Article 35 - Japan's perspective | International Taxation: OECD/G20 BEPS Action

Japan-India CTA
Japan-Iceland CTA
Japan-Sweden CTA
Japan-United Kingdom CTA

The following examines how the choices by Japan of the option in the entry-into-effect provision interact with that chosen by 4 of the other contracting jurisdictions of the MLI, such as India, Iceland, Sweden and the United Kingdom.

Table A: Entry into effect positions of the 5 selected contracting jurisdictions - [from Japan's perspective]

	Deposit of ratification instrument	Entry into force	Entry-into-effect provision		Alternative Rules		Reservations
	Deposit of ratification instrument	Entry into force	Article 35(1)(a)	Article 35(1)(b)	Article 35(2)	Article 35(3)	Article 35(6)	Article 35(7)(a)
India	6/25/2019	10/1/2019		X	X
Iceland	9/26/2019	1/1/2020	X			X	X
Japan	9/26/2018	1/1/2019	X	X
Sweden	6/22/2018	10/1/2018	X			X		X
The U.K.	6/29/2018	10/1/2018	X	X

The "X's" in the table stands for the option that a contracting jurisdiction has chosen with respect to the entry into effect provision of the MLI.

As shown in Table A, with respect to the entry-into-effect dates, the selected contracting jurisdictions have taken different alternative provisions and opt-out provisions (reservations) in the application of the entry-into-effect article to its covered tax agreements (CTAs),

Japan has adopted the following articles: article 35(1)(a) with respect to withholding taxes, article 35(1)(b) with respect to other taxes, and article 35(4), which fast-tracks the entry-into-effect date for cases of mutual agreement procedure under article 16(1).
India has chosen the alternative provision under article 35(2) solely for its own application with respect to withholding taxes, adopted article 35(1)(b) for other taxes. It also adopted article 35(4) regarding MAP cases under article 16(1).
Iceland has chosen to adopt article 35(1)(a) for withholding taxes, the alternative provision under article 35(3) solely for its own application with respect to other taxes. It has reserved its rights for article 35(4) not to apply to all its CTAs pursuant to article 35(6).
Sweden has chosen to adopt article 35(1)(a) for withholding taxes, the alternative provision under article 35(3) sole for its own application with respect to other taxes, and article 35(4) for MAP cases under article 16(1). It has also reserved its right under article 35(7)(a) providing that it shall replace the entry-into-effect date of article 35(1), and article 35(4) with the texts described in article 35(7)(a)(i) and (ii) for its CTAs.
The United Kingdom has adopted the same articles 35(1)(a), 35(1)(b), and article 35(4) as that Japan has adopted.

1.1. Entry into Effect – the India-Japan CTA

Table B1(a) - The India-Japan CTA illustrates the asymmetrical application of Article 35(1)(a) and Article 35(2) with respect to withholding taxes and the symmetrical application of Article 35(1)(b) for other taxes.

		India	Japan
(1)	Date of deposit of instrument of ratification	25 Jun 2019	26 Sept 2018
(2)	TA entry-into-force date	1st Oct 2019	1st Jan 2019
(3)	TA Entry into effect (unilateral)	1st Apr 2020	1st Jul 2019
(4)	CTA Entry into effect (bilateral) - WHT	Article 35(1)(a), 35(2)	Article 35(1)(a)
(5)	CTA Entry into effect (bilateral) – all other tax (non-WHT)	Article 35(1)(b)	Article 35(1)(b)

A CTA stands for a covered tax agreement, as defined under article 2(1)(a) of the MLI.

India has chosen to adopt Article 35(2) while Japan does not. Article 35(2) is an alternative provision for Articles 35(1)(a) and (5)(a) respectively, and Article 35(3) is an alternative provision for Articles 35(1)(b) and (5)(b). Both Articles 35(2) and (3) read as follows:

1.2. The legal texts of Article 35(1)(a), as modified by Article 35(2) and Article 35(1)(b)

1. The Convention (the MLI) shall take effect in each contracting jurisdiction with respect to the covered tax agreement:

(a) with respect to taxes withheld at source on amounts paid or credited to non-residents (withholding tax), where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the covered tax agreement (the CTA); and

(b) with respect to all other taxes levied by that contracting jurisdiction, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of 6 calendar months from the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the CTA.

2. Solely for the purpose of its own application of subparagraph a) of paragraph 1 and subparagraph a) of paragraph 5, a Party may choose to substitute "taxable period" for "calendar year", and shall notify the Depositary accordingly.

3. Solely for the purpose of its own application of subparagraph b) of paragraph 1 and subparagraph b) of paragraph 5, a Party may choose to replace the reference to "taxable periods beginning on or after the expiration of a period" with a reference to "taxable periods beginning on or after 1 January of the next year beginning on or after the expiration of a period", and shall notify the Depositary accordingly.

1.3.1. Synthesized text for withholding taxes

(a) For the application of article 35(1)(a) in Japan

This provision shall have effect in Japan with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1^st January 2020.

