless the relevant class of shares is traded on a recognized stock exchange specified in 
 

subparagraph (b) of paragraph 5 of Article 22 and the resident, and persons related 
 

thereto, own in the aggregate 5 percent or less of that class of shares. 
 

(b) Gains derived by a resident of a Contracting State from the alienation of an 
 

interest in a partnership, trust or estate may be taxed in the other Contracting State to 
 

the extent that its assets consist of real property situated in that other Contracting State. 
 

3. (a) Where 

(i) a Contracting State (including, for this purpose in the case of Japan, the 

Deposit Insurance Corporation of Japan) provides, pursuant to the domestic law 

concerning failure resolution involving imminent insolvency of financial 

institutions in that Contracting State, substantial financial assistance to a 

financial institution that is a resident of that Contracting State, and 

(ii) a resident of the other Contracting State acquires shares in the financial 

institution from the first-mentioned Contracting State, 

the first-mentioned Contracting State may tax gains derived by the resident of the other 
 

Contracting State from the alienation of such shares, provided that the alienation is 
 

made within five years from the first date on which such financial assistance was 
 

provided. 
 

(b) The provisions of subparagraph (a) shall not apply if the resident of that other 
 

Contracting State acquired any shares in the financial institution from the first-
 

mentioned Contracting State before the entry into force of this Convention or pursuant 
 

to a binding contract entered into before the entry into force of the Convention. 
 

4. Notwithstanding the provisions of paragraphs 2 and 3, gains from the alienation of any 

property, other than real property, forming part of the business property of a permanent 

establishment which an enterprise of a Contracting State has in the other Contracting State, 

including such gains from the alienation of such a permanent establishment (alone or with the 

whole enterprise), may be taxed in that other Contracting State. 

5. Gains derived by a resident of a Contracting State from the alienation of ships or 

aircraft operated by that resident in international traffic and any property, other than real 
25
 

property, pertaining to the operation of such ships or aircraft shall be taxable only in that 

Contracting State. 

6. Gains derived by a resident of a Contracting State from the alienation of containers, 

including trailers, barges and related equipment for the transport of containers, shall be taxable 

only in that Contracting State except where such containers were used solely within the other 

Contracting State. 

7. Gains from the alienation of any property other than that referred to in the preceding 

paragraphs of this Article shall be taxable only in the Contracting State of which the alienator is 

a resident. 

ARTICLE 14 

1. Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other similar 

remuneration derived by a resident of a Contracting State in respect of an employment shall be 

taxable only in that Contracting State unless the employment is exercised in the other 

Contracting State. If the employment is so exercised, such remuneration as is derived 

therefrom may be taxed in that other Contracting State. 

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a 

Contracting State in respect of an employment exercised in the other Contracting State shall be 

taxable only in the first-mentioned Contracting State if: 

(a) the recipient is present in that other Contracting State for a period or periods not 
 

exceeding in the aggregate 183 days in any twelve month period commencing or ending
 

in the taxable year concerned; 
 

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident 
 

of that other Contracting State; and 
 

(c) the remuneration is not borne by a permanent establishment which the employer 
 

has in that other Contracting State. 
 

3. Notwithstanding the provisions of the preceding paragraphs of this Article, 

remuneration derived in respect of an employment exercised aboard a ship or aircraft operated 
26
 

in international traffic by an enterprise of a Contracting State may be taxed in that Contracting 

State. 

ARTICLE 15 

Directors’ fees and other similar payments derived by a resident of a Contracting State 

in his capacity as a member of the board of directors of a company which is a resident of the 

other Contracting State may be taxed in that other Contracting State. 

ARTICLE 16 

1. Income derived by an individual who is a resident of a Contracting State as an 

entertainer, such as a theater, motion picture, radio or television artiste, or a musician, or as a 

sportsman, from his personal activities as such exercised in the other Contracting State, which 

income would be exempt from tax in that other Contracting State under the provisions of 

Articles 7 and 14, may be taxed in that other Contracting State, except where the amount of the 

gross receipts derived by such entertainer or sportsman, including expenses reimbursed to him 

or borne on his behalf, from such activities does not exceed ten thousand United States dollars 

($10,000) or its equivalent in Japanese yen for the taxable year concerned. 

