Executive summary

Based on the reservations and notifications submitted to the Organisation for Economic Co-operation and Development (OECD) by Japan, through its instrument of ratification, on 26 September 2018 and by Singapore, on 21 December 2018, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or the MLI) will apply to the tax treaty between Japan and Singapore. The tax treaty with Singapore will be the ninth tax treaty for Japan to which the MLI will apply.¹

Detailed discussion

Background

On 7 June 2017, Japan signed the MLI.² On 26 September 2018, Japan deposited its instrument of ratification of the MLI with the OECD, and submitted its MLI positions and a list of 39 income tax treaties which Japan entered into with other jurisdictions that Japan wishes to designate as Covered Tax Agreements (CTAs), i.e., tax treaties to be amended through the MLI, including the Japan-Singapore Income Tax Treaty (the Treaty).

On 21 December 2018, Singapore deposited its instrument of ratification of the MLI with the OECD, and submitted its MLI positions.

Provisions of the MLI that apply to the Treaty include:

• Article 6(1) – Preamble language describing the intent of the Contracting Jurisdictions that the tax treaty will not create opportunities for non-taxation or reduced taxation.
• Article 6(3) – Preamble language referring to a desire of the Contracting Jurisdictions to develop their economic relationship and to enhance their co-operation in tax matters.
• Article 7(1) – Provisions that deny the benefits under the tax treaty where the principal purpose or one of the principal purposes of any arrangement or transaction was to obtain those benefits.
• Article 17(1) – Provisions regarding corresponding adjustments to taxation in accordance with the arm’s-length principle.
• Part VI – Provisions regarding arbitration for resolving a case of taxation not in accordance with the provisions of the tax treaty.
• Article 19(12) – Provisions that provide that an unresolved issue arising from the case on which a decision has already been rendered by a court or administrative tribunal shall not be submitted to arbitration.
• Article 23(3) – Provisions that require the competent authorities to endeavor to reach mutual agreement for the type of arbitration process.
• Article 23(5) – Provisions regarding a non-disclosure obligation on the presenters of the case for any information received during the course of arbitration proceedings.
• Article 28(2)(a) – Provisions regarding the scope of cases eligible for arbitration.

Entry into force and effect

The MLI will enter into force on 1 January 2019 for Japan and on 1 April 2019 for Singapore.

The provisions of the MLI will have effect with respect to:

1. Taxes withheld at source on amounts paid or credited to nonresidents, where the event giving rise to such taxes occurs on or after 1 January 2020.

2. All other taxes levied by that Contracting Jurisdiction, for taxes levied with respect to taxable periods beginning on or after 1 October 2019.

The provisions of Part VI, Arbitration will have effect with respect to:

1. Cases presented to the competent authority of Japan or Singapore as described in paragraph 1(a) of Article 19 (Mandatory Binding Arbitration), on or after 1 April 2019.

2. Cases presented to the competent authority of Japan and Singapore prior to 1 April 2019 (only to the extent that the competent authorities of Japan and Singapore agree that Part VI will apply to that specific case), on the date when Japan and Singapore have notified the Depositary that they have reached mutual agreement pursuant to paragraph 10 of Article 19 (Mandatory Binding Arbitration), along with information regarding the date or dates on which such cases shall be considered to have been presented to the competent authority of Japan or Singapore.

Endnotes

1. The other eight tax treaties are the Japanese tax treaties with Australia, France, Israel, New Zealand, Poland, Slovakia, Sweden and the United Kingdom.

2. See EY Global Tax Alert, Japan passes bill on multilateral instrument, dated 6 June 2018.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Co., Tokyo

• Jonathan Stuart-Smith | jonathan.stuart-smith@jp.ey.com

Ernst & Young LLP, Japanese Tax Desk, New York

• Hiroaki Ito | hiroaki.ito1@ey.com

Ernst & Young LLP, Singapore Tax Desk, New York

• Su Ling Agnew | suling.agnew@ey.com

Ernst & Young LLP, Asia Pacific Business Group, New York

• Chris Finnerty | chris.finnerty1@ey.com
• Kaz Parsch | kazuyo.parsch@ey.com
• Bee-Khun Yap | bee-khun.yap@ey.com

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