Second Protocol Amending Convention US and Japan… with Respect to Taxes on Income signed Jan 24, 2013

PROTOCOL
AMENDING THE CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA
AND THE GOVERNMENT OF JAPAN
FOR THE AVOIDANCE OF DOUBLE TAXATION
AND THE PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME

The Government of the United States of America and the
Government of Japan,

Desiring to amend the Convention between the Government
of the United States of America and the Government of Japan
for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to Taxes on Income signed at
Washington on 6 November 2003 (hereinafter referred to as “the
Convention”) and the Protocol, which forms an integral part of
the Convention, signed at Washington on 6 November 2003
(hereinafter referred to as “the Protocol of 2003”),

Have agreed as follows:

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ARTICLE I

Paragraph 5 of Article 1 of the Convention shall be
deleted and replaced by the following:

“5. The provisions of paragraph 4 shall not affect the
benefits conferred by a Contracting State under
paragraphs 2 and 3 of Article 9, paragraph 3 of Article
17, and Articles 18, 19, 23, 24, 25 and 28, but in the
case of benefits conferred by the United States under
Articles 18 and 19 only if the individuals claiming the
benefits are neither citizens of, nor have been lawfully
admitted for permanent residence in, the United States.”

ARTICLE II

Paragraph 4 of Article 4 of the Convention shall be
deleted and replaced by the following:

“4. Where by reason of the provisions of paragraph 1 a
person other than an individual is a resident of both
Contracting States, such person shall not be considered a
resident of either Contracting State for the purposes of
its claiming any benefits provided by this Convention.”

ARTICLE III

1. Subparagraph (a) of paragraph 3 of Article 10 of the
Convention shall be amended by deleting the terms “more than
50 percent” and replacing them with the terms “at least 50
percent”, and deleting the words “twelve months” and replacing
them with the words “six months”.

2. Paragraph 9 of Article 10 of the Convention shall be
amended by deleting the terms “or 2” everywhere they appear
within the paragraph.

ARTICLE IV

Article 11 of the Convention shall be deleted and
replaced by the following:

“ARTICLE 11

1. Interest arising in a Contracting State and
beneficially owned by a resident of the other Contracting
State may be taxed only in that other Contracting State.

2. Notwithstanding the provisions of paragraph 1:

(a) interest arising in a Contracting State that is
determined by reference to receipts, sales,
income, profits or other cash flow of the
debtor or a related person, to any change in
the value of any property of the debtor or a
related person or to any dividend, partnership
distribution or similar payment made by the
debtor or a related person, or any other
interest similar to such interest arising in a
Contracting State, may be taxed in the
Contracting State in which it arises, and
according to the laws of that Contracting
State, but if the beneficial owner of the

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interest is a resident of the other Contracting
State, the tax so charged shall not exceed 10
percent of the gross amount of the interest;
and

(b) a Contracting State may tax, in accordance with
its domestic law, interest paid with respect to
the ownership interests in an entity used for
the securitization of real estate mortgages or
other assets, to the extent that the amount of
interest paid exceeds the return on comparable
debt instruments as specified by the law of
that Contracting State.

3. Interest shall be deemed to arise in a Contracting
State when the payor is a resident of that Contracting
State. Where, however, the person paying the interest,
whether such person is a resident of a Contracting State
or not, has in a state other than that of which such
person is a resident a permanent establishment in
connection with which the indebtedness on which the
interest is paid was incurred, and such interest is borne
by such permanent establishment, then:

(a) if the permanent establishment is situated in a
Contracting State, such interest shall be
deemed to arise in that Contracting State, and

(b) if the permanent establishment is situated in a
state other than the Contracting States, such
interest shall not be deemed to arise in either
Contracting State.

4. The term “interest” as used in this Article means
income from debt-claims of every kind, whether or not
secured by mortgage and whether or not carrying a right
to participate in the debtor’s profits, and in
particular, income from government securities and income
from bonds or debentures, including premiums and prizes
attaching to such securities, bonds or debentures, and
all other income that is subjected to the same taxation
treatment as income from money lent by the tax laws of
the Contracting State in which the income arises. Income
dealt with in Article 10 shall not be regarded as
interest for the purposes of this Convention.