2. Where income in respect of personal activities exercised in a Contracting State by an 

individual in his capacity as an entertainer or a sportsman accrues not to the individual himself 

but to another person that is a resident of the other Contracting State, that income may, 

notwithstanding the provisions of Articles 7 and 14, be taxed in the Contracting State in which 

the activities of the individual are exercised, unless the contract pursuant to which the personal 

activities are performed allows that other person to designate the individual who is to perform 

the personal activities. 
27
 

ARTICLE 17 

1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar 

remuneration, including social security payments, beneficially owned by a resident of a 

Contracting State shall be taxable only in that Contracting State. 

2. Annuities derived and beneficially owned by an individual who is a resident of a 

Contracting State shall be taxable only in that Contracting State. The term “annuities” as used 

in this paragraph means a stated sum paid periodically at stated times during the life of the 

individual, or during a specified or ascertainable period of time, under an obligation to make 

the payments in return for adequate and full consideration (other than services rendered). 

3. Periodic payments, made pursuant to a written separation agreement or a decree of 

divorce, separate maintenance, or compulsory support, including payments for the support of a 

child, paid by a resident of a Contracting State to a resident of the other Contracting State shall 

be taxable only in the first-mentioned Contracting State. However, such payments shall not be 

taxable in either Contracting State if the individual making such payments is not entitled to a 

deduction for such payments in computing taxable income in the first-mentioned Contracting 

State. 

ARTICLE 18 

1. 	 (a) Salaries, wages and other similar remuneration, other than a pension and other 

similar remuneration, paid by a Contracting State or a political subdivision or local 

authority thereof to an individual in respect of services rendered to that Contracting 

State or political subdivision or local authority thereof, in the discharge of functions of a 

governmental nature, shall be taxable only in that Contracting State. 

(b) However, such salaries, wages and other similar remuneration shall be taxable 

only in the other Contracting State if the services are rendered in that other Contracting 

State and the individual is a resident of that other Contracting State who: 

(i) is a national of that other Contracting State; or 
28
 

(ii) did not become a resident of that other Contracting State solely for the 

purpose of rendering the services. 

2. (a) Any pension and other similar remuneration paid by, or out of funds to which 

contributions are made by, a Contracting State or a political subdivision or local 

authority thereof to an individual in respect of services rendered to that Contracting 

State or a political subdivision or local authority thereof, other than payments made by 

the United States under provisions of the social security or similar legislation, shall be 

taxable only in that Contracting State. 

(b) However, such pension and other similar remuneration shall be taxable only in 

the other Contracting State if the individual is a resident of, and a national of, that other 

Contacting State. 

3. The provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages and other 

similar remuneration, and to pensions and other similar remuneration, in respect of services 

rendered in connection with a business carried on by a Contracting State or a political 

subdivision or local authority thereof. 

ARTICLE 19 

Payments which a student or business apprentice who is, or was immediately before 

visiting a Contracting State, a resident of the other Contracting State and who is present in the 

first-mentioned Contracting State for the primary purpose of his education or training receives 

for the purpose of his maintenance, education or training shall be exempt from tax in the firstmentioned Contracting State, provided that such payments are made to him from outside that 

first-mentioned Contracting State. The exemption from tax provided by this Article shall apply 

to a business apprentice only for a period not exceeding one year from the date he first begins 

his training in the first-mentioned Contracting State. 
29
 

ARTICLE 20 

1. An individual who visits a Contracting State temporarily for the purpose of teaching or 

conducting research at a university, college, school or other educational institution in that 

Contracting State, and who continues to be a resident, within the meaning of paragraph 1 of 

Article 4, of the other Contracting State, shall be exempt from tax in the first-mentioned 

Contracting State on any remuneration for such teaching or research for a period not exceeding 

two years from the date of his arrival. 

2. The provisions of paragraph 1 shall not apply to income from research if such research 

is undertaken primarily for the private benefit of one or more specific persons. 

ARTICLE 21 

1. Items of income beneficially owned by a resident of a Contracting State, wherever 

arising, not dealt with in the foregoing Articles of this Convention (hereinafter referred to as 

“other income”) shall be taxable only in that Contracting State. 

2. The provisions of paragraph 1 shall not apply to income, other than income from real 

property, if the beneficial owner of such income, being a resident of a Contracting State, carries 

on business in the other Contracting State through a permanent establishment situated therein 

and the right or property in respect of which the income is paid is effectively connected with 

such permanent establishment. In such case the provisions of Article 7 shall apply. 

