KPMG thinks Australia-Japan tax agreement will increase yen for investment and trade

The Australia-Japan tax treaty signed by Australian Foreign Minister, Stephen Smith, in Japan yesterday is a long overdue overhaul that will be a boon for businesses on both sides, according to KPMG Australia Tax partner, Rick Asquini.

“As Japan is a major source of foreign investment in Australia, the improvements in this new agreement around withholding taxes on dividends, interest and royalties will be a very positive step towards maintaining and attracting further investment. We will see more Japanese yen flow into Australia.

“Until now we’ve been operating under an agreement established nearly 40 years ago, business has changed dramatically over this time and this new treaty reflects the strength of the trading relationship.

“I would strongly encourage all Australian companies operating in Japan and Japanese companies here to review how they are financing their operations and assess their dividend and royalty arrangements immediately in light of these changes,” he said.

Mr Asquini said the energy and natural resources sector may face a shake up in light of the short timeframe in which Japanese companies may engage in the exploration of natural resources tax-free.

KPMG’s Transfer Pricing Partner, Anthony Seve said that Japanese companies in Australia would be relieved by the newly established time limit on transfer pricing reviews.

“In the past, there was no time limit on these reviews and that meant there was a high degree of uncertainty and administrative burden for many companies. Now that uncertainty has been removed, it will help Japanese companies to better manage their transfer pricing risk in a more practical and efficient manner,” said Mr Seve.

In addition, through the interpretative notes of the treaty, a clear intention is stated as to the application of OECD principles and methods to resolve Australia/Japan transfer pricing cases.

“It is hoped that this affirmation of approach between Australia and Japan will assist in resolving some difficult transfer pricing cases that are currently under examination,” said Mr Seve.