5. The provisions of paragraphs 1 and 2 shall not apply
if the beneficial owner of the interest, being a resident
of a Contracting State, carries on business in the other
Contracting State in which the interest arises, through a
permanent establishment situated therein and the debt-
claim in respect of which the interest is paid is
effectively connected with such permanent establishment.
In such case the provisions of Article 7 shall apply.

6. Where, by reason of a special relationship between
the payor and the beneficial owner or between both of
them and some other person, the amount of the interest,
having regard to the debt-claim for which it is paid,
exceeds the amount which would have been agreed upon by
the payor and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply
only to the last-mentioned amount. In such case, the
excess part of the payment may be taxed in the
Contracting State in which it arises at a rate not to
exceed 5 percent of the gross amount of the excess.

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7. A resident of a Contracting State shall not be
considered the beneficial owner of interest in respect of
a debt-claim if such debt-claim would not have been
established unless a person:

(a) that is not entitled to benefits with respect
to interest arising in the other Contracting
State which are equivalent to, or more
favorable than, those available under this
Convention to a resident of the first-mentioned
Contracting State; and

(b) that is not a resident of either Contracting
State;

held an equivalent debt-claim against the
first-mentioned resident.”

ARTICLE V

1. Paragraph 2 of Article 13 of the Convention shall be
deleted and replaced by the following:

“2. For the purposes of this Article the term “real
property situated in the other Contracting State” shall
include:

(a) real property referred to in Article 6;

(b) where that other Contracting State is Japan,
shares or interests in a company, partnership
or trust deriving the value of its property
directly or indirectly principally from real
property referred to in Article 6 and situated
in Japan; and

(c) where that other Contracting State is the
United States, a United States real property
interest.”

2. Paragraph 4 of Article 13 of the Convention shall be
deleted and replaced by the following:

“4. Notwithstanding the provisions of paragraph 3, gains
from the alienation of any property, other than real
property, forming part of the business property of a
permanent establishment which an enterprise of a
Contracting State has in the other Contracting State,
including such gains from the alienation of such a
permanent establishment (alone or with the whole
enterprise), may be taxed in that other Contracting
State.”

ARTICLE VI

Article 15 of the Convention shall be deleted and
replaced by the following:

“ARTICLE 15

Directors’ fees and other similar payments derived
by a resident of a Contracting State in his capacity as a
member of the board of directors of a company which is a
resident of the other Contracting State may be taxed in
that other Contracting State.”

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ARTICLE VII

Article 20 of the Convention shall be deleted and
replaced by the following:

“ARTICLE 20 (Deleted)”

ARTICLE VIII

Clause (i) of subparagraph (b) of paragraph 5 of Article
22 of the Convention shall be amended by deleting the words
“the Securities and Exchange Law” and replacing them with the
words “the Financial Instruments and Exchange Law”.

ARTICLE IX

Paragraph 1 of Article 23 of the Convention shall be
deleted and replaced by the following:

“1. (a) Subject to the provisions of the laws of Japan
regarding the allowance as a credit against the
Japanese tax of tax payable in any country
other than Japan, where a resident of Japan
derives income from the United States which may
be taxed in the United States in accordance
with the provisions of this Convention, the
amount of the United States tax payable in
respect of that income shall be allowed as a
credit against the Japanese tax imposed on that
resident. The amount of credit, however, shall
not exceed the amount of the Japanese tax which
is appropriate to that income. For the purposes
of the preceding provisions of this
subparagraph, income beneficially owned by a
resident of Japan which may be taxed in the
United States in accordance with the Convention
shall be deemed to arise from sources in the
United States.

(b) Subject to the provisions, other than the
provisions with regard to ownership
requirements of shares, of the laws of Japan
regarding the exclusion of dividends from the
basis upon which the Japanese tax is imposed,
where the income derived from the United States
is dividends paid by a company which is a
resident of the United States to a company
which is a resident of Japan and has owned at
least 10 percent of the total shares issued by
that company, during the period of six months
immediately before the day when the obligation
to pay dividends is confirmed, such dividends
shall be excluded from the basis upon which the
Japanese tax is imposed.”

ARTICLE X

1. Paragraph 3 of Article 24 of the Convention shall be
amended by deleting the words “paragraph 8 of Article 11” and
replacing them with the words “paragraph 6 of Article 11”.