[Note: For the application by Japan of article 35(1)(a) to the India-Japan CTA, "the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the CTA" is 1^st Oct 2019 [Text-A]. Therefore, the first day of the next calendar year beginning on or after Text-A in the preceding sentence is 1^st Jan 2020.]

(b) For the application of article 35(1)(a), modified by article 35(2), in India

This provision shall have effect in India with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next taxable period that begins on or after October 1, 2019.

[Note: The taxable period for India runs from 1 April to 31 March in the following year. The first day of the next taxable period beginning on or after Text-A is 1 Oct 2019.]

The Explanatory Statement of the MLI explains that paragraph 2 of article 35 provides that a Party may choose to substitute "taxable period" for "calendar year" for the purposes of its own application of Article 35(1)(a) and article (5)(a), and must notify the Depositary accordingly if they do so. This will permit Contracting Jurisdictions to choose to link the entry into effect of provisions related to withholding taxes to the taxable period, to address situations in which the taxable period does not follow the calendar year. That applies to India.

As noted above, the use of the word "solely" at the beginning of paragraph 2 is intended to make clear that this choice would apply asymmetrically and would apply only with respect to the application of paragraphs 1(a) and 5(a) of article 35 by the Contracting Jurisdiction that opted for it.

1.3.2. Synthesized text for other taxes

(a) For the application of article 35(1)(b) in India

The provision shall have effect in India with respect to the CTA, with respect to other taxes levied by that contracting jurisdiction, for taxes levied with respect to the taxable periods beginning on or after 1^st April 2020.

(b) For the application of article 35(1)(b) in Japan

The provision shall have effect in Japan with respect to the CTA, with respect to other taxes levied by that contracting jurisdiction for taxes levied with respect to the taxable periods beginning on or after 1 April 2020.

Note: For article 35(1)(b), the phrase "the latest of the dates the MLI comes into force for each of the contracting jurisdiction to the CTA" [Text-A, see the later of the entry-into-force in row (2) of Table B1 above.] refers to 1 Oct 2019. The taxable periods beginning on or after the expiration of a period of six calendar months (from 2019-10-1 to 2020-03-31) from Text-A are the periods beginning on and after 1^st April 2020.

1.4. Article 35(4) - Early access to mutual agreement procedure

In line with the policy objective of providing early access to MAP for the taxpayer, article 35(4) modifies the entry-into-effect provision of the India-Japan CTA with respect to MAP cases which comes under article 16(1) - Mutual Agreement Procedure. The synthesized texts are set out below:

Notwithstanding the provisions of articles 35(1), 35(2), and 35(3), article 16 (Mutual Agreement Procedure) of the MLI shall have effect with respect to the Convention for a case presented to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 24 - Discrimination, to that of the Contracting State of which he is a national on or after ~~the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the covered tax agreement~~ (See row 2, Table B1) 1st Oct 2019, except for cases that were not eligible to be presented as of that date under the Convention prior to its modification by the MLI, without regard to the taxable period to which the case relates.

As the information in Table 1 shows, the entry into effect date under article 35(4) shall also apply to the corresponding provision in the India-United Kingdom CTA. However, the application of article 35(4) to the Japan-Sweden CTA will be subject to modification as Sweden has reserved its right for the entry into effect provision under article 35(4) to be replaced by that given under article 35(7)(a). The entry-into-effect provision under article 35(4) shall also not apply to the Iceland-Japan CTA because Iceland has reserved its right not to apply article 35(4), pursuant to article 35(6).

1.5. Article 35(5) - Extension of the list of covered tax agreements after a party has deposited the ratification of instrument

(a) Main provision

Article 35(5) provides that for a new CTA resulting from an extension pursuant to Article 29(5) of the list of agreements notified under clause ii) of subparagraph a) of paragraph 1 of Article 2 (Interpretation of Terms), the provisions of this Convention shall have effect in each Contracting Jurisdiction:

a) with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after 30 days after the date of the communication by the Depositary of the notification of the extension of the list of agreements; and

b) with respect to all other taxes levied by that Contracting Jurisdiction, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of nine calendar months (or a shorter period, if all Contracting Jurisdictions notify the Depositary that they intend to apply such shorter period) from the date of the communication by the Depositary of the notification of the extension of the list of agreements.

(b) Alternative provisions providing for the asymmetric application of Article 35(1) and Article 35(5)

Article 35(2) provides that "[s]olely for the purpose of its own application of subparagraph a) of paragraph 1 and subparagraph a) of paragraph 5, a Party may choose to substitute "taxable period" for "calendar year", and shall notify the Depositary accordingly.

Article 35(3) provides that "[s]olely for the purpose of its own application of subparagraph b) of paragraph 1 and subparagraph b) of paragraph 5, a Party may choose to replace the reference to "taxable periods beginning on or after the expiration of a period" with a reference to "taxable periods beginning on or after 1 January of the next year beginning on or after the expiration of a period", and shall notify the Depositary accordingly."