3. Where, by reason of a special relationship between the resident referred to in paragraph 

1 and the payor, or between both of them and some other person, the amount of other income, 

having regard to the right or property in respect of which it is paid, exceeds the amount which 

would have been agreed upon between them in the absence of such relationship, the provisions 

of this Article shall apply only to the last-mentioned amount. In such case, the excess part of 

the payment may be taxed in the Contracting State in which it arises at a rate not to exceed 5 

percent of the gross amount of the excess. 

4. A resident of a Contracting State shall not be considered the beneficial owner of other 

income in respect of the right or property if such other income would not have been paid to the 
30
 

resident unless the resident pays other income in respect of the same right or property to a 

person: 

(a) that is not entitled to benefits with respect to other income arising in the other 

Contracting State which are equivalent to, or more favorable than, those available under 

this Convention to a resident of the first-mentioned Contracting State; and 

(b) that is not a resident of either Contracting State. 

ARTICLE 22 

1. Except as otherwise provided in this Article, a resident of a Contracting State that 

derives income from the other Contracting State shall be entitled to all the benefits accorded to 

residents of a Contracting State for a taxable year by the provisions of other Articles of this 

Convention only if such resident satisfies any other specified conditions for the obtaining of 

such benefits and is either: 

(a) an individual; 
 

(b) a Contracting State, any political subdivision or local authority thereof, the Bank 
 

of Japan or the Federal Reserve Banks; 
 

(c) a company, if: 
 

(i) the principal class of its shares, and any disproportionate class of its 
 

shares, is listed or registered on a recognized stock exchange specified in clause 
 

(i) or (ii) of subparagraph (b) of paragraph 5 and is regularly traded on one or 
 

more recognized stock exchanges; or 
 

(ii) at least 50 percent of each class of shares in the company is owned 
 

directly or indirectly by five or fewer residents entitled to benefits under clause 
 

(i), provided that, in the case of indirect ownership, each intermediate owner is a 
 

person entitled to the benefits of this Convention under this paragraph; 
 

(d) a person described in subparagraph (c) of paragraph 1 of Article 4; 
31
 

(e) a pension fund, provided that as of the end of the prior taxable year more than 
 

50 percent of its beneficiaries, members or participants are individuals who are 
 

residents of either Contracting State; or 
 

(f) a person other than an individual, if: 
 

(i) residents that are described in subparagraph (a), (b), (d) or (e), or clause 

(i) of subparagraph (c), own, directly or indirectly, at least 50 percent of each 

class of shares or other beneficial interests in the person, and 

(ii) less than 50 percent of the person’s gross income for the taxable year is 

paid or accrued by the person in that taxable year, directly or indirectly, to 

persons who are not residents of either Contracting State in the form of 

payments that are deductible in computing its taxable income in the Contracting 

State of which it is a resident (but not including arm’s length payments in the 

ordinary course of business for services or tangible property and payments in 

respect of financial obligations to a commercial bank, provided that where such 

a bank is not a resident of a Contracting State such payment is attributable to a 

permanent establishment of that bank situated in one of the Contracting States). 

2. 	 (a) A resident of a Contracting State shall be entitled to benefits of this Convention 

with respect to an item of income derived from the other Contracting State if the 

resident is engaged in the first-mentioned Contracting State in the active conduct of a 

trade or business, other than the business of making or managing investments for the 

resident’s own account, unless these activities are banking, insurance or securities 

activities carried on by a commercial bank, insurance company or registered securities 

dealer, the income derived from the other Contracting State is derived in connection 

with, or is incidental to, that trade or business and that resident satisfies any other 

specified conditions for the obtaining of such benefits. 

(b) If a resident of a Contracting State derives an item of income from a trade or 

business activity in the other Contracting State, or derives an item of income arising in 

the other Contracting State from a person that has with the resident a relationship 

described in subparagraph (a) or (b) of paragraph 1 of Article 9, the conditions 
32
 

described in subparagraph (a) shall be considered to be satisfied with respect to such 

item only if the trade or business activity carried on by the resident in the firstmentioned Contracting State is substantial in relation to the trade or business activity 

carried on by the resident or such person in the other Contracting State. Whether a 

trade or business activity is substantial for the purposes of this paragraph will be 

determined based on all the facts and circumstances. 

3. 	 (a) Where the provisions of clause (ii) of subparagraph (c) of paragraph 1 apply in 

respect of taxation by withholding at source, a resident of a Contracting State shall be 

considered to satisfy the conditions described in that clause for a taxable year in which 

the payment is made if such resident satisfies those conditions during the part of that 

taxable year which precedes the date of payment of the item of income (or, in the case 

of dividends, the date on which entitlement to the dividends is determined) and, unless 

that date is the last day of that taxable year, during the whole of the preceding taxable 

year. 