2. Paragraph 5 of Article 24 of the Convention shall be

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amended by deleting the words “or paragraph 10 of Article 11”.

ARTICLE XI

Article 25 of the Convention shall be amended by adding
the following after paragraph 4:

“5. Where, pursuant to this Article, a person has
presented a case to the competent authority of the
Contracting State of which he is a resident or, if his
case comes under paragraph 1 of Article 24, to that of
the Contracting State of which he is a national, on the
basis that the actions of one or both of the Contracting
States have resulted for that person in taxation not in
accordance with the provisions of this Convention, and
the competent authorities of the Contracting States are
unable to reach an agreement to resolve that case, the
case shall be resolved through arbitration conducted in
the manner prescribed by, and subject to the requirements
of, this paragraph, paragraphs 6 and 7, and any rules or
procedures agreed upon by the competent authorities of
both Contracting States pursuant to subparagraph (i) of
paragraph 7, if:

(a) the presenter of the case has submitted a
written request to the relevant competent
authority for resolution of the case through
arbitration; and

(b) all concerned persons and their authorized
representatives or agents have provided written
statements not to disclose to any person
(except other concerned persons) any
information received during the course of the
arbitration proceeding from the competent
authorities of either Contracting State or the
arbitration panel, other than the determination
of such panel.

6. Notwithstanding the provisions of paragraph 5, a
case shall not be submitted to arbitration if:

(a) a decision with respect to such case has
already been rendered by a court or
administrative tribunal of either Contracting
State;

(b) the competent authorities of both Contracting
States have agreed that the case is not
suitable for resolution through arbitration and
have notified the presenter of the case of such
agreement no later than two years after the
commencement date; or

(c) the case is the subject only of the provisions
set forth in the final sentence of paragraph 3.

7. For the purposes of paragraphs 5, 6 and this
paragraph, the following rules and definitions shall
apply:

(a) The term “concerned person” means the presenter
of a case to a competent authority for
consideration under this Article and all other
persons, if any, whose tax liability to either

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Contracting State may be directly affected by a
mutual agreement arising from that
consideration.

(b) The “commencement date” for a case is the
earliest date on which the information
necessary to undertake substantive
consideration for a mutual agreement has been
received by the competent authorities of both
Contracting States.

(c) An arbitration proceeding pursuant to this
Article with respect to a case (other than a
case described in subparagraph (d)) shall begin
on the later of:

(i) two years after the commencement date of
that case, unless the competent
authorities of both Contracting States
have agreed to a different date and
notified the presenter of the case of such
agreement; and

(ii) the earliest date upon which the
requirements of subparagraphs (a) and (b)
of paragraph 5 have been satisfied.
(d) An arbitration proceeding pursuant to this
Article with respect to a case that is the
subject of a request for an advance pricing
arrangement, shall begin on the later of:

(i) six months after an official notification
has been issued by the tax authority of
either Contracting State of a correction
of, or an intent to adjust, the pricing of
a transaction or transfer covered by a
request for an advance pricing arrangement
regarding a concerned person, unless the
competent authorities of both Contracting
States have agreed to a different date and
notified the presenter of the case of such
agreement; and

(ii) the earliest date upon which the
requirements of subparagraphs (a) and (b)
of paragraph 5 have been satisfied.

However, in no event shall the arbitration
proceeding begin any earlier than two years
after the date on which the information
necessary to undertake substantive
consideration for a mutual agreement on the
advance pricing arrangement has been received
by the competent authorities of both
Contracting States.

(e) Unless the presenter of the case does not
accept the determination of the arbitration
panel, such determination shall constitute a
resolution by mutual agreement of the entire
case under this Article at the time it is
timely accepted by the presenter and shall be
binding on both Contracting States. The
resolution resulting from the determination of
the arbitration panel shall be implemented
notwithstanding any time limits or procedural

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limitations in the law of the Contracting
States, except such limitations as apply for
the purposes of giving effect to such a
resolution.

(f) For the purposes of an arbitration proceeding
under paragraph 5 and this paragraph, the
members of the arbitration panel and their
staff shall be considered to be “persons or
authorities” to whom information may be
disclosed under Article 26.

