Japan and India have agreed to begin negotiations on tax treaty revisions that are intended to promote the entry of companies into markets and direct investment with a goal of a possible Free Trade Agreement (FTA) sometime in the future.
The first round of talks for the tax treaty revisions will be held in Tokyo on February 7. The two governments intend to negotiate reducing taxations on dividend and interest income between parent companies and its subsidiaries doing business in the two countries. There will also be discussions on reducing taxations on computer software related businesses, reflecting requests from companies doing business in the two countries.
The current treaty to avoid double taxation and prevent fiscal evasion with respect to income taxes became effective in 1960 and was last revised in 1989. It has been noted that tax cuts on dividends and patent royalties are thought to be a key points during the February meetings, as the current taxes are higher than those of other Asian countries and the United States. Both nations agree additional revision is necessary to encourage Japanese and Indian companies to do business in each other’s markets.
It is expected that to wrap up the bilateral tax treaty revisions, it may take a one to two years.
“Mizuho believes that revision of the double tax treaty (DTT) with India will provide mutual benefit to Indian investors and Japanese companies by liberalization of taxation to further facilitate bilateral investments,” said a Isao Yoshizawa Senior Vice President, Head of Customer Services Kabutocho Custody & Proxy Department for Mizuho Corporate Bank, Ltd in a Market Intelligence release.
Japan employs the framework of the revised Japan-US 2004 Tax Treaty as a model for discussion on treaty revisions, which are underway with the United Kingdom, Netherlands and announced meetings with the Philippines and India. Japan currently has 45 tax treaties with 55 nations around the world, and is planning to amend existing agreements with Asian and European countries in the years to come.