FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department announced today that the United States and Japan have reached an agreement in principle on the text of a new income tax treaty.  Formal negotiations to replace the current tax treaty between the two countries began in October 2001.  The two governments now are moving forward, as quickly as possible, to formal signature of the proposed treaty.

            The proposed treaty is a complete modernization of the existing treaty between the two countries, which is now over 30 years old.  The new agreement reflects the deepening economic ties between the United States and Japan and the globalization of the two economies.  Most significantly, the proposed treaty provides for substantial reductions in the withholding taxes imposed on cross-border dividends, interest, royalties and other income, including the complete elimination of source-country withholding taxes on royalties, certain interest, and certain intercompany dividends.  The new agreement also incorporates modern rules to ensure that the benefits of the treaty are enjoyed as intended by the businesses and residents of the two countries and to prevent improper exploitation of the treaty. 

Speaking at a dinner of the Japan Society this evening, Treasury Secretary John Snow welcomed the new agreement.  “I am very pleased to announce tonight that the United States and Japan have reached an agreement in principle on the text of a new income tax treaty.  The proposed treaty reflects both the deepening economic ties between the United States and Japan and the globalization of our two economies.  The proposed treaty reduces barriers to trade and investment between the United States and Japan through substantial reductions in the source-country withholding taxes imposed on cross-border dividends, interest, royalties and other income.  Most significantly, the agreement includes the complete elimination of withholding taxes on royalties, on certain interest, and on certain intercompany dividends.

“Achieving a new and improved tax treaty with Japan has been a priority.  We are pleased to have worked together with our Japanese partners to achieve an agreement that will benefit the economies of both our countries, and I look forward to signing this important agreement without delay. Finance Minister Shiokawa is announcing this agreement on our new tax treaty right now in Tokyo, where it is early Wednesday morning,” Secretary Snow concluded.

            After signature, the proposed treaty is subject to ratification according to the procedures of each of the two countries.  In the United States, the signed treaty will be transmitted to the Senate for its advice and consent to ratification. 

            The text of the treaty will be made public after signature.