Japan – USA Transport Tax Agreement (1989)

Transportation Tax Agreement (1989)

This Treaty was signed on August 29, 1989 and entered into force on August 29, 1989.

The Secretary of State to the Japanese Ambassador

DEPARTMENT OF STATE WASHINGTON
AUG 29 1989

Excellency:

I have the honor to refer to the Exchange of Notes between the Government of the United States of America and the Government of Japan dated March 31 and June 8, 1926, concerning reciprocal exemption from taxation of income accruing from the business of shipping (hereinafter referred to as “the Exchange of Notes”), and to propose on behalf of the Government of the United States as follows:

1. The Government of the United States of America, in accordance with sections 872(b) and 883(a) of the Internal Revenue Code, shall exempt from tax gross income derived from the international operation of ships or aircraft by individuals who are residents of Japan (other than U.S. citizens) and corporations organized in Japan. This exemption is granted on the basis of equivalent exemptions granted by Japan to residents of the United States.

In the case of a corporation, the exemption shall apply only if the corporation meets either of the following conditions:

(I) the corporation’s stock is primarily and regularly traded on an established securities market in Japan, another country which grants an equivalent exemption to U.S. corporations, or the United States; or

(II) more than 50 percent of the value of the corporation’s stock is owned directly or indirectly by individuals who are residents of Japan or of another country which grants an equivalent exemption to U.S. corporations or by a corporation organized in a country which grants an equivalent exemption to U.S. corporations and whose stock is primarily and regularly traded on an established securities market in that country, another country which grants an equivalent exemption to U.S. corporations, or the United States.

For the purposes of the exemption from U.S. tax, subparagraph (II) will be considered to be satisfied if the corporation is a “controlled foreign corporation” under the Internal Revenue Code.

Gross income includes all income derived from the international operation of ships or aircraft, including income from the rental of ships or aircraft on a full (time or voyage) basis and income from the rental of containers and related equipment which is incidental to the international operation of ships or aircraft. It also includes income from the rental on a bareboat basis of ships and aircraft used for international transport.

2. The Government of Japan, in accordance with the Japanese law No. 144 of 1962, shall exempt, on the basis of reciprocity, from income tax and corporation tax chargeable in Japan, an enterprise carried on by a resident of the United States of America, in respect of the international operation of ships or aircraft.

International operation of ships or aircraft includes rental of ships or aircraft on a full (time or voyage) basis and rental of containers and related equipment which is incidental to the international operation of ships or aircraft. It also includes rental on a bareboat basis of ships and aircraft used for international transport.

3. Paragraphs 1 and 2 shall be applicable with respect to taxable years beginning on or after January 1, 1987.

4. It is confirmed that the arrangements set forth in the Exchange of Notes shall be superseded by the present arrangements.

5. Either Government may terminate the present arrangements by giving written notice of termination through diplomatic channels.

I have further the honor to propose that this Note and Your Excellency’s reply confirming the foregoing, on behalf of the Government of Japan, shall constitute an agreement between our two Governments, which shall enter into force on the date of Your Excellency’s reply.

Accept, Your Excellency, the renewed assurance of my highest consideration.

For the Secretary of State:
Eugene J. McAllister

The Japanese Ambassador to the Secretary of State

EMBASSY OF JAPAN
WASHINGTON

Washington, August 29, 1989

Excellency,

I have the honor to acknowledge the receipt of Your Excellency’s Note of today’s date, which reads as follows:

[For text of the U.S. note, see pp. 2-3.]

I have further the honor to confirm on behalf of the Government of Japan that the foregoing is acceptable to the Government of Japan and to agree that Your Excellency’s Note and this reply shall constitute an agreement between our two Governments which shall enter into force on the date of this reply.

Accept, Excellency, the renewed assurance of my highest consideration.

Nobuo Matsunaga
Ambassador Extraordinary
and Plenipotentiary of Japan
His Excellency
James A. Baker III
Secretary of State
Washington, D.C.