*EPF306 06/11/2003
Text: U.S. and Japan Reach Agreement on New Income Tax Treaty
(June 10 news release from U.S. Treasury Department) (620)

The United States and Japan have reached an "agreement in principle" on the text of a new income tax treaty between the two nations, according to a June 10 news release from the U.S. Treasury Department.

The proposed tax treaty, the release said, "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 inter-company dividends."

Washington and Tokyo, it said, "now are moving forward, as quickly as possible, to formal signature of the proposed treaty."

The new agreement between the world's largest and second largest national economies reflects "the deepening economic ties between the United States and Japan and the globalization of the two economies," according to the Treasury Department.

Following is the text of the June 10 Treasury Department news release on the tax treaty between the United States and Japan:

(begin text)

Tuesday, June 10, 2003
US Treasury News Release

UNITED STATES AND JAPAN INITIAL NEW INCOME TAX TREATY

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 inter-company 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 inter-company 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.

(end text)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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