(b) Where the provisions of clause (i) of subparagraph (f) of paragraph 1 apply: 

(i) in respect of taxation by withholding at source, a resident of a 

Contracting State shall be considered to satisfy the conditions described in that 

clause for a taxable year in which the payment is made if such resident satisfies 

those conditions during the part of that taxable year which precedes the date of 

payment of the item of income (or, in the case of dividends, the date on which 

entitlement to the dividends is determined) and, unless that date is the last day of 

that taxable year, during the whole of the preceding taxable year; and 

(ii) in all other cases, a resident of a Contracting State shall be considered to 

satisfy the conditions described in that clause for a taxable year in which the 

payment is made if such resident satisfies those conditions on at least half the 

days of the taxable year. 

(c) Where the provisions of clause (ii) of subparagraph (f) of paragraph 1 apply in 

respect of taxation by withholding at source in Japan, a resident of the United States 

shall be considered to satisfy the conditions described in that subparagraph for a taxable 
33
 

year in which the payment is made if such resident satisfies those conditions for the 

three taxable years preceding that taxable year. 

4. A resident of a Contracting State that is not described in paragraph 1 and is not entitled 

to benefits with respect to an item of income under paragraph 2 shall, nevertheless, be granted 

benefits of this Convention if the competent authority of the Contracting State from which 

benefits are claimed determines, in accordance with its domestic law or administrative practice, 

that the establishment, acquisition or maintenance of such resident and the conduct of its 

operations are considered as not having the obtaining of benefits under the Convention as one 

of its principal purposes. 

5. 	 For the purposes of this Article: 

(a) the term “disproportionate class of shares” means any class of shares of a 

company that is a resident of a Contracting State which is subject to terms or other 

arrangements that entitle the holders of that class of shares to a portion of the income of 

the company derived from the other Contracting State that is larger than the portion 

such holders would receive absent such terms or arrangements; 

(b) the term “recognized stock exchange” means: 

(i) any stock exchange established under the terms of the Securities and 
 

Exchange Law (Law No. 25 of 1948) of Japan; 
 

(ii) the NASDAQ System and any stock exchange registered with the 
 

Securities and Exchange Commission as a national securities exchange under 
 

the Securities Exchange Act of 1934 of the United States; and 
 

(iii) any other stock exchange agreed upon by the competent authorities; and
 

(c) the term “gross income” means the total revenues derived by a resident of a 

Contracting State from its business, less the direct costs of obtaining such revenues. 

ARTICLE 23 

1. Subject to the provisions of the laws of Japan regarding the allowance as a credit 

against the Japanese tax of tax payable in any country other than Japan: 
34
 

(a) Where a resident of Japan derives income from the United States which may be 

taxed in the United States in accordance with the provisions of this Convention, the 

amount of the United States tax payable in respect of that income shall be allowed as a 

credit against the Japanese tax imposed on that resident. The amount of credit, 

however, shall not exceed that part of the Japanese tax which is appropriate to that 

income. 

(b) Where the income derived from the United States is dividends paid by a 

company which is a resident of the United States to a company which is a resident of 

Japan and which owns not less than 10 percent of the voting shares issued by the 

company paying the dividends during the period of six months immediately before the 

day when the obligation to pay dividends is confirmed, the credit shall take into account 

the United States tax payable by the company paying the dividends in respect of its 

income. 

For the purposes of this paragraph, income beneficially owned by a resident of Japan which 

may be taxed in the United States in accordance with the Convention shall be deemed to arise 

from sources in the United States. 

2. In accordance with the provisions and subject to the limitations of the laws of the 

United States (as it may be amended from time to time without changing the general principle 

hereof), the United States shall allow to a resident or citizen of the United States as a credit 

against the United States tax on income: 

(a) the Japanese tax paid or accrued by or on behalf of such citizen or resident; and 

(b) in the case of a company that is a resident of the United States and that owns at 

least 10 percent of the voting stock of a company that is a resident of Japan and from 

which the first-mentioned company receives dividends, the Japanese tax paid or accrued 

by or on behalf of the payor with respect to the profits out of which the dividends are 

paid. 