(g) No information relating to an arbitration
proceeding (including the determination of the
arbitration panel) may be disclosed by the
competent authorities of the Contracting
States, except as permitted by this Convention
and the laws of the Contracting States. In
addition, all material prepared in the course
of, or relating to, an arbitration proceeding
shall be considered to be information exchanged
between the competent authorities of the
Contracting States pursuant to Article 26.

(h) The competent authorities of both Contracting
States shall ensure that all members of the
arbitration panel and their staff agree in
written statements sent to each of the
competent authorities of the Contracting States
not to disclose any information relating to an
arbitration proceeding (including the
determination of the arbitration panel), and to
abide by and be subject to the confidentiality
and nondisclosure provisions of Article 26 and
similar provisions of relevant laws of the
Contracting States. Such statements shall also
include their acceptance to serve on the
arbitration panel. Notwithstanding the
provisions of this subparagraph, the members of
the arbitration panel or their staff shall
disclose the determination of the arbitration
panel to the competent authorities of both
Contracting States.

(i) The competent authorities of both Contracting
States shall agree in writing, before the date
that the first arbitration proceeding
commences, on time periods and procedures that
are consistent with paragraphs 5, 6 and this
paragraph for:

(i) notifying the presenter of the case of a
modified date for the beginning of an
arbitration proceeding under clause (i) of
subparagraph (c) and clause (i) of
subparagraph (d);

(ii) the appropriate application of arbitration
in the context of advance pricing
arrangements, including rules concerning
the date on which an arbitration
proceeding shall begin with respect to
such arrangements;

(iii) obtaining the nondisclosure statements
required by subparagraph (b) of paragraph
5 and subparagraph (h) of this paragraph

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from each concerned person, authorized
representative or agent, and member of the
arbitration panel (including their staff);

(iv) the appointment of the members of the
arbitration panel;

(v) the submission of proposed resolutions,
position papers, and reply submissions by
the competent authorities of the
Contracting States to the arbitration
panel;

(vi) the submission by the presenter of the
case of a paper setting forth the
presenter’s views and analysis of the case
for consideration by the arbitration
panel;

(vii) the delivery by the arbitration panel of
its determination to the competent
authorities of both Contracting States;

(viii) the acceptance or rejection by the
presenter of the case of the determination
of the arbitration panel; and

(ix) the adoption by the arbitration panel of
any additional procedures necessary for
the conduct of its business.

The competent authorities of both Contracting States
may agree in writing on such other rules and procedures
as may be necessary for the effective and timely
implementation of the provisions of paragraphs 5, 6 and
this paragraph.”

ARTICLE XII

Article 26 of the Convention shall be deleted and
replaced by the following:

“ARTICLE 26

1. The competent authorities of the Contracting States
shall exchange such information as is foreseeably
relevant for carrying out the provisions of this
Convention or to the administration or enforcement of the
domestic laws concerning taxes of every kind and
description imposed on behalf of the Contracting States,
insofar as the taxation thereunder is not contrary to the
Convention. The exchange of information is not restricted
by paragraph 1 of Article 1 and Article 2. If
specifically requested by the competent authority of a
Contracting State, the competent authority of the other
Contracting State shall provide information under this
Article in the form of authenticated copies of original
documents (including books, papers, statements, records,
accounts, and writings).

2. Any information received under paragraph 1 by a
Contracting State shall be treated as secret in the same
manner as information obtained under the laws of that
Contracting State and shall be disclosed only to persons
or authorities (including courts and administrative
bodies) involved in the assessment, collection or

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administration of, the enforcement or prosecution in
respect of, or the determination of appeals in relation
to, the taxes referred to in paragraph 1, or the
oversight of such functions. Such persons or authorities
shall use the information only for such purposes. They
may disclose the information in public court proceedings
or in judicial decisions.

3. In no case shall the provisions of paragraphs 1 and
2 be construed so as to impose on a Contracting State the
obligation:

(a) to carry out administrative measures at
variance with the laws and administrative
practice of that or of the other Contracting
State;

(b) to supply information which is not obtainable
under the laws or in the normal course of the
administration of that or of the other
Contracting State;

(c) to supply information which would disclose any
trade, business, industrial, commercial or
professional secret or trade process, or
information the disclosure of which would be
contrary to public policy; or

(d) to obtain or provide information that would
reveal confidential communications between a
client and an attorney, solicitor or other
admitted legal representative where such
communications are:

(i) produced for the purposes of seeking or
providing legal advice; or

(ii) produced for the purposes of use in
existing or contemplated legal
proceedings.