Table B1(b) - Relations between the entry-into-effect provisions and the alternative provisions of articles 35(2) and (3), and between the entry-into-effect provisions and the opt-out provisions (reservations) under article 35(7)(a)

	List of CTAs upon deposit of the Instrument of Ratification		New CTA added after the deposit of Instrument of Ratification
	Article 35(1)(a) Withholding taxes	Article 35(1)(b) Other taxes	Article 35(5)(a) Withholding taxes	Article 35(5)(b) Other taxes
Can Article 35(2) modify it?	Yes, if chosen		Yes, if chosen
Can Article 35(3) modify it?		Yes, if chosen		Yes, if chosen
Reservation made under article 35(7)(a)?	If chosen, both Article 35(1) and 35(4) will be subject to modification under article 35(7)(a)(i)		If chosen, article 35(5) will be subject to modification under article 35(7(a)(ii)

As a separate but related matter, Japan has added the Qatar-Japan CTA to its list of CTAs in accordance with Article 29(5). Japan notified the Depositary of the new CTA resulting from the extension of the list of agreements on 14th Feb 2020. Qatar has not chosen to adopt any of the alternative provisions under 35(2) or 35(3).

Solely for its application, India adopts article 35(2) that modifies the application of article 35(5)(a) with respect to withholding taxes. India has not added any new CTA to the list of agreements in accordance with article 29(5) after it deposited the instrument of ratification.

1.6. Articles 35(7)(a)(i) and (a)(ii) – Reservation on Entry-into-Effect provision

Both India and Japan do not make the reservation under article 35(7)(a)(i) that modifies the application of articles 35(1) and 35(4), and under article 35(7)(a)(ii) that modifies 35(5).

However, it does not follow that the unmodified version of article 35(5) shall apply to the CTAs of which India or Japan is a party. It all depends on whether the other party of a new CTA has chosen to reserve its rights under article 35(7)(a) to modify the application of entry-into-effect provision of article 35(5). To be continued at paragraph 3.1 below is how the application of the entry-into-effect provision under article 35(5) is modified by the reservation that Sweden has made under article 35(7)(a).

2.1. Entry into Effect – the Iceland-Japan double Tax Agreement (subject to notification)

2.1.1. The Iceland-Japan CTA illustrates the symmetrical choice of Article 35(1)(a) with respect to withholding taxes and the asymmetrical choice of Article 35(1)(b) and Article 35(3) with respect to other taxes. The respective entry-into-effect dates for Iceland and Japan are set out in the table below:

Table B2 - Entry into effect dates

		Iceland	Japan
(1)	Date of deposit of instrument of ratification	26 Sept 2019	26 Sept 2018
(2)	TA entry-into-force date	1st Jan 2020	1st Jan 2019
(3)	TA Entry into effect (unilateral)	1st Jul 2020	1st Jul 2019
(4)	CTA Entry into effect (bilateral) - WHT	Article 35(1)(a)	Article 35(1)(a)
(5)	CTA Entry into effect (bilateral) – all other tax (non-WHT)	Article 35(1)(b), and 35(3)	Article 35(1)(b)

2.1.2. Coming into effect and legal relevance

The MLI has come into force since 1st Jan 2019 for Japan and 1st Jan 2020 for Iceland respectively. A double tax agreement already existed between Iceland and Japan before they became parties to the MLI. But neither contracting jurisdiction has included in its notification to the Depositary listing the Iceland-Japan tax agreement as one that it wishes to be covered by the MLI. So the Iceland-Japan double tax agreement has not become a covered tax agreement (CTA), as defined under article 2(1)(a) of the MLI. Consequently, the Iceland-Japan DTA has no legal relevance with respect to the MLI until both parties have given a matching notification to the Depositary in accordance with article 29(5).

One possible reason may be that both parties are re-negotiating the existing tax agreements with a view to bringing it more in line with the provisions of the MLI than now.

2.2. Covered tax agreement, defined in Article 2(1)(a)

2.2.1. Texts of Article 2(1) of the MLI

"1. For the purpose of this Convention, the following definitions apply:

a) The term “Covered Tax Agreement” means an agreement for the avoidance of double taxation with respect to taxes on income (whether or not other taxes are also covered):

i) that is in force between two or more:

A) Parties; and/or

B) jurisdictions or territories which are parties to an agreement described above and for whose international relations a Party is responsible; and

ii) with respect to which each such Party has made a notification to the Depositary listing the agreement as well as any amending or accompanying instruments thereto (identified by title, names of the parties, date of signature, and, if applicable at the time of the notification, date of entry into force) as an agreement which it wishes to be covered by this Convention."

b) The term “Party” means:

i) A State for which this Convention is in force pursuant to Article 34 (Entry into Force); or

ii) A jurisdiction which has signed this Convention pursuant to subparagraph b) or c) of paragraph 1 of Article 27 (Signature and Ratification, Acceptance or Approval) and for which this Convention is in force pursuant to Article 34 (Entry into Force).