For the purposes of this paragraph, the taxes referred to in subparagraph (a) of paragraph 1 and 

paragraph 2 of Article 2 shall be considered Japanese taxes imposed on the beneficial owner of 

the income. For the purposes of this paragraph, an item of gross income, as determined under 
35
 

the laws of the United States, derived by a resident of the United States that, under this 

Convention, may be taxed in Japan shall be deemed to be income from sources in Japan. 

3. For the purposes of applying the preceding paragraphs of this Article, where the United 

States taxes, in accordance with paragraph 4 of Article 1, a citizen, or a former citizen or longterm resident, of the United States who is a resident of Japan: 

(a) Japan shall take into account for the purposes of computing the credit to be 
 

allowed under paragraph 1 only the amount of tax that the United States may impose on 
 

income under the provisions of this Convention that is derived by a resident of Japan 
 

who is neither a citizen, nor a former citizen nor long-term resident, of the United 
 

States; 
 

(b) for the purposes of computing the United States tax on income referred to in 
 

subparagraph (a), the United States shall allow as a credit against the United States tax 
 

the Japanese tax after the credit referred to in that subparagraph; the credit so allowed 
 

shall not reduce the portion of the United States tax that is creditable against the 
 

Japanese tax in accordance with that subparagraph; and 
 

(c) for the exclusive purpose of allowing the credit by the United States provided 
 

for under subparagraph (b), income referred to in subparagraph (a) shall be deemed to 
 

arise in Japan to the extent necessary to allow the United States to grant the credit 
 

provided for in subparagraph (b). 
 

ARTICLE 24 

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to 

any taxation or any requirement connected therewith, which is other or more burdensome than 

the taxation and connected requirements to which nationals of that other Contracting State in 

the same circumstances, in particular with respect to taxation on worldwide income, are or may 

be subjected. The provisions of this paragraph shall also apply to persons who are not residents 

of one or both of the Contracting States. 
36
 

2. The taxation on a permanent establishment which an enterprise of a Contracting State 

has in the other Contracting State shall not be less favorably levied in that other Contracting 

State than the taxation levied on enterprises of that other Contracting State carrying on the 

same activities. The provisions of this paragraph shall not be construed as obliging a 

Contracting State to grant to residents of the other Contracting State any personal allowances, 

reliefs and reductions for taxation purposes on account of civil status or family responsibilities 

which it grants to its own residents. 

3. Except where the provisions of paragraph 1 of Article 9, paragraph 8 of Article 11, 

paragraph 4 of Article 12, or paragraph 3 of Article 21 apply, interest, royalties and other 

disbursements paid by a resident of a Contracting State to a resident of the other Contracting 

State shall, for the purposes of determining the taxable profits of the first-mentioned resident, 

be deductible under the same conditions as if they had been paid to a resident of the firstmentioned Contracting State. Similarly, any debts of a resident of a Contracting State to a 

resident of the other Contracting State shall, for the purposes of determining the taxable capital 

of the first-mentioned resident, be deductible under the same conditions as if they had been 

contracted to a resident of the first-mentioned Contracting State. 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or 

controlled, directly or indirectly, by one or more residents of the other Contracting State, shall 

not be subjected in the first-mentioned Contracting State to any taxation or any requirement 

connected therewith which is other or more burdensome than the taxation and connected 

requirements to which other similar enterprises of the first-mentioned Contracting State are or 

may be subjected. 

5. Nothing in this Article shall be construed as preventing either Contracting State from 

imposing a tax as described in paragraph 9 of Article 10 or paragraph 10 of Article 11. 

6. The provisions of this Article shall, notwithstanding the provisions of Article 2 and 

subparagraph (d) of paragraph 1 of Article 3, apply to taxes of every kind and description 

imposed by a Contracting State or a political subdivision or local authority thereof. 
37
 

ARTICLE 25 

1. Where a person considers that the actions of one or both of the Contracting States result 

or will result for him in taxation not in accordance with the provisions of this Convention, he 

may, irrespective of the remedies provided by the domestic law of those Contracting States, 

present his case to the competent authority of the Contracting State of which he is a resident or, 

if his case comes under paragraph 1 of Article 24, to that of the Contracting State of which he is 

a national. The case must be presented within three years from the first notification of the 

action resulting in taxation not in accordance with the provisions of the Convention. 

