Since January 2019, a new double taxation treaty between Austria and Japan is applicable, replacing the former treaty dating back to 1961.
The new double taxation treaty between Austria and Japan ("DTT Japan") brings some notable changes, the most important of which are as follows:
- A new tie-breaker rule states that where a person other than an individual is a resident of both contracting states, the two competent authorities shall endeavour to determine by mutual agreement the contracting state of which such person shall be deemed to be a resident (having regard to its place of effective management, its place of head or main office, the place where it is incorporated or otherwise constituted and any other relevant factors). In the absence of an agreement, such person shall not be entitled to any relief or exemption from tax provided by the DTT Japan.
- Concerning withholding tax, the general rate on dividends has been decreased to 10% (from 20%). Further, dividends shall be fully exempt from withholding tax if the beneficial owner of the dividends is (i) a company which has owned directly or indirectly at least 10% of the voting rights of the company paying the dividends for at least six months before the date on which entitlement to the dividends is determined; or (ii) a pension fund. Also, the possibility to withhold tax on interest (with certain exceptions) and royalties was abolished.
- An important change has been introduced concerning the taxation of capital gains from the alienation of shares: Such capital gains shall be taxable only in the contracting state of which the alienator is a resident. As an exception, capital gains derived from the alienation of shares of a company or comparable interests may be taxed in the other contracting state if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived at least 50% of their value directly or indirectly from immovable property
- situated in that other contracting state, unless such shares or comparable interests are traded on a recognised stock exchange and the resident and persons related to that resident own in the aggregate 5% or less of the class of such shares or comparable interests.
- A so-called "entitlement to benefits" clause has been included in the DTT Japan, which provides that the reduced withholding tax rates only apply to certain qualified persons. Also, a benefit under the treaty shall not be granted if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.
- Regarding the elimination of double taxation, for residents of Austria generally the exemption method applies, while for residents of Japan the credit method is applicable.
- Finally, the DTT Japan introduces mandatory arbitration: If a person has presented a case to the competent authority of a contracting state 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 the treaty and if the competent authorities are unable to reach an agreement to resolve the case within two years, any unresolved issues shall upon request be submitted to arbitration.