4. If information is requested by a Contracting State
in accordance with this Article, the other Contracting
State shall use its information gathering measures to
obtain the requested information, even though that other
Contracting State may not need such information for its
own tax purposes. The obligation contained in the
preceding sentence is subject to the limitations of
paragraph 3 but in no case shall such limitations be
construed to permit a Contracting State to decline to
supply information solely because it has no domestic
interest in such information.

5. In no case shall the provisions of paragraph 3 be
construed to permit a Contracting State to decline to
supply information solely because the information is held
by a bank, other financial institution, nominee or person
acting in an agency or a fiduciary capacity or because it
relates to ownership interests in a person.”

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ARTICLE XIII

Article 27 of the Convention shall be deleted and
replaced by the following:

“ARTICLE 27

1. Subject to the provisions of this Article, the
Contracting States shall lend assistance to each other in
the collection of taxes, insofar as the taxation is not
contrary to this Convention or any other agreement to
which the Contracting States are parties, together with
interest, costs of collection, additions to such taxes,
and civil or administrative penalties related to such
taxes (hereinafter referred to in this Article as a
“revenue claim”). This assistance is not restricted by
paragraph 1 of Article 1 and Article 2. Any assistance
provided by a Contracting State shall be only to the
extent allowable under the law of that Contracting State.

2. The assistance under paragraph 1 shall be lent only
in the collection of the following revenue claims:

(a) a revenue claim in respect of a company:

(i) the determination of which is not eligible
to be resolved by mutual agreement
procedure pursuant to Article 25;

(ii) the determination of which has been
mutually agreed upon pursuant to Article
25; or

(iii) with respect to the determination of which
the company has terminated the mutual
agreement procedure;

(b) a revenue claim in respect of an individual.
However, if the individual is a national of the
Contracting State from which assistance is
requested (hereinafter referred to as the
“requested State”) at the time the application
for assistance is received, assistance shall be
lent only for revenue claims with respect to
which the individual or a person acting on
behalf of the individual:

(i) has filed a fraudulent tax return or a
fraudulent claim for refund;

(ii) has willfully failed to file a tax return
to evade taxes; or

(iii) has transferred assets into the requested
State to avoid collection of the revenue
claim.

3. Notwithstanding the provisions of paragraph 2, the
assistance under paragraph 1 shall be lent in the
collection of revenue claims that is necessary to ensure
that any exemption or reduced rate of tax granted under
this Convention shall not be enjoyed by persons not
entitled thereto, provided that the requested State
agrees with such determination of improper granting of
benefits.

4. The provisions of this Article shall only apply to

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revenue claims in respect of the taxes covered by Article
2 and in addition, the following taxes:

(a) in the case of Japan:

(i) the consumption tax;

(ii) the inheritance tax; and

(iii) the gift tax;

(b) in the case of the United States:

(i) the Federal estate and gift taxes;

(ii) the Federal excise tax on insurance
policies issued by foreign insurers;

(iii) the Federal excise taxes imposed with
respect to private foundations; and

(iv) the Federal taxes related to employment
and self-employment.

5. An application for assistance in the collection of a
revenue claim, other than the collection of a revenue
claim described in paragraph 3, shall include a
certification by the competent authority of the
Contracting State applying for such assistance
(hereinafter referred to as the “applicant State”) that,
under the laws of the applicant State, the revenue claim
has been finally determined. For the purposes of this
Article, a revenue claim is finally determined when the
applicant State has the right under its domestic law to
collect the revenue claim and all applicable
administrative and judicial rights of the taxpayer to
dispute or appeal the revenue claim have lapsed or been
exhausted.

6. When an application for assistance by the applicant
State has been accepted for collection by the requested
State pursuant to the provisions of this Article, the
revenue claim of the applicant State shall be treated, to
the extent necessary for collection under the laws of the
requested State, as assessed under the laws of the
requested State (as of the time the application is
received), and shall be collected by the requested State
as though such revenue claim were the requested State’s
own revenue claim in accordance with the laws applicable
to the collection of the requested State’s own revenue
claims.

