Global Tax Alert | 11 December 2013

Japan and Sweden sign protocol amending tax treaty

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Executive summary

On 5 December 2013, Japan and Sweden signed a protocol (Protocol) amending the existing income tax treaty, signed and enacted in 1983. This is a second protocol and provides further reductions to withholding taxes for dividends, interest and royalties but also introduces anti-abuse provisions. The Protocol is expected to stimulate the economic activities between the two countries by bringing more tax efficient investment opportunities. This Alert highlights the key points of the Protocol.

Withholding taxes on investment income

The withholding taxes on investment income in the source country will be reduced as follows:




Shareholding requirement

at least 25%

at least 10%

less than 10%

Current treaty





Amended treaty





*The shareholder must be a company listed on a stock exchange in its resident country (Country) and more than 50% of whose issued shares must be owned by Governmental bodies of the Country, individuals who are residents of the Country, companies listed in the Country and/or companies more than 50% of issued shares are owned by resident individuals of the Country.

**Certain interest payments calculated based on debtor's revenue, income, movement of value of assets, etc., are still subject to 10% withholding tax.

Anti-treaty shopping provisions

LOB (Limitation on Benefits) clause

The 0% withholding tax on investment income will be available only by persons who satisfy the conditions specified in this clause.

Main purpose clause

No relief will be available if the main purpose of the creation or assignment of any right or property which generates income is to take advantage of the treaty benefits.

Expansion of Exchange of Information

The protocol expands the provision for Exchange of Information to be in line with the OECD standard.

Other provisions

The Protocol also includes the following provisions:

  • Introduction of mandatory binding arbitration procedures
  • Expansion of provisions regarding assistance in the collection of taxes

Each country must ratify the Protocol and notify to the other country of the completion of the ratification before the Protocol enters into force. This Protocol will enter into force on the thirtieth day after the date of receipt of the latter notification. This Protocol will have effect for withholding taxes for amounts paid or credited on or after the first day of January following the date on which it enters into force. With respect to other income taxes, the Protocol will apply to taxable years beginning on or after the first day of January following the date on which it enters into force.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Co., Tokyo
  • Emi Kono
    +81 3 3506 2182
  • Hiroyuki Nishida
    +81 3 3506 2026
Ernst & Young AB, Stockholm
  • Erik Hultman
    +46 8 520 594 68
  • Rikard Strom
    +46 8 520 592 08
Ernst & Young LLP, Japanese Tax Desk, New York
  • Kojiro Oka
    +1 212 773 0228
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris J. Finnerty
    +1 212 773 7479
  • Jeff Hongo
    +1 212 773 6143
  • Kaz Parsch
    +1 212 773 7201
  • Bee Khun Yap
    +1 212 773 1816
Ernst & Young LLP, Scandinavian Tax Desk, New York
  • Martin Norin
    +1 212 773 2982

EYG no. CM4033