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United States – Update on Protocols with Spain, Japan

United States – Update on Protocols with Spain, Japan

On August 30, 2019, the U.S. Treasury Department announced the entry into force dates of the tax treaty protocols with Spain and Japan. The Japan Protocol entered into force on August 30, 2019 upon the exchange of instruments of ratification in Tokyo. The Spain Protocol will enter into force on November 27, 2019. These Protocols make several modifications to the existing U.S. tax treaties with Japan and Spain that may affect international assignees and their employers.

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On August 30, 2019, the U.S. Treasury Department announced the entry into force dates of the tax treaty protocols with Spain and Japan.1  The Japan Protocol entered into force on August 30, 2019 upon the exchange of instruments of ratification in Tokyo.2  The Spain Protocol will enter into force on November 27, 2019 (the date three months after the mutual notifications that each country has completed its ratification process).3  The effective dates of specific provisions within each of the Protocols are provided below.  

WHY THIS MATTERS

These Protocols make several modifications to the existing U.S. tax treaties with Japan and Spain that may affect international assignees and their employers.

Now that the ratification process is complete and the entry into force dates are set, these modifications will all be effective by the start of the 2020 tax year.

Program managers will want to consult with their tax service providers to determine what impact these new protocols will have on assignment costs.

Japan

The Japan Protocol will have effect with respect to taxes withheld at source for amounts paid or credited on or after the first day of the third month following the date on which the Protocol enters into force.  Thus, the exemption from source-country taxation for interest payments will only apply to interest that is paid or credited on or after November 1, 2019. All other provisions of the Protocol will go into effect on January 1, 2020.

Spain

The provisions of the Spain Protocol with respect to taxes withheld at source (such as dividends, interest and royalties) will take effect for amounts paid or credited on or after November 27, 2019, the date on which the Spain Protocol enters into force.  All other provisions of the Protocol will go into effect on January 1, 2020.

FOOTNOTES

1  Read the Treasury Department release .

2  Read text of the Protocol and related documents.  See GMS Flash Alert 2019-122 (July 17, 2019) for details of the Protocol.

3  Read text of the Protocol and related documents.  See GMS Flash Alert 2019-119 (July 17, 2019) for details of the Protocol.

The above information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.

 

The information contained in this newsletter was submitted by the KPMG International member firm in United States.

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