Both sub-paragraph a) and b) set out three conditions for a tax treaty to become a covered tax agreement (a CTA). The first condition is that there shall be a double tax agreement between two or more States/jurisdictions. As noted, there is a DTA in force between Iceland and Japan so the first condition is met. The second condition is that the two States shall become the parties to the MLI. It is observed that both states have signed the MLI and deposited the instrument of ratification to the Depositary. Therefore the two states become a Party to the MLI in accordance with article 34(2). Consequently, the second condition is met. The third condition is that each party has made a matched notification to the Depositary listing the Iceland-Japan double tax agreement as an agreement that it wishes to be covered by the MLI. As of 1st July 2020, neither Iceland nor Japan has included the DTA into the list as required under Article 2(1)(a). Therefore, the Iceland-Japan DTA is not a CTA, to which the provisions of the MLI shall not apply.

2.2.2. Japan-Qatar CTA as a reference

Japan was the first contracting jurisdiction that adopts article 29(5) to include a new CTA to the list of CTAs as defined in article 2(1)(a) of the MLI. Japan gave notification to the Depositary to cover the Japan-Qatar DTA on 14th Feb 2020. As noted, Japan deposited the Instrument of Ratification on 2018.9.26, but Qatar was not on the list of CTAs in the notification that accompanied the ratification instrument, as defined in Article 2(1)(a). In contrast, Qatar included Japan on the list of CTAs on the day it deposited its Instrument of Ratification on 23rd Dec 2019. Because the notification was not matched between Japan and Qatar, the Qatar-Japan tax agreement was not a CTA. The Japan-Qatar tax agreement was "covered" on 14 February 2020 when Japan gave notification to the Depositary that it had added the Japan-Qatar tax agreement to the list of the CTAs.

2.2.3. Article 35(5) - Entry into effect date for a new CTA resulting from extension of CTA list

Article 35(5) provides that

"For a new Covered Tax Agreement resulting from an extension pursuant to paragraph 5 of Article 29 (Notifications) of the list of agreements notified under clause ii) of subparagraph a) of paragraph 1 of Article 2 (Interpretation of Terms), the provisions of this Convention shall have effect in each Contracting Jurisdiction:

b) with respect to all other taxes levied by that Contracting Jurisdiction, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of nine calendar months (or a shorter period, if all Contracting Jurisdictions notify the Depositary that they intend to apply such shorter period) from the date of the communication by the Depositary of the notification of the extension of the list of agreements."

As mentioned above under paragraph 2.1., neither Iceland nor Japan has included the other party in the list of CTAs as defined under article 2(1)(a).

2.2.4. Summary

Case I: the Japan-India DTT (DTA) has satisfied both the notification and entry-into-force conditions.

On the date of ratifying the MLI, both parties respectively notified the Depositary of the inclusion of Japan-India DTT to the CTA list?	If not, the DTT is NOT a CTA

	Yes, it did. Then the second question is whether the MLI is in force bilaterally?	If not, DTT is not a CTA
		Yes. Therefore, Japan-India DTT is a CTA

Case II: the Japan-Iceland DTT (DTA) has only satisfied the entry-into-force condition.

Both parties notify the Depositary of the addition of Japan-Iceland DTT to the CTA list?	Not yet. So the Japan-Iceland DTT is NOT a CTA even if the MLI is in force for each party.

	The MLI is in force for each party.

Case III: the Japan-Qatar DTT (DTA) has satisfied both the entry-into-force condition and the notification.

The MLI is in force bilaterally?	If not, the DTT is NOT a CTA

	Yes. Then the second question is whether both parties have included the Japan-Qatar DTT in the notification to the Depositary? #	If not, DTT is not a CTA.
		Yes, Japan-Qatar DTT is a CTA

# Japan notified the Depositary of the new Japan-Qatar CTA under article 29(5).

2.3. Bilateral CTA and Multilateral CTA

The term “CTA” not only includes a bilateral agreement but also includes a multilateral one. The use of the language in a multilateral relationship will differ from that in a bilateral relationship, as shown in Tables B2A and B2B below:

Table B2A: comparing the relationship in a multilateral CTA and a bilateral CTA

	Original texts per article 35(1)(b) in a multilateral CTA	Synthesized text of article 35(1)(b) in Japan-UK CTA
i)	The provision shall have effect in each contracting jurisdiction with respect to the Convention (the CTA), with respect to other taxes levied by that contracting jurisdiction, for taxes levied with respect to the taxable periods beginning on or after ….	The provision shall have effect in ~~each contracting jurisdiction~~ [Japan] with respect to the Convention (the CTA), with respect to other taxes levied by that contracting jurisdiction, for taxes levied with respect to the taxable periods beginning on or after July 1, 2019.