7. Notwithstanding the provisions of paragraph 6, acts
of collection carried out by the requested State in
pursuance of an application for assistance, which,
according to the laws of the applicant State, would have
the effect of suspending or interrupting the period of
limitation on the collection of a revenue claim in the
applicant State if carried out by the applicant State,
shall also have this effect with respect to the revenue
claim under the laws of the applicant State. The
requested State shall inform the applicant State about
such acts.

8. A revenue claim with respect to which assistance is
being lent by the requested State shall not, in that
Contracting State, be subject to the time limits, or

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accorded any priority, applicable to a revenue claim
under the laws of that Contracting State by reason of its
nature as such.

9. Nothing in this Article shall be construed as
creating or providing any rights of administrative or
judicial review by the requested State of the applicant
State’s finally determined revenue claim, irrespective of
any such rights that may be available under the laws of
either Contracting State.

10. If, at any time pending execution of an application
for assistance under this Article, the applicant State
loses the right under its domestic law to collect the
revenue claim or otherwise terminates collection, the
competent authority of the applicant State shall promptly
withdraw the application for assistance in collection and
the requested State shall cease all measures of
collection of the revenue claim.

11. If, at any time pending execution of an application
for assistance under this Article, the applicant State
suspends collection of the revenue claim according to the
laws of the applicant State, the competent authority of
the applicant State shall promptly notify the competent
authority of the requested State of that fact, and the
competent authority of the applicant State shall either
suspend or withdraw its request at the option of the
competent authority of the requested State and the
requested State shall suspend or cease all measures of
collection of the revenue claim accordingly.

12. Amounts collected by the requested State pursuant to
this Article shall be remitted to the competent authority
of the applicant State.

13. Unless the competent authorities of both Contracting
States otherwise agree, the ordinary costs incurred in
providing assistance in collection shall be borne by the
requested State and any extraordinary costs so incurred
shall be borne by the applicant State.

14. In no case shall the provisions of this Article be
construed so as to impose on the requested State the
obligation to carry out:

(a) administrative measures at variance with the
laws and administrative practices of the
requested State or of the applicant State; or

(b) measures which would be contrary to public
policy.

15. In no case shall the provisions of this Article be
construed so as to impose on the requested State an
obligation to accept an application of the applicant
State:

(a) if the applicant State has not pursued all
appropriate measures to collect the revenue
claim that is the subject of the application
for assistance available under its laws or
administrative practices; or

(b) if the administrative burden for the requested
State is substantially disproportionate to the
benefit to be derived by the applicant State.

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16. Before assistance is lent under the provisions of
this Article, other than under paragraph 3, the competent
authorities of both Contracting States shall agree upon
the mode of application of this Article, including an
agreement to ensure comparable levels of assistance to
each of the Contracting States. In particular, the
competent authorities of both Contracting States shall
agree on a limit to the number of applications for
assistance that a Contracting State may make in a
particular year, as well as a minimum monetary threshold
for a revenue claim for which assistance is sought, and
procedural rules related to the remittance of amounts
collected pursuant to the provisions of this Article.”

ARTICLE XIV

1. Subparagraph (a) of paragraph 1 of the Protocol of 2003
shall be amended by deleting the words “United States excise
tax” and replacing them with the words “Federal excise tax,”
and subparagraph (b) of that paragraph shall be amended by
deleting the words “United States excise tax” and replacing
them with the words “Federal excise taxes”.

2. Paragraph 9 of the Protocol of 2003 shall be deleted and
replaced by the following:

“9. (Deleted)”

3. The Protocol of 2003 shall be amended by adding the
following after paragraph 13:

“14. With reference to paragraphs 5, 6 and 7 of Article
25 of the Convention:

(a) It is understood that taxation shall be
considered to have resulted for the purpose of
paragraph 5 of Article 25 of the Convention
from the actions of one or both of the
Contracting States as soon as tax has been
paid, assessed or otherwise determined (for
example, a notification of correction,
determination or deficiency of a tax liability
has been issued), or in cases where the
taxpayer is officially notified by the tax
authorities that they intend to tax him on a
certain element of income (for example, a
notice of proposed adjustment has been issued).