2. The competent authority shall endeavor, if the objection appears to it to be justified and 

if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement 

with the competent authority of the other Contracting State, with a view to the avoidance of 

taxation which is not in accordance with the provisions of this Convention. Any agreement 

reached shall be implemented notwithstanding any time limits or other procedural limitations in 

the domestic law of the Contracting States, except such limitations as apply for the purposes of 

giving effect to such an agreement. 

3. The competent authorities of the Contracting States shall endeavor to resolve by mutual 

agreement any difficulties or doubts arising as to the interpretation or application of this 

Convention. In particular the competent authorities of the Contracting States may agree: 

(a) to the same attribution of income, deductions, credits, or allowances of an 
 

enterprise of a Contracting State to its permanent establishment situated in the other 
 

Contracting State; 
 

(b) to the same allocation of income, deductions, credits, or allowances between 
 

persons; 
 

(c) to the settlement of conflicting application of the Convention, including 
 

conflicts regarding: 
 

(i) the characterization of particular items of income; 
 

(ii) the characterization of persons; 
 

(iii) the application of source rules with respect to particular items of income; 
 

and 
 
38
 

(iv) the meaning of any term used in the Convention; and 

(d) to advance pricing arrangements. 

They may also consult together for the elimination of double taxation in cases not provided for 

in the Convention. 

4. The competent authorities of the Contracting States may communicate with each other 

directly for the purposes of reaching an agreement in the sense of the preceding paragraphs of 

this Article. 

ARTICLE 26 

1. The competent authorities of the Contracting States shall exchange such information as 

is relevant for carrying out the provisions of this Convention or of the domestic law of the 

Contracting States concerning taxes of every kind and description imposed by a Contracting 

State insofar as the taxation thereunder is not contrary to the provisions of the Convention. The 

exchange of information is not restricted by paragraph 1 of Article 1. If specifically requested 

by the competent authority of a Contracting State, the competent authority of the other 

Contracting State shall provide information under this Article in the form of authenticated 

copies of original documents (including books, papers, statements, records, accounts, and 

writings). 

2. Any information received under paragraph 1 by a Contracting State shall be treated as 

secret in the same manner as information obtained under the domestic law of that Contracting 

State and shall be disclosed only to persons or authorities (including courts and administrative 

bodies) involved in the assessment, collection or administration of, the enforcement or 

prosecution in respect of, or the determination of appeals in relation to, the taxes referred to in 

the first sentence of paragraph 1, or to supervisory bodies, and only to the extent necessary for 

those persons, authorities or supervisory bodies to perform their respective responsibilities. 

Such persons, authorities or supervisory bodies shall use the information only for the purposes 

of discharging such responsibilities. They may disclose the information in public court 

proceedings or in judicial decisions. 
39
 

3. In no case shall the provisions of the preceding paragraphs of this Article be construed 

so as to impose on a Contracting State the obligation: 

(a) to carry out administrative measures at variance with the laws and 

administrative practice of that or of the other Contracting State; 

(b) to supply information which is not obtainable under the laws or in the normal 

course of the administration of that or of the other Contracting State; 

(c) to supply information which would disclose any trade, business, industrial, 

commercial or professional secret or trade process, or information, the disclosure of 

which would be contrary to public policy (ordre public). 

4. In order to effectuate the exchange of information as provided in paragraph 1, each 

Contracting State shall take necessary measures, including legislation, rule-making, or 

administrative arrangement, to ensure that its competent authority has sufficient powers under 

its domestic law to obtain information for the exchange of information regardless of whether 

that Contracting State may need such information for purposes of its own tax. 

5. The provisions of this Article shall, notwithstanding the provisions of Article 2 and 

subparagraph (d) of paragraph 1 of Article 3, apply to taxes of every kind and description 

imposed by a Contracting State insofar as the taxation thereunder is not contrary to the 

provisions of this Convention. 

ARTICLE 27 

1. Each of the Contracting States shall endeavor to collect such taxes imposed by the other 

Contracting State as will ensure that any exemption or reduced rate of tax granted under this 

Convention by that other Contracting State shall not be enjoyed by persons not entitled to such 

benefits. The Contracting State making such collections shall be responsible to the other 

Contracting State for the sums thus collected. 

2. In no case shall the provisions of paragraph 1 be construed so as to impose upon either 

of the Contracting States endeavoring to collect the taxes the obligation to carry out 

administrative measures at variance with the laws and administrative practice of that 
40
 

Contracting State or which would be contrary to the public policy (ordre public) of that 

Contracting State. 

