On March 24, 2022, the Japanese Ministry of Finance issued a press release that on that same date the mutual notifications necessary for the entry into force of the “Convention between Japan and the Kingdom of Morocco for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance” (signed on January 8, 2020) (Herafter: the Convention) were completed between the Government of Japan and the Government of the Kingdom of Morocco.
Based on Article 31, Paragraph 1 (“ENTRY INTO FORCE”) of the Convention the aformentioned means that the Convention will enter into force on April 23, 2022.
Article 31, Paragraph 2 of the Convention subsequently arranges that This Convention shall have effect:
(a) in Japan:
(i) with respect to taxes levied on the basis of a taxable year, for taxes for any taxable years beginning on or after January 1, 2023; and
(ii) with respect to taxes levied not on the basis of a taxable year, for taxes levied on or after January 1, 2023; and
(b) in Morocco:
(i) with respect to taxes withheld at source, on amounts paid or credited, on or after January 1, 2023; and
(ii) with respect to other taxes, for any taxable year or period beginning on or after January 1, 2023.
Based on Paragraph 3 of Article 31 of the Convention the provision of the Articles 26 (“EXCHANGE OF INFORMATION”) and 27 (“ASSISTANCE IN THE COLLECTION OF TAXES”) of the Convention shall have effect from April 23, 2022 without regard to the date on which the taxes are levied or the taxable year to which the taxes relate.
Taxes covered
Based on Article 2, Paragraph 3 of the Convention (“TAXES COVERED”), The existing taxes to which this Convention shall apply are:
(a) in Japan:
(i) the income tax;
(ii) the corporation tax;
(iii) the special income tax for reconstruction;
(iv) the local corporation tax; and
(v) the local inhabitant taxes
(hereinafter referred to as “Japanese tax”); and
(b) in Morocco:
(i) the income tax; and
(ii) the corporation tax
(hereinafter referred to as “Moroccan tax”).
Article 2, Paragraph 4 subsequently arranges that the Convention shall apply also to any identical or
substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws.
Residency
Article 4, Paragraph 3 of the Convention (“RESIDENT”) arranges that where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of this Convention, having regard to its place of head or main office, its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by the Convention.
Permanent establishment
Article 5, Paragraph 3 of the Convention (“PERMANENT ESTABLISHMENT”) arranges The term “permanent establishment” also encompasses:
(a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months;
(b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than 183 days in any twelve month period commencing or ending in the taxable year concerned;
(c) the provision of services, facilities or plant and machinery on hire used for the exploration, exploitation or extraction of mineral oils in a Contracting State, but only if such activities continue within that Contracting State for a period or periods aggregating more than 90 days in any twelve month period commencing or ending in the taxable year concerned.
Article 5, Paragraph 5 of the Convention contains anti-abuse provisions that prevent that a taxpayer can avoid taxes by dividing the activities it undertakes within a jurisdiction over separate closely-related enterprises.
Immovable property
Article 6, Paragraph 1 of the Convention (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the Convention (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 of the Convention subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares of a company or comparable interests, such as interests in a partnership or trust, 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 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that other Contracting State.
Associated enterprises
Article 9, Paragraph 2 of the Convention (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
Article 10, Paragraph 2 of the Convention (“DIVIDENDS”) arranges that dividends paid by a company which is a resident of a Contracting State may also be taxed in that Contracting State according to the laws of that Contracting State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10 per cent of:
(i) in the case where the company paying the dividends is a resident of Japan, the voting power of that company;
(ii) in the case where the company paying the dividends is a resident of Morocco, the capital of that company;
(b) 10 per cent of the gross amount of the dividends in all other cases.
Interest
Article 11, Paragraph 2 of the Convention (“INTEREST”) maximizes the withholding tax a Source State is allowed to withhold over interest payments to 10 per cent of the gross amount of the interest if the beneficial owner of the interest is a resident of the other Contracting State.
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the Convention (“ROYALTIES”) maximizes the withholding tax a Source State is allowed to withhold over the royalties to:
(a) 5 per cent of the gross amount of the royalties for the use of, or the right to use, industrial, commercial or scientific equipment;
(b) 10 per cent of the gross amount of the royalties in all other cases..
Capital gains
Article 13, Paragraph 5 of the Convention (“CAPITAL GAINS”) arranges that Subject to the provisions of paragraphs 2 and 4, gains derived by a resident of a Contracting State from the alienation of shares of a company which is a resident of the other Contracting State may be taxed in that other Contracting State if the alienator held directly shares representing at least 50 per cent of the capital of that company, but the tax so charged shall not exceed 5 per cent of the amount of the gains. However, this paragraph does not apply to gains derived from changes of ownership that would directly result from a corporate reorganisation, such as a merger or divisive reorganisation, of that company or that alienator.
Silent Partnerships
Article 21 (“SILENT PARTNERSHIP”) of the Convention arranges that notwithstanding any other provisions of the Convention, any income derived by a silent partner who is a resident of a Contracting State in respect of a silent partnership (in the case of Japan, Tokumei Kumiai) contract or another similar contract may be taxed in the other Contracting State according to the laws of that other Contracting State, provided that such income arises in that other Contracting State and is deductible in computing the taxable income of the payer in that other Contracting State.
Entitlement to benefits
Article 29 of the Convention (“ENTITLEMENT TO BENEFITS”) contains a so-called Principal Purpose Test.
Other
Furthermore, the Convention contains a.o. provisions regarding non-discrimination (Article 24), a Mutual Agreement Procedure (Article 25), the Exchange of Information (Article 26) and the assistance in the collection of taxes (Article 27).
Click here to be forwarded to the text of the Convention as available on the website of the Ministry of Finance of Japan.
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