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July 26, 2021

Japan and Switzerland sign Tax Convention Protocol

Executive summary

The Government of Japan and the Swiss Federal Council signed the Protocol Amending the Convention between Japan and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income (the Protocol) in Bern on 16 July 2021.

This Protocol amends part of the existing Convention, which entered into force in 1971 and was partly amended in 2011 (the Convention). It is expected that, while eliminating double taxation and preventing international tax evasion and tax avoidance, this Protocol will promote further mutual investment and economic exchanges between the two countries.

This Alert summarizes the key provisions of the Protocol relevant to multinational corporate taxpayers.

Detailed discussion

Taxation of business profits (Article 7)                      

The business profits attributable to a permanent establishment (such as a branch) of an enterprise of one of the two countries situated in the other country which may be taxed in that other country shall be calculated by comprehensively recognizing internal dealings between its head office and branches taking into account the functions performed, assets used and risk assumed by the enterprise through the permanent establishment.

Taxation of dividends, interest, and royalties (Articles 10, 11 and 12)

Taxation of dividends, interest and royalties in the source country will be subject to reduced maximum rates or exempted as follows:


  • The Protocol provides for a full exemption if the beneficial owner of the dividends holds1 at least 10% interest for 365 days.
  • A 10% rate applies in all other cases.
  • Previously, a full exemption was only available for a holding of at least 50% for six months and a 5% rate applied to holdings of at least 10% for six months.


  • The Protocol provides a full exemption on interest.
  • Previously, interest was subject to 10% withholding tax unless beneficially owned by the Government, financial institutions, or recognized pension funds.


  • Continue to be exempted.

Prevention of Abuse of the Convention (Protocol paragraph 1)

The Convention already contains a similar principal purpose test (or PPT) under the Protocol paragraph 1, but the language will be amended in accordance with recent OECD2 BEPS3 developments.

The Convention contains another anti-abuse provision generally referred to as the limitation on benefits (or LOB) under Article 22A, to which there is no material amendment.

Arbitration proceedings in mutual agreement procedure (Article 25)

Where taxation not in accordance with the provisions of this Convention has not been resolved through the consultation between the tax authorities of the two countries within three years, the unresolved issue will be resolved pursuant to a decision of an arbitration panel composed of third parties, which shall generally be binding on both countries.

Entry into force

After the approval in accordance with the domestic procedures of the two countries (in the case of Japan, approval by the Diet is necessary), the Protocol will enter into force on the 30th day after the date of exchange of diplomatic notes indicating such approval.


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

Ernst & Young Tax Co., Tokyo

Ernst & Young LLP (United States), Japanese Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York


  1. Measured based on voting power, if paid by a company resident in Japan; measured based on capital or voting power, if paid by a company resident in Switzerland.
  2. Organisation for Economic Co-operation and Development.
  3. Base Erosion and Profit Shifting.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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