U.S. updates tax treaties with Japan and Spain

The Treasury Department has signed new protocols to the U.S.’s tax treaties with Japan and Spain, marking the first updates to U.S. tax treaties in nearly a decade.

The Treasury said Friday the protocols with Japan and Spain would provide certainty to Americans conducting business abroad and promote free, fair, and reciprocal trade. The protocols were approved by an overwhelming majority in the U.S. Senate earlier this year. The protocol with Japan updates a 2003 treaty and entered into force on Friday with the exchange of instruments of ratification in Tokyo. The protocol with Spain updates a 1990 tax treaty and is scheduled to enter into force on Nov. 27, 2019.

“These tax treaty protocols will help to create a level playing field for American businesses and workers, and foster stronger economic growth for both the United States and our trading partners,” said Treasury Secretary Steven T. Mnuchin in a statement. “We are pleased to continue working with members of the U.S. Senate from both parties to achieve strong, bipartisan approval of modernized tax treaties and protocols to encourage investment and job growth in America.”

Treasury Secretary Steven Mnuchin
Treasury Secretary Steven Mnuchin

Sen. Rand Paul, R-Ken., has been holding up the tax treaties for many years, objecting to sharing U.S. taxpayer information with other countries under laws like FATCA, the Foreign Account Tax Compliance Act, which was included in the HIRE Act of 2010. However, Senate Majority Leader Mitch McConnell, R-Ken., his home state colleague, has worked to open the logjam on the long-stalled treaty updates. Last month, the Senate ratified tax treaty updates for Japan, Spain, Luxembourg and Switzerland.

The Treasury said the Japan Protocol would significantly reduce taxes on interest and certain dividends. It would also provide for mandatory binding arbitration to facilitate more effective and expedient resolutions of certain tax disputes between U.S. and Japanese tax administrations, resulting in certainty for taxpayers..

Similarly, the Spain Protocol is also expected to significantly reduce taxes on interest, royalties, certain direct dividends and capital gains. It would also provide for mandatory binding arbitration to streamline dispute resolutions between the two countries’ tax administrations.

For the effective dates of specific provisions within each of the protocols, taxpayers should refer to the specific agreements:

Click here to view the text of the Protocol to Amend the Income Tax Convention between the United States and Japan.

Click here to view the 2003 Income Tax Convention between the United States and Japan.

Click here to view the text of the Protocol to Amend the Convention between the United States and Spain.

Click here to view the 1990 Income Tax Convention between the United States and Spain.

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