On 16 December 2024, the Government of Japan and the Government of Turkmenistan signed the “Convention between Japan and Turkmenistan for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance” in Ashgabat. The Japanese Ministry of Finance unveiled some details of this document.
The mentioned Convention wholly amends the existing Convention (Convention between the Government of Japan and the Government of the Union of Soviet Socialist Republics for the Avoidance of Double Taxation with respect to Taxes on Income), which entered into force in 1986, by revising the taxation on business profits and investment income, introducing measures for prevention of abuse of this Convention, arbitration proceedings in mutual agreement procedures and assistance in the collection of tax claims, and reinforcing the exchange of information concerning tax matters.
It is expected that, while eliminating double taxation and preventing international tax evasion and tax avoidance, this Convention promotes further mutual investments and economic exchanges between the two countries.
After the approval in accordance with the domestic procedures of the two countries, this Convention will enter into force on the thirtieth day after the date of exchange of diplomatic notes indicating such approval and will have effect:
- with respect to taxes levied on the basis of a taxable year, for taxes for any taxable years beginning on or after 1 January in the calendar year next following that in which this Convention enters into force;
- with respect to taxes levied not on the basis of a taxable year, for taxes levied on or after 1 January in the calendar year next following that in which this Convention enters into force.
The provisions concerning the exchange of information and the assistance in the collection of taxes will have effect from the date of entry into force of this Convention without regard to the date on which the taxes are levied or the taxable year to which the taxes relate.
Key Points of New Tax Convention with Turkmenistan
- Taxation on Business Profits
Where an enterprise of one of the two countries has in the other country a permanent establishment (such as a branch) through which the enterprise carries on business, only the profits attributable to the permanent establishment may be taxed in that other country. The profits attributable to a permanent establishment will be calculated by comprehensively recognising internal dealings between its head office and branches and by strictly applying the arm’s length principle.
- Taxation on Investment Income
Taxation on investment income (dividends, interest and royalties) in the source country will be subjected to the maximum rates or exempted as follows:
| Existing Convention | New Convention | |
| Dividends | 15% | Exempted
(holding for 6 months at least 25% of: 10% (others) |
| Interest |
Exempted (received by the Governments, etc.) 10% (others) |
Exempted (received by the Governments, financial institutions and recognised pension funds, etc.) 10% (others) |
| Royalties | Exempted (copyright)
10% (others) |
10% |
- Mutual Agreement Procedure and Arbitration Proceedings
Taxation not in accordance with the provisions of the Convention may be resolved by mutual agreement between the tax authorities of the two countries. In addition, where such taxation has not been resolved through the consultation between the tax authorities of the two countries within two years, the unresolved issue will be resolved pursuant to a decision of an arbitration panel composed of third parties.
- Exchange of Information and Assistance in Collection of Tax Claims
In order to effectively prevent international tax evasion and tax avoidance, the exchange of information concerning tax matters and the mutual assistance in the collection of tax claims between the two countries are introduced.
- Prevention of Abuse of the Convention
In order to prevent abuse of benefits under the Convention, residents who satisfy specified conditions, such as qualified persons, may exclusively be entitled to the exemption from tax on dividends paid by a subsidiary company to its parent company. In addition, any benefit under the Convention will not be granted if the income is attributable to a permanent establishment in a third country and the tax on the income in the third country is less than a certain amount of tax, or if it is reasonable to conclude that obtaining such a benefit was one of the principal purposes of any transaction.
The full text of the Convention is available here: https://www.mof.go.jp/tax_policy/summary/international/press_release/20241217Tm_EN.pdf ///nCa, 18 December 2024