(b) The arbitration panel shall consist of three
individual members. The members appointed shall
not be employees nor have been employees within
the twelve-month period prior to the date on
which the arbitration proceeding begins, of the
tax administration, the Treasury Department, or
the Ministry of Finance of the Contracting
State which identifies them. Each competent
authority of the Contracting States shall
select one member of the arbitration panel. In
the event that the competent authority of a
Contracting State fails to make such selection
in the manner and within the time periods
agreed by the competent authorities of both
Contracting States pursuant to subparagraph (i)
of paragraph 7 of Article 25 of the Convention,
the competent authority of the other

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Contracting State shall select a second member
of the arbitration panel. The two members so
selected shall select a third member, who shall
serve as Chair of the arbitration panel. If the
two initial members of the arbitration panel
fail to select the third member in the manner
and within the time periods agreed by the
competent authorities of both Contracting
States pursuant to subparagraph (i) of
paragraph 7 of Article 25 of the Convention,
these members shall be dismissed, and each
competent authority of the Contracting States
shall select a new member of the arbitration
panel. The Chair shall not be a national or
lawful permanent resident of either Contracting
State. Furthermore, the members appointed shall
not have any prior involvement with the
specific matters at issue in the arbitration
proceeding for which they are being considered
as members of the arbitration panel.

(c) If at any time before the arbitration panel
delivers a determination to the competent
authorities of the Contracting States:

(i) the competent authorities of the
Contracting States reach a mutual
agreement to resolve the case pursuant to
Article 25 of the Convention;

(ii) the presenter of the case withdraws the
request for arbitration;

(iii) a decision concerning the case is rendered
by a court or administrative tribunal of
one of the Contracting States during the
arbitration proceeding; or

(iv) if any concerned person or their
authorized representatives or agents
willfully violates the written
nondisclosure statement required by
subparagraph (b) of paragraph 5 of Article
25 of the Convention, and the competent
authorities of both Contracting States
agree that such violation should result in
the termination of the arbitration
proceeding;

the mutual agreement procedure, including the
arbitration proceeding, with respect to the
case shall terminate.

(d) The competent authority of each of the
Contracting States shall be permitted to submit
a proposed resolution addressing each
adjustment or similar issue raised in the case.
Such proposed resolution shall be a resolution
of the entire case, and shall reflect, without
modification, all matters in the case
previously agreed between the competent
authorities of both Contracting States. Such
proposed resolution shall be limited to a
disposition of specific monetary amounts (for
example, of income, profit, gain or expense)
or, where specified, the maximum rate of tax
charged pursuant to the Convention, for each

16
adjustment or similar issue in the case, based
on the application of the Convention to the
case. The competent authority of each of the
Contracting States shall also be permitted to
submit a position paper for consideration by
the arbitration panel.

(e) Notwithstanding the provisions of subparagraph
(d), in the case of an arbitration proceeding
concerning:

(i) the taxation of an individual with respect
to whom the competent authorities of the
Contracting States have been unable to
reach an agreement regarding the
Contracting State of which the individual
is a resident;

(ii) the taxation of the business profits of an
enterprise with respect to which the
competent authorities of the Contracting
States have been unable to reach an
agreement on whether a permanent
establishment exists; or

(iii) such other issues the determination of
which are contingent on resolution of
similar threshold questions;

the competent authorities of the Contracting
States may submit proposed resolutions
separately addressing the relevant threshold
questions as described in clause (i), (ii) or
(iii) above (for example, the question of
whether a permanent establishment exists), and
the contingent determinations (for example, the
determination of the amount of profit
attributable to such permanent establishment).

(f) Where an arbitration proceeding concerns a case
comprising multiple adjustments or similar
issues each requiring a disposition of specific
monetary amounts (for example, of income,
profit, gains or expense) or where specified,
the maximum rate of tax charged pursuant to the
Convention, the proposed resolution may propose
a separate disposition for each adjustment or
similar issue.

(g) Each of the competent authorities of the
Contracting States shall receive the proposed
resolution and position paper submitted by the
other competent authority, and shall be
permitted to submit a reply submission to the
arbitration panel. Each of the competent
authorities of the Contracting States shall
also receive the reply submission of the other
competent authority.

