Japan: Article 7 (Business profits) under UK tax treaty

Japan: Article 7 (Business profits) under UK tax treaty

Japan’s Ministry of Finance announced the exchange of diplomatic notes concerning application of Article 7 (Business profits) under the new income tax treaty between Japan and the United Kingdom.


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Provisions of the amended Japan-UK income tax treaty (signed 17 December 2013) generally were effective 1 January 2015. However, the timing for application of new Article 7 (Business profits) under the treaty was not clear because diplomatic notes concerning Article 7 were not exchanged.

Article 7 under the new treaty introduces provisions concerning taxation of business profits attributable to a permanent establishment of a foreign enterprise, under which business profits are calculated by recognizing internal dealings between a head office and its branches and by applying the arm’s length principle. This is similar treatment as provided by Article 7 of the OECD Model Tax Convention (amended in 2010).

The Japan-UK tax treaty is the first tax treaty in Japan’s tax treaty network to include the new type of Article 7 of the OECD Model Tax Convention.

Effective date

Japan’s Ministry of Finance on 23 July 2015 issued a press release (English) announcing that Japan and the UK had exchanged notes concerning the Article 7 on 22 July 2015. With the exchange of notes, it was agreed that the provisions of new Article 7 will be effective:

  • In Japan—with respect to profits for any tax year beginning on or after 1 April 2016
  • In the UK—(1) in respect of profits charged to income tax or capital gains tax, for any year of assessment beginning on or after 6 April 2016; and (2) in respect of profits charged to corporation tax, for any financial year beginning on or after 1 April 2016

Read a July 2015 report [PDF 105 KB] prepared by the KPMG member firm in Japan: Tax Update (July 2015)

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