New Japan, Peru tax treaty signed

Japan and Peru on November 18 signed a tax treaty, the Ministry of Foreign Affairs of Japan has announced.

The treaty sets withholding taxes on dividends at a 10 percent rate and on royalties at a 15 percent rate. Withholding taxes on interest are exempt if the interest is beneficially owned by either government; otherwise, it is subject to tax at a 10 percent rate.

Further, the treaty provides that taxation of gains from the alienation of shares in a company will be taxed in the source country if the alienator owned shares representing at least 20 percent of the capital of that company.

The new treaty also contains a principle purpose clause to prevent taxpayers from abusing the treaty through tax treaty shopping. Further, it includes a mutual agreement procedure to give taxpayers a mechanism to resolve tax disputes involving the two countries.

The new tax treaty is not yet in force; both Japan and Peru must take further steps to ratify it.