Table B2B: comparing the notification received

	Original texts per article 35(7)(a)(i)	Synthesized text in Sweden-UK CTA
i)	after the date of receipt by the Depositary of the latest notification by each contracting jurisdiction making the reservation ...	after the date of receipt by the Depositary of the notification by Sweden ...
ii)	... with respect to that specific CTA.	... with respect to the Sweden-U.K. CTA.

The following are two more examples of the different languages used in the bilateral and multilateral contexts:

Paragraph 1(b) of Article 28 (Reservation) reads: -

b) with respect to a Covered Tax Agreement for which one or more Contracting Jurisdictions becomes a Party to this Convention after the date of receipt by the Depositary of the notification of withdrawal or replacement: on the latest of the dates on which the Convention enters into force for those Contracting Jurisdictions. [emphasis added]

Article 35(7)(c) also provides that: -

c) If one or more Contracting Jurisdictions to a Covered Tax Agreement makes a reservation under this paragraph, the date of entry into effect of the provisions of the Convention, of the withdrawal or replacement of a reservation, of an additional notification with respect to that Covered Tax Agreement, or of Part VI (Arbitration) shall be governed by this paragraph for all Contracting Jurisdictions to the Covered Tax Agreement. [emphasis added]

2.4. Extension of the application of article 35 to a multilateral CTA

Article 35(5) shall also apply to a multilateral tax agreement such as the Nordic Tax Convention (the NTC) that consists of 6 members including Demark, the Faroe Islands, Finland, Iceland, Norway, and Sweden. The application of the entry-into-effect articles to the NTC would depend on whether all the NTC member states have deposited the instrument of ratification to the Depositary and given the notifications required under article 29. It also depends on whether a reservation has been made under articles 35(7)(a)(ii). If such a reservation is made, article 35(5), as modified by reservation under article 35(7)(a)(ii) should apply to the NTC in full without any modification as follows: -

With respect to article 35(5), as modified by article 35(7)(a)(ii), the text “the date of the communication by the Depositary of the notification of the extension of the list of agreements” shall be replaced by “the date of receipt by the Depositary of the latest notification by each contracting jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect) that it has completed its internal procedure for the entry into effect of the provisions of this Convention with respect to that specific Covered Tax Agreement”.

2.5. Contracting jurisdiction having no status of an independent state

It is also noted that, as of the date of writing this article, the Faroe Islands is a member of the NTC but is not a party to the MLI because it does not have the status of an independent state as required under paragraph (1)(a) of article 27 (Signature and Ratification, Acceptance or Approval). In accordance with Article 29 (Notification), all the contracting jurisdictions to a CTA including the NTC shall give matching notifications in order for any article of the MLI to take legal effect. If the Faroe Islands is to become a party, Denmark needs to sign the MLI on its behalf, in the same way as China signed the MLI for Hong Kong in accordance with article 29(4).

It is noted that Hong Kong has provisionally made a reservation under article 35(7)(a) but China has not made such a reservation provisionally. Article 28(4) provides that:

“Reservations applicable to Covered Tax Agreement entered into by or on behalf of a jurisdiction or territory for whose international relations a party is responsible… shall be made by the responsible party and can be different from the reservations made by that Party for its own Covered Tax Agreements.”

3.1. The Japan-Sweden CTA

3.1.1. Article 35(1) is the entry-into-effect provision of the MLI, but some of the contracting jurisdictions reserve the right to replace the entry-into-effect date under article 35(1) with the date that is contingent upon the event described under article 35(7)(a), the modified version of article 35(1). It is useful to examine how the choice of Japan that adopts the unmodified version of article 35(1) interacts with the choice of Sweden that adopts the modified version of article 35(1).

3.1.2. The contracting jurisdictions that choose to adopt the reservations provided under Article 35(7)(a)(i) as at 29th Sept 2020 include:

[Definitive] Cyprus, Russia, Sweden, Switzerland;
[Provisional] Andorra, Estonia, Germany, Hong Kong, Italy, Kenya, Romania, Spain

3.1.3. Sweden has also opted for the alternative provision under article 35(3) that modifies the main provision under article 35(1)(b) with respect to other taxes, in addition to the reservation it has made under article 35(7)(a) that modifies both article 35(1), 35(4), and 35(5). Article 35(7)(a) provides that:

“A Party may reserve the right to replace:

the references in paragraphs 1 and 4 [of article 35] to "the latest of the dates on which this Convention enters into force for each of the Contracting Jurisdictions to the Covered Tax Agreement"; and
the references in paragraph 5 [of article 35] to "the date of the communication by the Depositary of the notification of the extension of the list of agreements";

with references to "30 days after the date of receipt by the Depositary of the latest notification by each Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect) that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to that specific Covered Tax Agreement".

Table B3 illustrates how article 35(1), as modified by article 35(3) and 35(7) is applied to the Japan-Sweden CTA.

		Sweden	Japan
(1)	Date of deposit of the instrument of ratification	22 Jun 2018	26 Sept 2018
(2)	TA Entry-into-force date	01 Oct 2018	01 Jan 2019
(3)	TA Entry into effect (unilateral)	01 Apr 2019	01 July 2019
(4)	CTA Entry into effect (bilateral) for WHT	Articles 35(1)(a), 35(7)(a)(i)	Articles 35(1)(a)
(5)	CTA Entry into effect (bilateral) for all other tax	Articles 35(1)(b), 35(3), 35(7)(a)(i)	Articles 35(1)(b)

3.2.1. Modified texts for withholding taxes

The Japan-Sweden tax treaty became a covered tax agreement (CTA) on the first day of Jan 2019. As noted, Japan has adopted Article 35(1)(a). It follows that the entry-into-effect date should fall on 1^st January 2019 where the event giving rise to such taxes occurs on or after 1st day of the next calendar year beginning on or after the entry-into-force date of 1^st January 2019.

In contrast, Sweden has reserved its right to replace the date provided under article 35(1)(a) [referred to as "text-A" thereafter] with the date described under article 35(7)(a)(i) [referred to as "text-B" thereafter]. In accordance with paragraph 3 of article 28 - Reservation, Japan shall follow Sweden’s choice to apply article 35(7)(a)(i) to the Japan-Sweden CTA.

3.2.2. Modified texts for other taxes

Article 35(1)(b) shall be subject to the reservation made by Sweden under article 35(7)(a), which replaces the entry-into-effect date under article 35(1)(b) with the date described in article 35(7)(a)(i), and that reservation provision shall apply symmetrically to both the contracting jurisdictions.

In addition, article 35(1)(b) shall be subject to the option chosen by Sweden under article 35(3), which shall apply to Sweden solely.

3.2.3. The other taxes provision that a party may unilaterally modify

Article 35(3) reads:

Solely for the purpose of its own application of subparagraph b) of paragraph 1 [Article 35] and subparagraph b) of paragraph 5 [Article 35], a Party may choose to replace the reference to “taxable periods beginning on or after the expiration of a period” with a reference to “taxable periods beginning on or after 1 January of the next year beginning on or after the expiration of a period”, and shall notify the Depositary accordingly.

3.3. Synthesized text - the reservation under article 35(7)(a) that modifies Articles 35(1), 35(4), and Article 35(5)

The synthesized text of the entry-into-effect article 35(1), as modified by article 35(3) and Article 35(7)(a)(i), and the Japan-Sweden CTA shall read as follows, with strikethrough texts, bold texts, and emphasis added: -

"The provisions of this Convention (article 35) shall have effect in each Contracting Jurisdiction with respect to the Covered Tax Agreement:

1. [Article 35(1)(a) as modified by article 35(7)(a)(i) for both Japan and Sweden]

with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after ~~the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA~~ [text-A] 30 days after the date of receipt by the Depositary of the notification by Sweden that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the Japan-Sweden Covered Tax Agreement [text-B];"

2.1. [Article 35(1)(b) as modified by articles 35(3) and 35(7)(a)(i) for Sweden]

“with respect to all other taxes levied by Sweden, for taxes levied with respect to taxable periods beginning on or after 1 January of the next calendar year beginning on or after the expiration of a period of six calendar months from ~~the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA~~ [text-A] 30 days after the date of receipt by the Depositary of the notification by Sweden that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the Japan-Sweden Covered Tax Agreement.” [text-B]

2.2. [Article 35(1)(b), as modified by Article 35(7)(a)(i) for Japan]

“with respect to all other taxes levied by Japan, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of six calendar months from ~~the latest dates on which the MLI enters into force for each of the contracting jurisdictions to the CTA~~ [text-A] 30 days after the date of receipt by the Depositary of the notification by Sweden that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the Japan-Sweden Covered Tax Agreement.” [text-B]

The reference to the entry into effect changes from the entry-into-force date as provided under article 35(1)(b) to a date that is contingent upon the additional notification by the reserving contracting jurisdiction (i.e. Sweden) as provided under article 35(1)(b) that is modified under article 35(7)(a)(i).

In line with the policy objective of providing early access to the mutual agreement procedure for the taxpayer, Article 35(4) modifies the entry-into-effect provision of the Sweden-Japan CTA with respect to MAP cases which come under article 16(1). The synthesized texts are set out below:

3. [Article 35(4), as modified by Article 35(7)(a)(i) for both Japan and Sweden]

Notwithstanding articles 35(1), (2) and (3), Article 16 (Mutual Agreement Procedure) of the MLI shall have effect with respect to the Convention for a case presented to the competent authority of either Contracting State on or after 30 days after the date of receipt by the Depositary of the notification by Sweden that it has completed its internal procedures for the entry into effect of the provisions of the MLI with respect to the Convention, except for cases that were not eligible to be presented as of that date under the Convention prior to its modification by the MLI, without regard to the taxable period to which the case relates.

3.4. Additional notification

Specifically, article 35(7)(b) provides that a contracting jurisdiction is obligated to give simultaneous notification to the Depositary and the other party to a CTA for a reservation made under articles 35(7)(a)(i) that modifies article 35(1), article 35(4), and 35(7)(a)(ii) that modifies article 35(5) respectively. The OECD Depositary has provided a separate column for the publication of the notification specified in accordance with article 35(7)(b), which reads: “A Party (contracting jurisdiction) making a reservation in accordance with 35(7)(a) shall notify the confirmation of the completion of its internal procedures simultaneously to the Depositary and the other contracting jurisdiction(s)”.

As of 29 Sept 2020, Sweden had not given the notification to the Depositary in accordance with article 35(7)(b). [Read]

3.5. Article 35(5) - New CTA resulting from extension of CTA list

Sweden has adopted article 35(3) that modifies the application of article 35(1)(b) and 35(5)(b). Sweden has also made the reservation under article 35(7)(a), which replaces the entry-into-effect date under articles 35(5)(a) and 35(5)(b) with the date as described in article 35(7)(a)(ii).

The synthesized text of Article 35(5) of the MLI, as modified by article 35(3) that applies to Sweden alone and by article 35(7)(a)(i) and (ii) that apply to both parties, and the CTA provision will be as follows: -

The provisions of this Convention shall have effect in each Contracting Jurisdiction:

a) with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of the next calendar year that begins on or after 30 days after ~~the date of the communication by the Depositary of the~~ ~~notification of the extension of the list of agreements~~ 30 days after the date of receipt by the Depositary of the ~~latest~~ notification by Sweden ~~each Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect)~~ that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to ~~that specific~~ the Covered Tax Agreement between Sweden and [contracting jurisdiction to be inserted]; and

b) with respect to all other taxes levied by that Contracting Jurisdiction, for taxes levied with respect to ~~taxable periods beginning on or after the expiration of a period~~ taxable periods beginning on or after 1 January of the next year beginning on or after the expiration of a period of nine calendar months (or a shorter period, if all Contracting Jurisdictions notify the Depositary that they intend to apply such shorter period) from ~~the date of the communication by the Depositary of~~ ~~the notification of the extension of the list of agreements.~~ 30 days after the date of receipt by the Depositary of the ~~latest~~ notification by Sweden ~~each Contracting Jurisdiction making the reservation described in paragraph 7 of Article 35 (Entry into Effect)~~ that it has completed its internal procedures for the entry into effect of the provisions of this Convention with respect to ~~that specific~~ the Sweden-[to be inserted] Covered Tax Agreement.

The following is a summary of the logical relations between Articles 35(1) and articles 35(2), 35(3), 35(7)(a), as well as the relation between Articles 35(5) and articles 35(2), 35(3), and 35(7)(a), as applied to the Sweden-Japan CTA. See the table below:

	List of CTAs upon ratification under Article 29(1)		New CTA added after ratification under Article 29(5)
	Article 35(1)(a) for withholding taxes	Article 35(1)(b) for other taxes	Article 35(5)(a) for withholding taxes	Article 35(5)(b) for other taxes
Can Article 35(2) modify it?	No, not chosen		No, not chosen
Can Article 35(3) modify it?		Yes, chosen		Yes, chosen
Reservation has made under Article 35(7)(a)?	Yes. Both Articles 35(1) [and 35(4)] will be subject to modification by Article 35(7)(a)(i).		Yes. Article 35(5) will be subject to modification by Article 35(7)(a)(ii).

3.6. Article 35(6) - Reservation for Article 35(4)

Article 35(4) provides that the entry-into-effect provision can apply early to MAP cases a taxpayer requests under article 16(1). Neither party to the Japan-Sweden CTA has reserved its right not to apply Article 35(4) in accordance with Article 35(6).

4.1. Entry into effect - under the Japan-United Kingdom CTA

Table B4 - Illustrated examples of the symmetrical application of both Article 35(1)(a) and Article 35(1)(b) with respect to withholding tax and other taxes respectively

		United Kingdom	Japan
(1)	Date of deposit of instrument of ratification	29 June 2018	26 Sept 2018
(2)	TA entry-into-force date	1 Oct 2018	1 Jan 2019
(3)	TA Entry into effect (unilateral)	1 Apr 2019	1 July 2019
(4)	CTA Entry into effect (bilateral) – withholding taxes	Article 35(1)(a)	Article 35(1)(a)
(5)	CTA Entry into effect (bilateral) – all other taxes	Article 35(1)(b)	Article 35(1)(b)

4.2. Legal Texts of Articles 35(1)

Article 35(1) is the entry-into-effect date provision. It reads as follows:

35(1) The Convention (the MLI) shall take effect in each contracting jurisdiction with respect to the covered tax agreement:

(b) with respect to all other taxes levied by that contracting jurisdiction, for taxes levied with respect to taxable periods beginning on or after the expiration of a period of six calendar months (or a shorter period, if all contracting jurisdictions notify the Depositary that they intend to apply such shorter period) from the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the CTA.

4.3.1. Article 35(1)(a) - Withholding taxes

For article 35(1)(a), "the first day of the next calendar year that begins on or after the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the covered tax agreement (the CTA)" is the first day of January 2019. The synthesized texts for the application in Japan and the United Kingdom of article 35(a) to the Japan-United Kingdom CTA are produced below:

For the application in both Japan and the United Kingdom

The provision shall have effect in Japan (the United Kingdom) with respect to the CTA, with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after the first day of January 2019.

4.3.2. Article 35(1)(b) - Other taxes

For article 35(1)(b), "a period of six calendar months from the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the CTA" runs from 1 Jan 2019 to 30 Jun 2019. (Referred to as "Text-A") The taxable periods beginning on or after the expiration of Text-A are the periods on and after 1st July 2019. The synthesized texts for other taxes for application in Japan and the United Kingdom are produced below (shorter period not adopted): -

(i) For the application in Japan with respect to other taxes

The provision shall have effect in Japan with respect to the CTA (the Convention), with respect to other taxes levied by that contracting jurisdiction, for taxes levied with respect to the taxable periods beginning on or after July 1, 2019.

(ii) For application in the United Kingdom with respect to other taxes

The provision shall have effect with respect to the CTA (the Convention)~~, with respect to other taxes levied by that contracting jurisdiction~~, in the United Kingdom, from 1 April 2020 for corporation tax and from 6 April 2020 for income tax and capital gains tax.

It is noted that the phrase "with respect to other taxes levied by that contracting jurisdiction" is not in a bilateral CTA. This will be used in the contexts of a multilateral CTA, such as the Nordic Tax Convention that consists of 6 members.

4.4. Taxable periods

The term "taxable period" is not defined in the MLI, nor is it defined in the CTA. Instead, it is defined in the domestic rules of the contracting jurisdiction.

The Japanese tax year runs from 1st Jan to 31st Dec for individuals. The taxable period for a corporation is the business year that would not be the same for different corporations. For example, the taxable period for Toyota Motor Corporation is a 12-month period ended on 31st March that is the same as its accounting period, but that for Japan Tobacco Inc. is a 12-month period ended on 31st December.

In the United Kingdom, the taxable period for corporation tax runs from 1st April to 31st March in the following year while the taxable period for income tax and capital gain tax runs from 6th April to 5th April in the following year.

The term "taxable period" in relation to a corporation means an accounting period. [1] The financial year begins in April and ends in the following March. Section 2(1) of the UK Corporation Tax Act 2009 (the CTA 2009) provides that "corporation tax is charged on profits of companies for any financial year for which an Act so provides". Section 8(2) of the CTA 2009 provides that corporation tax is calculated and chargeable, and assessments to corporation tax are made, by reference to accounting periods, as defined in section 9 and section 10 of the CTA 2009.

The term "taxable period" in relation to an individual is a tax year. [2] Sections 4(1), 4(2), and 4(3) of the Income Tax Act 2007 provide that "Income tax is charged for a year only if an Act so provides." "A year for which income tax is charged is called a "tax year", which begins on 6 April and ends on the following 5 April." Section 1(1) of the Taxation of Chargeable Gains Act 1992 provides that "capital gains tax is charged for a tax year on chargeable gains accruing in the year to a person on the disposal of assets".

4.5. Interpretation of "the next year"

For withholding tax purposes, the entry-into-effect date for Japan fell on the same date as the latest date of entry into force. In that regard, the OECD Secretariat has specifically dealt with this issue, as set out below: [3]

"Where a second of the pair of contracting jurisdictions deposits its instrument of ratification on a day in September 2018, the date of entry into force of the MLI for that contracting jurisdiction pursuant to Article 34 will be 1 Jan 2019. The question raised is whether the inclusion of the word "next" in Article 35(1)(a) means that, in such a case, the MLI has effect for events giving rise to withholding taxes which occur on or after 1 Jan 2019 or on or after 1 Jan 2020. The Secretariat has clarified that the use of the word "on" can only mean that the date from which the MLI have effect can be the same as the latest of the dates of entry into force. The same reasoning applies to the interpretation of the similar formulations used in Article 35(3) ("... 1 Jan of the next year beginning on or after...") and Article 35(5) ("... the first day of the next calendar year that begins on or after...").”

4.6. Article 35(4)

In line with the policy objective of providing early access to MAP for the taxpayer, article 35(4) modifies the entry-into-effect provision of the Japan-United Kingdom CTA with respect to MAP cases which comes under article 16(1). The synthesized texts are set out below:

Notwithstanding the provisions of articles 35(1), 35(2), and 35(3), article 16 (Mutual Agreement Procedure) of the MLI shall have effect with respect to the Convention for a case presented to the competent authority of either Contracting State on or after ~~the latest of the dates on which the MLI comes into force for each of the contracting jurisdictions to the covered tax agreement~~ (See row 2, Table B4) January 1, 2019, except for cases that were not eligible to be presented as of that date under the Convention prior to its modification by the MLI, without regard to the taxable period to which the case relates.

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