ARTICLE 28 

Nothing in this Convention shall affect the fiscal privileges of members of diplomatic 

missions or consular posts under the general rules of international law or under the provisions 

of special agreements. 

ARTICLE 29 

If a Contracting State considers that a substantial change in the laws relevant to this 

Convention has been or will be made in the other Contracting State, the first-mentioned 

Contracting State may make a request to that other Contracting State in writing for 

consultations with a view to determining the possible effect of such change on the balance of 

benefits provided by the Convention and, if appropriate, to amending the provisions of the 

Convention to arrive at an appropriate balance of benefits. The requested Contracting State 

shall enter into consultations with the requesting Contracting State within three months from 

the date on which the request is received by the requested Contracting State. 

ARTICLE 30 

1. This Convention shall be subject to ratification, and the instruments of ratification shall 

be exchanged as soon as possible. It shall enter into force on the date of the exchange of 

instruments of ratification. 

2. This Convention shall be applicable: 

(a) in Japan: 

(i) with respect to taxes withheld at source: 
41
 

(aa) for amounts taxable on or after July 1 of the calendar year in 
 

which the Convention enters into force, if the Convention enters into 
 

force before April 1 of a calendar year; or 
 

(bb) for amounts taxable on or after January 1 of the calendar year 
 

next following the year in which the Convention enters into force, if the 
 

Convention enters into force after March 31 of a calendar year; and 
 

(ii) with respect to taxes on income which are not withheld at source and the 

enterprise tax, as regards income for any taxable year beginning on or after 

January 1 of the calendar year next following that in which the Convention 

enters into force; and 

(b) in the United States: 

(i)	 with respect to taxes withheld at source: 

(aa) for amounts paid or credited on or after July 1 of the calendar 

year in which the Convention enters into force, if the Convention enters 

into force before April 1 of a calendar year; or 

(bb) for amounts paid or credited on or after January 1 of the calendar 

year next following the date on which the Convention enters into force, 

if the Convention enters into force after March 31 of a calendar year; and 

(ii) with respect to other taxes, for taxable periods beginning on or after 

January 1 of the calendar year next following the date on which the Convention 

enters into force. 

3. Notwithstanding the entry into force of this Convention, an individual who was entitled 

to the benefits of Article 19 or 20 of the Convention between the United States of America and 

Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect 

to Taxes on Income, signed on March 8, 1971 (hereinafter referred to as “the prior 

Convention”) at the time of the entry into force of this Convention shall continue to be entitled 

to such benefits until such time as the individual would cease to be entitled to such benefits if 

the prior Convention remained in force. 
42
 

4. The prior Convention shall cease to have effect in relation to any tax from the date on 

which this Convention has effect in relation to that tax in accordance with paragraphs 1 and 2. 

Notwithstanding the preceding provisions of this paragraph, where any person entitled to 

benefits under the prior Convention would have been entitled to greater benefits thereunder 

than under this Convention, the prior Convention shall, at the election of such person, continue 

to have effect in its entirety for the period of twelve months from the date on which the 

provisions of this Convention otherwise would have effect under paragraph 2. The prior 

Convention shall terminate on the last date on which it has effect in relation to any tax in 

accordance with the preceding provisions of this paragraph. 

ARTICLE 31 

This Convention shall remain in force until terminated by a Contracting State. Either 

Contracting State may terminate the Convention after the expiration of a period of five years 

from the date of its entry into force, by giving to the other Contracting State, through the 

diplomatic channel, six months prior written notice of termination. In such event, the 

Convention shall cease to have effect: 

(a) in Japan: 

(i) with respect to taxes withheld at source, for amounts taxable on or after 

January 1 of the calendar year next following the expiration of the six month 

period; and 

(ii) with respect to taxes on income which are not withheld at source and the 

enterprise tax, as regards income for any taxable year beginning on or after 

January 1 of the calendar year next following the expiration of the six month 

period; and 

(b)	 in the United States: 

(i) with respect to taxes withheld at source, for amounts paid or credited on 

or after January 1 of the calendar year next following the expiration of the six 

month period; and 
43
 

(ii) with respect to other taxes, for taxable periods beginning on or after 

January 1 of the calendar year next following the expiration of the six month 

period. 

IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their 

respective Governments, have signed this Convention. 

DONE in duplicate at Washington this sixth day of November, 2003, in the English and 

Japanese languages, each text being equally authentic. 

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF 

THE UNITED STATES OF AMERICA: JAPAN: