“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,” he said.
However, the energy and natural resources sector may face a shake-up in light of the short timeframe in which Japanese companies can engage in the exploration of natural resources tax-free. But the overall effect of the agreement will be that more Japanese yen flow into Australia, according to Asquini.
“Until now we’ve been operating under an agreement established nearly 40 years ago,” he said.
“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 in Australia to review how they are financing their operations and assess their dividend and royalty arrangements immediately in light of these changes.”
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,” he said.
“Now that uncertainty has been removed, Japanese companies can manage their transfer pricing risk in a more practical and efficient manner.”
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,” Seve said.