(h) The presenter of the case shall be permitted to
submit for consideration by the arbitration
panel a paper setting forth its analysis and
views of the case. Such submission shall not
include any information not previously provided
to the competent authorities during the mutual
agreement procedure and shall be made available
to the competent authorities of both

17
Contracting States.

(i) The arbitration panel shall deliver a
determination in writing to the competent
authorities of the Contracting States. The
determination of the arbitration panel shall be
limited to one of the proposed resolutions
submitted by the competent authorities of the
Contracting States for each adjustment or
similar issue and any threshold questions, and
shall not include a rationale or any other
explanation of the determination. The
determination of the arbitration panel shall
have no precedential value with respect to the
application of the Convention in any other
case.

(j) Unless the competent authorities of both
Contracting States agree to a longer time
period, the presenter of the case shall have 45
days after receiving the determination of the
arbitration panel to notify, in writing, the
competent authority of the Contracting State to
whom the case was presented, of his acceptance
of the determination. If the presenter of the
case fails to so advise the relevant competent
authority, the determination shall be
considered not to be accepted. In addition, in
the event the case is pending in litigation or
appeal, the determination of the arbitration
panel shall be considered not to be accepted by
the presenter of the case if any concerned
person who is a party to the litigation or
appeal does not advise, within the same time
frame described above, the relevant court or
administrative tribunal of its intention to
withdraw from consideration all issues resolved
in the arbitration proceeding. Where the
determination of the arbitration panel is not
accepted, the case will not be eligible for any
further consideration by the competent
authorities.

(k) The fees and expenses of the members of the
arbitration panel, as well as any costs
incurred in connection with the proceeding by
the Contracting States, shall be borne
equitably by the Contracting States.

15. With reference to paragraph 5 of Article 27 of the
Convention:

(a) For the purposes of evaluating the final
determination of a revenue claim:

(i) in the case of the United States, any
administrative or judicial rights
available to the taxpayer in connection
with the revenue claim that arise after
the collection of the revenue claim;

(ii) in the case of Japan, the right to take
action pursuant to Article 36 of the
Administrative Case Litigation Act (Law
No. 139 of 1962) of Japan;

shall not be taken into account.

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(b) A Contracting State may suspend assistance if
it determines that the actions of the other
Contracting State have resulted in an imbalance
in the levels of assistance between the
Contracting States contemplated in Article 27
of the Convention. In such case, the
Contracting States shall enter into
consultations with a view to restoring
comparable levels of assistance consistent with
paragraph 16 of Article 27 of the Convention.”

ARTICLE XV

1. This Protocol shall be subject to ratification, and the
instruments of ratification shall be exchanged as soon as
possible. It shall enter into force on the date of the
exchange of instruments of ratification.

2. This Protocol shall have effect:

(a) in respect of taxes withheld at source, for amounts
paid or credited on or after the first day of the
third month next following the date on which the
Protocol enters into force;

(b) in respect of other taxes, for taxable years
beginning on or after the first day of January next
following the date on which the Protocol enters into
force;

3. Notwithstanding the provisions of paragraph 2, the
provisions of paragraphs 5, 6 and 7 of Article 25 of the
Convention, as amended by Article XI of this Protocol, shall
have effect with respect to:

(a) Cases that are under consideration by the competent
authorities as of the date on which this Protocol
enters into force. For such cases, the commencement
date shall be the date on which this Protocol enters
into force.

(b) Cases that come under consideration after the date
on which this Protocol enters into force.

4. Notwithstanding the provisions of paragraph 2, the
provisions of Article 26 of the Convention, as amended by
Article XII of this Protocol, and Article 27 of the
Convention, as amended by Article XIII of this Protocol, shall
have effect from the date of entry into force of this
Protocol.

5. Notwithstanding the entry into force of this Protocol, an
individual who is entitled to the benefits of Article 20 of
the Convention at the time of the entry into force of this
Protocol shall continue to be entitled to such benefits until
such time as the individual would have ceased to be entitled
to such benefits if this Protocol had not entered into force.

6. This Protocol shall remain in effect as long as the
Convention remains in force.

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IN WITNESS WHEREOF the undersigned, being duly authorized
thereto by their respective Governments, have signed this
Protocol.

DONE in duplicate at Washington this 24th day of January,
2013, in the English and Japanese languages, each text being
equally authentic.

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA: JAPAN: