Technical Explanation of 2nd Protocol Amending Convention US and Japan… Taxes on Income, Oct 29, 2015

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DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE
PROTOCOL SIGNED AT WASHINGTON ON JANUARY 14, 2013 AMENDING
THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES
OF AMERICA AND THE GOVERNMENT OF JAPAN FOR THE AVOIDANCE OF
DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH
RESPECT TO TAXES ON INCOME AND THE PROTOCOL, WHICH FORMS AN
INTEGRAL PART OF THE CONVENTION, SIGNED AT WASHINGTON ON
NOVEMBER 6, 2003

This is a Technical Explanation of the Protocol signed at Washington on January
24, 2013, and the related Exchange of Notes (hereinafter the “Protocol” and “Exchange
of Notes” respectively), amending the Convention between the Government of the United
States of America and the Government of Japan for the avoidance of double taxation and
the prevention of fiscal evasion with respect to taxes on income, signed at Washington on
November 6, 2003 (hereinafter the “existing Convention”), the Protocol, which forms an
integral part of the existing Convention, signed at Washington on November 6, 2003
(hereinafter the “Protocol of 2003”), and the agreement effectuated by an Exchange of
Notes on November 6, 2003 (hereinafter the “Notes of 2003). The existing Convention,
as amended by the Protocol of 2003 and the Protocol, is referred to as “the Convention.”

Negotiations took into account the U.S. Department of the Treasury’s current tax
treaty policy and the Treasury Department’s Model Income Tax Convention, published
on November 15, 2006 (the “U.S. Model”). Negotiations also took into account the
Model Tax Convention on Income and on Capital, published by the Organisation for
Economic Cooperation and Development (the “OECD Model”), and recent tax treaties
concluded by both countries.

This Technical Explanation is an official guide to the Protocol and Exchange of
Notes. It explains policies behind particular provisions, as well as understandings
reached during the negotiations with respect to the interpretation and application of the
Protocol and the Exchange of Notes.

References to the existing Convention are intended to put various provisions of
the Protocol into context. The Technical Explanation does not, however, provide a
complete comparison between the provisions of the existing Convention and the
amendments made by the Protocol and Exchange of Notes. The T echnical Explanation is
not intended to provide a complete guide to the existing Convention as amended by the
Protocol and Exchange of Notes. To the extent that the existing Convention has not been
amended by the Protocol and Exchange of Notes, the technical explanation of the existing
Convention and the Protocol of 2003 remains the official explanation. References in this
Technical Explanation to “he” or “his” should be read to mean “he or she” or “his or
her.” References to the “Code” are to the Internal Revenue Code of 1986, as amended.

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Article I

Article I of the Protocol revises paragraph 5 of Article 1 of the existing
Convention by deleting references to Article 20 of the existing Convention, which has
been deleted by Article VII of the Protocol.

Article II

Article II of the Protocol replaces paragraph 4 of Article 4 of the existing
Convention. Revised paragraph 4 provides that if by reason of paragraph 1, a person
other than an individual is a resident of both Contracting States, such dual resident may
not claim any benefit accorded to residents of a Contracting State by the Convention.
The person may, however, claim any benefits that are not limited to residents, such as
those provided by paragraph 1 of Article 24. Thus, for example, pursuant to Article 24, a
State cannot impose discriminatory taxation on a dual resident company.

Regardless of the outcome under this paragraph, a dual resident company also
may be treated as a resident of a Contracting State for purposes other than that of
obtaining benefits under the Convention. For example, if a dual resident company pays a
dividend to a resident of Japan, the U.S. paying agent would withhold on that dividend at
the appropriate treaty rate (assuming the payee is otherwise entitled to treaty benefits)
because reduced withholding is a benefit enjoyed by the resident of Japan, not by the dual
resident company. The dual resident company that paid the dividend would, for this
purpose, be treated as a resident of the United States under the Convention. In addition,
information relating to dual resident companies can be exchanged under the Convention
because, by its terms, Article 26 is not limited to residents of the Contracting States.

Article III

Article III of the Protocol amends Article 10 of the existing Convention. Article
10 sets forth rules for taxation of cross-border dividend payments.

Paragraph 1

Paragraph 1 makes two amendments to subparagraph 3(a) of Article 10 of the
existing Convention, which sets forth the ownership and holding period requirements that
companies must satisfy in order to qualify for an exemption from withholding on certain
dividends. Pursuant to the existing Convention, in order to qualify for the exemption
from dividend withholding, the company receiving the dividend is required to own,
directly or indirectly through one or more residents of either Contracting State, more than
50 percent of the voting stock of the company paying the dividends for the period of
twelve months ending on the date on which entitlement to the dividend is determined
(additional requirements also apply, such as beneficial ownership and qualification of
certain limitation on benefits provisions). Paragraph 1 replaces “more than 50 percent”
with “at least 50 percent.” Accordingly, a company receiving a dividend and owning

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directly or indirectly through residents of either Contracting State, 50 percent or more of
the company paying the dividend would become eligible for the exemption from
withholding at source, assuming that all other requirements have been satisfied.

In addition to modifying the required ownership threshold for entitlement to the
exemption from dividend withholding, paragraph 1 of Article III also shortens the
twelve-month holding period requirement to six months.

Paragraph 2

Paragraph 2 of Article III amends paragraph 9 of Article 10 of the existing
Convention. The amendments delete references to paragraph 2 of Article 13 of the
existing Convention to conform to changes to that Article made in Article V of the
Protocol.

Article IV

Article IV of the Protocol replaces Article 11 of the existing Convention. Article
11 sets forth rules for taxation of cross-border interest payments.

Paragraph 1 of New Article 11

Paragraph 1 of new Article 11 generally grants to the residence State the
exclusive right to tax interest beneficially owned by its residents and arising in the other
Contracting State.

The term “beneficial owner” is not defined in the Convention, and is, therefore,
defined under the domestic law of the source State. The beneficial owner of the interest
for purposes of Article 11 is the person to which the income is attributable under the laws
of the source State. Thus, if interest arising in a Contracting State is received by a
nominee or agent that is a resident of the other State on behalf of a person that is not a
resident of that other State, the interest is not entitled to the benefits of Article 11.
However, interest received by a nominee on behalf of a resident of that other State would
be entitled to benefits. These limitations are confirmed by paragraph 9 of the OECD
Commentary to Article 11.

Special rules apply to interest derived through fiscally transparent entities for
purposes of determining the beneficial owner of the interest. In such cases, residence
State principles shall be used to determine who derives the interest, to assure that the
interest for which the source State grants benefits of the Convention will be taken into
account for tax purposes by a resident of the residence State.

For example, assume that FCo, a company that is a resident of Japan, owns a 50
percent interest in FP, a partnership that is organized in Japan. FP receives interest
arising in the United States. Japan views FP as fiscally transparent under its domestic
law, and taxes FCo currently on its distributive share of the income of FP and determines

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the character and source of the income received through FP in the hands of FCo as if such
income were realized directly by FCo. In this case, FCo is treated as deriving 50 percent
of the interest received by FP that arises in the United States under paragraph 6 of Article
4 of the existing Convention. The same result would be reached even if the tax laws of
the United States would treat FP differently (e.g., if FP were not treated as fiscally
transparent in the United States), or if FP were organized in a third state, as long as FP
were still treated as fiscally transparent under the laws of Japan.

While residence State principles control who is treated as deriving the interest,
source State principles of beneficial ownership apply to determine whether the person
who derives the interest, or another resident of the other Contracting State, is the
beneficial owner of the interest. If the person who derives the interest under paragraph 6
of Article 4 of the existing Convention would not be treated as a nominee, agent,
custodian, conduit, etc. under the source State’s principles for determining beneficial
ownership, that person will be treated as the beneficial owner of the interest for purposes
of the Convention. In the example above, FCo is required to satisfy the beneficial
ownership principles of the United States with respect to the interest it derives. If under
the beneficial ownership principles of the United States, FCo is found not to be the
beneficial owner of the interest, FCo will not be entitled to the benefits of Article 11 with
respect to such interest. If FCo is found to be a nominee, agent, custodian, or conduit for
a person who is a resident of the other Contracting State, that person may be entitled to
benefits with respect to the interest.

Paragraph 2 of New Article 11

Paragraph 2 of new Article 11 provides anti-abuse exceptions to the source-
country exemption in paragraph 1 for two classes of interest payments.

The first class of interest dealt with in subparagraph 2(a) is so-called “contingent
interest.” Such interest is defined in subparagraph 2(a) as any interest arising in a
Contracting State that is determined by reference to the receipts, sales, income, profits or
other cash flow of the debtor or a related person, to any change in the value of any
property of the debtor or a related person or to any dividend, partnership distribution or
similar payment made by the debtor or a related person, or any other interest similar to
such interest arising in a Contracting State. Any such interest may be taxed in that
Contracting State according to the laws of that State. If the beneficial owner is a resident
of the other Contracting State, however, the gross amount of the interest may be taxed at
a rate not exceeding 10 percent. With respect to interest arising in the United States,
subparagraph 2(a) refers to contingent interest of a type that does not qualify as portfolio
interest under U.S. domestic law as defined in Code section 871(h)(4). The exceptions of
section 871(h)(4)(c) will be applicable.

The second class of interest is dealt with in subparagraph 2(b). This exception is
consistent with the policy of Code sections 860E(e) and 860G(b) that excess inclusions
with respect to a real estate mortgage investment conduit (REMIC) should bear full U.S.
tax in all cases. Without a full tax at source, foreign purchasers of residual interests

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would have a competitive advantage over U.S. purchasers at the time these interests are
initially offered. Also, absent this rule, the U.S. fisc would suffer a revenue loss with
respect to mortgages held in a REMIC because of opportunities for tax avoidance created
by differences in the timing of taxable and economic income produced by these interests.

Subparagraph 2(b) of new Article 11 is analogous to subparagraph 2(c) of the
U.S. Model, although the provision in new Article 11 is drafted to apply bilaterally.
Thus, for example, paragraph 2(b) of new Article 11 does not refer to the long-term
Federal rate used to determine the amount of an excess inclusion, but rather to “the return
on comparable debt instruments as specified by the domestic law of that Contracting
State.” Nevertheless, for U.S. tax purposes, the withholding tax imposed “to the extent
that the amount of interest paid exceeds the return on comparable debt instruments as
specified by the domestic law of that Contracting State” is the withholding tax that would
be imposed upon an excess inclusion with respect to a residual interest in a REMIC under
section 860G(b).

Paragraph 3 of New Article 11

Paragraph 3 of new Article 11 provides a source rule that is identical to the
interest source rule in paragraph 7 of the existing Convention. Interest generally is
considered to arise in a Contracting State when paid by a resident of that Contracting
State. Special rules are provided where the interest is borne by a permanent
establishment of the person paying the interest. In such a case, if the permanent
establishment is situated in a Contracting State, then the interest shall be deemed to arise
in that Contracting State; and if the permanent establishment is situated in a state other
than one of the Contracting States, then the interest shall not be deemed to arise in either
Contracting State. While interest borne by a permanent establishment that is situated in a
state other than one of the Contracting States thus will not be eligible for the benefits of
the Convention, it may be eligible for the benefits of the tax treaty, if any, between the
state in which the permanent establishment is situated and the Contracting State of which
the beneficial owner of the interest is a resident.

For purposes of paragraph 3 of new Article 11, interest is considered to be borne
by a permanent establishment if it is allocable to the taxable income of that permanent
establishment. If the actual amount of interest on the books of a U.S. branch of a resident
of Japan exceeds the amount of interest allocated to the branch under Treas. Reg. section
1.882-5, the amount of such excess will not be considered U.S. source interest for
purposes of this Article.

Paragraph 4 of New Article 11

Paragraph 4 of new Article 11 provides a definition of the term “interest” for
purposes of the Article that is identical to that provided in paragraph 5 of Article 11 of
the existing Convention. The term “interest” as used in Article 11 is defined in paragraph
4 to include, inter alia, income from debt claims of every kind, whether or not secured by
a mortgage and whether or not carrying a right to participate in the debtor's profits. The

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term does not, however, include amounts that are treated as dividends under Article 10.

The term interest also includes amounts subject to the same tax treatment as
income from money lent under the law of the State in which the income arises. Thus, for
purposes of the Convention, amounts that the United States will treat as interest include
(i) the difference between the issue price and the stated redemption price at maturity of a
debt instrument (i.e., original issue discount (“OID”)), which may be wholly or partially
realized on the disposition of a debt instrument (section 1273), (ii) amounts that are
imputed interest on a deferred sales contract (section 483), (iii) amounts treated as
interest or OID under the stripped bond rules (section 1286), (iv) amounts treated as OID
under the below-market interest rate rules (section 7872), (v) a partner's distributive share
of a partnership's interest income (section 702), (vi) the interest portion of periodic
payments made under a "finance lease" or similar contractual arrangement that in
substance is a borrowing by the nominal lessee to finance the acquisition of property,
(vii) amounts included in the income of a holder of a residual interest in a REMIC
(section 860E), because these amounts generally are subject to the same taxation
treatment as interest under U.S. tax law, and (viii) interest with respect to notional
principal contracts that are recharacterized as loans because of a “substantial non-periodic
payment.”

Paragraph 5 of New Article 11

Paragraph 5 of new Article 11 is identical in substance to paragraph 6 of Article
11 of the existing Convention. Paragraph 5 of new Article 11 provides an exception to
paragraphs 1 and 2 of new Article 11 where the beneficial owner of the interest carries on
business through a permanent establishment in the Contracting State in which the interest
arises and the interest is attributable to that permanent establishment. In such cases, the
applicable provisions of Article 7 of the existing Convention will apply.

The provisions of paragraph 4 of the Protocol of 2003 apply to income described
in this paragraph. For example, interest income that is attributable to a permanent
establishment and that accrues during the existence of the permanent establishment, but is
received after the permanent establishment no longer exists, remains taxable under the
provisions of Article 7 of the existing Convention, and not under this Article.

Paragraph 6 of New Article 11

Paragraph 6 of new Article 11 is identical to paragraph 8 of Article 11 of the
existing Convention. Paragraph 6 of new Article 11 provides that, in cases involving
special relationships between persons, Article 11 applies only to that portion of the total
interest payments between those persons that would have been made absent such special
relationships (i.e., an arm’s-length interest payment). The term “special relationship” is
not defined in the Convention. In applying this paragraph, the United States considers the
term to include the relationships described in Article 9 of the existing Convention, which
in turn correspond to the definition of “control” for purposes of section 482 of the Code.
This is consistent with paragraph 33 of the Commentary to Article 11 of the OECD

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Model.

Paragraph 6 of new Article 11 also provides that any amount of interest paid in
excess of the amount that would be been paid absent a special relationship may be
taxable in the Contracting State in which it arises at a rate not to exceed 5 percent. This
rule is similar to rules provided in paragraph 4 of Article 12 and paragraph 3 of Article 21
of the existing Convention, which provide that any amount paid in excess of the amount
that would have been paid absent a special relationship may be taxable in the Contracting
State in which they arise at a rate not to exceed 5 percent.

The Convention’s treatment of such excess amounts is consistent in most
circumstances with the results under the U.S. Model and U.S. domestic law and practice.
Absent the specific rule in the Convention, in most cases the United States would treat
such excess amounts as a dividend or as a contribution to capital, depending on the
relationship between the parties, and tax such amounts accordingly. Under the
Convention, a maximum 5 percent withholding tax rate generally applies to dividends
where the beneficial owner is a company owning directly or indirectly at least 10 percent
of the voting stock of the company paying the dividends. In Japan, the general practice in
the context of investment income such as interest, dividends, or other income is to impose
withholding taxes on the amount in excess of the arm's-length amount at the domestic
rate. Thus, for example, if a Japanese company makes an interest payment to its non-
Japanese parent company, and Japan determines that the amount of the interest payment
exceeded an arm's-length amount, Japan will deny a deduction for the excess amount and
treat the excess amount as an interest payment subject to the appropriate withholding rate
applicable to interest paid by Japanese companies under its domestic law, which is
generally 20 percent. Under the Convention, such excess amounts instead are subject to a
maximum 5 percent rate of withholding taxes.

Paragraph 6 of new Article 11 does not address cases where, owing to a special
relationship between the payer and the beneficial owner, or between both of them and
some other person, the amount of the interest is less than an arm’s-length amount. In
those cases a transaction may be characterized to reflect its substance and interest may be
imputed consistent with the definition of interest in paragraph 4 of new Article 11.
Consistent with Article 9 of the existing Convention, the United States would apply
section 482 or 7872 of the Code to determine the amount of imputed interest in those
cases.

Paragraph 7 of New Article 11

Paragraph 7 of new Article 11 is identical to paragraph 11 of Article 11 of the
existing Convention. Paragraph 7 of new Article 11 provides that a resident of a
Contracting State shall not be considered the beneficial owner of interest in certain
“back-to-back” loan arrangements. The benefits of Article 11 therefore are not available
with respect to such interest. This rule is similar to rules dealing with interest, royalties,
and other income in paragraph 11 of Article 10, paragraph 5 of Article 12, and paragraph
4 of Article 21 of the existing Convention. These limited “anti-conduit” rules and their

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interaction with U.S. domestic law are discussed in the technical explanation of
paragraph 11 of Article 10 of the existing Convention.

Paragraph 7 of new Article 11 provides that a resident of a Contracting State shall
not be considered the beneficial owner of interest in respect of a debt-claim if such debt-
claim would not have been established unless a person that is not entitled to the same or
more favorable treaty benefits and that is not a resident of either Contracting State held
an equivalent debt-claim against the resident. The operation of this rule can be illustrated
in the following examples:

Example 1. A, a U.S. resident, holds a debt-claim against X, a Japanese company,
that entitles A to interest of 10x each year. B, a resident of a third country that does not
have a tax treaty with Japan, owns a debt-claim against A that entitles B to interest of 10x
each year and otherwise has terms that are equivalent to the terms of the debt-claim held
by A. A would not have established its debt-claim against X if B did not hold a debt-
claim against A. X pays interest of 10x to A, which pays interest of 10x to B. Under
paragraph 11, A will not be considered the beneficial owner of the interest from X, and
therefore is not entitled to treaty benefits with respect to the interest from X.

Example 2. The facts are the same as the facts of Example 1, except that, instead
of owning a debt-claim against A, B holds preferred stock in A that entitles B to 10x each
year to the extent of A's earnings in that year. A pays dividends of 10x to B. Paragraph 11
does not apply to deny treaty benefits to A with respect to the interest from X.

No inference is intended as to the result of Example 2 in cases of interest arising
in the United States under U.S. domestic anti-abuse rules (e.g., the anti-conduit rules and
other anti-abuse rules referred to in the Technical Explanation of paragraph 11 of Article
10 of the existing Convention).

Relation to Other Articles

Notwithstanding the foregoing limitations on source country taxation of interest,
the saving clause of subparagraph 4(a) of Article 1 of the existing Convention permits the
United States to tax its residents and citizens, subject to the special foreign tax credit
rules of paragraph 3 of Article 23 of the existing Convention, as if the Convention had
not come into force.

The benefits of this Article are also subject to the provisions of Article 22 of the
existing Convention. Thus, if a resident of Japan is the beneficial owner of interest paid
by a U.S. corporation, the resident must qualify for treaty benefits under at least one of
the tests of Article 22 in order to receive the benefits of this Article.

Article V

Article V of the Protocol makes amendments to Article 13 of the existing
Convention.

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Paragraph 1

Paragraph 1 of Article V replaces paragraph 2 of Article 13 of the existing
Convention with a new paragraph 2. This paragraph defines the term "real property
situated in the other Contracting State." Subparagraph (a) of new paragraph 2 provides
that the term includes real property referred to in Article 6 (i.e., an interest in the real
property itself). Subparagraph (b) provides that when “the other Contracting State”
referenced in paragraph 1 of Article 13 of the existing Convention is Japan, the term
includes shares or interests in a company, partnership or trust deriving the value of its
property directly or indirectly principally from real property in Article 6 and situated in
Japan. Subparagraph (c) provides that when “the other Contracting State” referenced in
paragraph 1 of Article 13 of the existing Convention is the United States, the term
includes a "United States real property interest."

Under section 897(c) of the Code, the term "United States real property interest"
includes shares in a U.S. corporation that owns sufficient U.S. real property interests to
satisfy an asset-ratio test on certain testing dates. The term also includes certain foreign
corporations that have elected to be treated as U.S. corporations for this purpose. See
section 897(i) of the Code. In addition, any distribution made by a U.S. real estate
investment trust or certain U.S. regulated investment companies is taxable under
paragraph 1 of Article 13 of the existing Convention (rather than under Article 10
(Dividends) of the existing Convention) to the extent that it is attributable to gains
derived from the alienation of U.S. real property interests. See section 897(h) of the
Code.

Paragraph 2

Paragraph 2 of Article V replaces paragraph 4 of Article 13 of the existing
Convention. The only change is to delete references to paragraph 2 of Article 13 of the
existing Convention that are no longer necessary.

Article VI

Article VI of the Protocol restates Article 15 of the existing Convention. The
restatement was necessary in order to provide an opportunity to correct an error in the
Japanese language text of the existing Convention.

Paragraph 3 of the Exchange of Notes contains two understandings between the
Contracting States regarding the interpretation of Article 15 of the Convention. First, it is
understood that if a resident of a Contracting State does not serve as a member of a board
of directors of a company, Article 15 of the Convention shall not apply to his
remuneration, regardless of his title or position. Second, it is understood that where a
member of the board of directors of a company also has other functions (for example, as
ordinary employee, advisory, or consultant) with the company, Article 15 of the
Convention does not apply to remuneration paid to such person on account of such other

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functions.

Article VII

Article VII of the Protocol deletes Article 20 of the existing Convention, which
provides certain benefits for residents of one Contracting State who are temporarily
present in the other Contracting State for the purpose of teaching or conducting research.
This change is intended to bring the existing Convention into closer conformity with the
current tax treaty policies of both the United States and Japan. Paragraph 5 of Article XV
of the Protocol ensures that individuals who are receiving benefits under Article 20 at the
time the Protocol enters into force will continue to be entitled to such benefits until such
time as they would have ceased to be entitled to the benefits if the Protocol had not
entered into force.

Article VIII

Article VIII of the Protocol modifies subparagraph 5(b)(i) of Article 22 of the
Convention. This subparagraph defines the term “recognized stock exchange” in the
case of Japan for purposes of applying Article 22. The amendment in Article VIII
replaces the reference to “the Securities and Exchange Law” with the legislation’s current
name, “the Financial Instruments and Exchange Law.”

Article IX

Article IX of the Protocol replaces paragraph 1 of Article 23 of the existing
Convention in order to bring the Convention into conformity with Japan’s current
statutory rules for providing relief from double taxation.

New Subparagraph 1(a) of Article 23

Japan agrees, in new subparagraph 1(a) of Article 23, to allow to its residents,
subject to its relevant domestic laws, a credit against Japanese tax for U.S. taxes paid in
accordance with the provisions of the Convention. For this purpose, the U.S. taxes
covered by new subparagraph 1(b) of Article 23 and paragraph 2 of Article 2 of the
existing Convention are within the definition of “United States tax.” The amount of
credit, however, shall not exceed that part of the Japanese tax which is appropriate to that
income.

The last sentence of new subparagraph 1(a) provides a re-sourcing rule for income
covered by this subparagraph. This provision is intended to ensure that a Japanese
resident can obtain a Japanese foreign tax credit for U.S. taxes paid when the Convention
assigns to the United States primary taxing rights over an item of income. The last
sentence provides that, if the Convention allows the United States to tax an item of
income beneficially owned by a resident of Japan, that income will be deemed to arise
from sources in the United States for Japanese foreign tax credit purposes. However,
paragraph 3 of Article 23 of the existing Convention provides special rules regarding

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relief of double taxation where a resident of Japan is a U.S. citizen, a former U.S. citizen,
or a former U.S. long-term resident and is subject to tax in the United States solely by
reason of the provisions of paragraph 4 of Article 1 of the existing Convention.

New Subparagraph 1(b) of Article 23

Under new subparagraph 1(b) of Article 23, Japan agrees to exclude from the
basis upon which the Japanese tax is imposed certain dividends paid by a company which
is a resident of the United States to a company resident in Japan. This benefit is subject
to the provisions, other than the provisions with regard to share ownership requirements,
of Japan’s domestic law regarding the exclusion of dividends from the basis upon which
the Japanese tax is imposed. In order for subparagraph 1(b) to apply to exclude a
dividend from Japanese tax, the Japanese company receiving the dividend must have
owned at least 10 percent of the total shares issued by the U.S. company paying the
dividend for a period of at least six months immediately before the day when the
obligation to pay the dividends is confirmed.

Article X

Article X of the Protocol makes non-substantive amendments to Article 24 of the
existing Convention in order to conform to changes made to Article 11 dealing with the
taxation of interest.

Paragraph 1

Paragraph 1 of Article X amends paragraph 3 of Article 24 of the existing
Convention by deleting the words “paragraph 8 of Article 11” and replacing them with
the words “paragraph 6 of Article 11”.

Paragraph 2

Paragraph 2 of Article X amends paragraph 5 of Article 24 of the existing
Convention by deleting the words “or paragraph 10 of Article 11”.

Article XI

Article XI of the Protocol adds new paragraphs 5 through 7 to Article 25 of the
existing Convention, which deals with the mutual agreement procedure. In particular,
Article XI of the Protocol incorporates into Article 25 rules that provide for mandatory
binding arbitration to resolve certain cases that the competent authorities of the
Contracting States have been unable to resolve after negotiating for a reasonable amount
of time.
The mandatory binding arbitration provision is an extension of (as opposed to an
alternative to) the interaction between the competent authorities as provided in the mutual
agreement procedure. Accordingly, only cases that have first been negotiated by the
competent authorities pursuant to Article 25 shall be eligible for arbitration. Any case for

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which the competent authorities have undertaken negotiation pursuant to either paragraph
1 or paragraph 3 of Article 25 shall be eligible for arbitration, subject to the provisions of
subparagraph 6(c) of Article 25.

New Paragraph 5 of Article 25

New paragraph 5 of Article 25 provides that a case shall be resolved through
mandatory binding arbitration when (i) a person has presented a case to the appropriate
competent authority under paragraph 1 of Article 24 on the basis that the actions of one
or both of the Contracting States have resulted for that person in taxation not in
accordance with the provisions of the Convention, (ii) the competent authorities have
been unable to reach an agreement to resolve the case, and (iii) the conditions specified in
this paragraph and in new paragraphs 6 and 7 are satisfied.

New subparagraph 14(a) of the Protocol of 2003 as amended by Article XIV of
the Protocol provides that for purposes of applying new paragraph 5 of Article 25,
taxation shall be considered to have resulted from “the actions of one or both of the
Contracting States” as soon as tax has been paid, assessed or otherwise determined (for
example, a notification of correction, determination or deficiency of a tax liability has
been issued), or in cases where the taxpayer is officially notified by the tax authorities
that they intend to tax him on a certain element of income (for example, a notice of
proposed adjustment has been issued).

Paragraph 4 of the Exchange of Notes clarifies that the fact that tax collection
procedures may have been suspended shall not affect a determination that taxation not in
accordance with the provisions of the Convention has resulted from the actions of one or
both Contracting States.

New subparagraphs 5(a) and 5(b) of Article 25 set forth two additional conditions
that must be satisfied before a case may be resolved through arbitration. Subparagraph
5(a) provides that the presenter of the case to a competent authority must submit a written
request to that competent authority for a resolution of the case through arbitration.
Subparagraph 5(b) requires that all concerned persons (as defined in new paragraph 7(a)
of Article 25) and their authorized representatives or agents agree in writing not to
disclose to any other person, except other concerned persons, any information received
during the course of the arbitration proceeding from either Contracting State or from the
arbitration panel, other than the determination of the panel. New subparagraphs 7(c) and
7(d) of Article 25 (discussed below) provide that the requirements of subparagraphs 5(a)
and 5(b) of Article 25 must be satisfied prior to the beginning of the arbitration
proceeding.

A confidentiality agreement may be executed by any concerned person that has
the legal authority to bind any other concerned person on the matter. For example, a
parent corporation with the legal authority to bind its subsidiary with respect to
confidentiality may execute a comprehensive confidentiality agreement on its own behalf
and that of its subsidiary.

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New Paragraph 6 of Article 25

New paragraph 6 of Article 25 sets forth parameters according to which a case
shall not be submitted to arbitration. Under subparagraph 6(a), an unresolved case shall
not be submitted to arbitration if a decision on such case has already been rendered by a
court or administrative tribunal of either Contracting State. Under subparagraph 6(b), an
unresolved case shall not be submitted to arbitration if the competent authorities have
mutually agreed before the date on which arbitration proceedings would otherwise have
begun that the case is not suitable for determination by arbitration. In such cases, the
competent authorities must notify the presenter of the case of such mutual agreement no
later than two years after the case’s commencement date (as defined in new subparagraph
7(b), described below). Subparagraph 6(c) provides that arbitration shall not be available
for cases that are before the competent authorities only by virtue of the final sentence of
paragraph 3 of Article 25, which provides that the competent authorities “may also
consult together for the elimination of double taxation in cases not provided for in the
Convention.”

New Paragraph 7 of Article 25

New paragraph 7 of Article 25 sets forth additional rules and definitions to be
used in applying the arbitration provisions. Subparagraph 7(a) defines the term
“concerned person” as the person that brought the case to competent authority for
consideration under Article 25 and all other persons, if any, whose tax liability to either
Contracting State may be directly affected by a mutual agreement arising from that
consideration. For example, a concerned person would include a U.S. corporation that
brings a transfer pricing case with respect to a transaction entered into with its subsidiary
in Japan for resolution to the U.S. competent authority, as well as the subsidiary, which
may seek a correlative adjustment as a result of the resolution of the case.

Subparagraph 7(b) defines the term “commencement date” as the earliest date on
which the information necessary to undertake substantive consideration for a mutual
agreement has been received by the competent authorities of both Contracting States.
The competent authority of the United States will be considered to have received the
information necessary to undertake substantive consideration for a mutual agreement on
the date that it has received the information that must be submitted pursuant to Rev Proc.
2006-54, 2006-2 C.B. 1035, § 4.05 (or any applicable successor procedures). The
competent authority of Japan will be considered to have received the information
necessary to undertake substantive consideration for a mutual agreement on the date it
has received the information that must be submitted pursuant to its published procedures
for requesting competent authority assistance (or any applicable successor procedures).
The information shall not be considered received until both competent authorities have
received copies of all materials submitted to either Contracting State by the concerned
person(s) in connection with the mutual agreement procedure.

Subparagraph 7(c) provides that, other than for cases described in subparagraph

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7(d), an arbitration proceeding shall begin on the later of two dates: (i) two years from
the commencement date of the case (unless both competent authorities have previously
agreed to a different date and have notified the presenter of the case of such agreement),
and ( ii) the earliest date upon which the requirements of subparagraphs 5(a) and 5(b)
have been satisfied (i.e., the presenter of the case has submitted a written request for
resolution of the case through arbitration, and all concerned persons and their authorized
representatives or agents have entered into a confidentiality agreement and the
agreements have been received by both competent authorities). Clause (i) of this
subparagraph permits the competent authorities to mutually agree to a different
commencement date. This could be the case, for instance, if the negotiation of a case
between the competent authorities were nearing completion and could be expected to be
resolved in an additional short period of time, and the competent authorities mutually
agreed that, if given additional time, they could resolve the case, thus avoiding the need
for an arbitration proceeding. As another example, if a large number of cases would
otherwise have the same commencement date, clause (i) would allow the competent
authorities to agree to different commencement dates (including accelerating a
commencement date) to avoid having multiple arbitration proceedings take place at the
same time. Clause (i) requires the competent authorities to notify the presenter of the
case of any such agreements to a different commencement date.

Subparagraph 7(d) governs the start date of arbitration with respect to a case that
is the subject of a request for an advanced pricing arrangement, the terms of which the
competent authorities have not been able to agree. In such cases, an arbitration
proceeding shall begin on the later of two dates: i) six months after an official notification
has been issued by the tax authority of either Contracting State of a correction of, or an
intent to adjust, the pricing of a transaction or transfer covered by a request for an
advance pricing arrangement regarding a concerned person, unless the competent
authorities of both Contracting States have agreed to a different date and notified the
presenter of the case of such agreement; and ( ii) the earliest date upon which the
requirements of subparagraphs 5(a) and 5(b) are satisfied (i.e., the presenter of the case
has submitted a written request for resolution of the case through arbitration, and all
concerned persons and their authorized representatives or agents have entered into a
confidentiality agreement and the agreements have been received by both competent
authorities). However, subparagraph 7(d) specifies that in no event shall the arbitration
proceeding begin any earlier than two years after the date on which the information
necessary to undertake substantive consideration for a mutual agreement on the advance
pricing arrangement has been received by the competent authorities of both Contracting
States.

Subparagraph 7(e) addresses implementation of the determination of the
arbitration panel. As is the case with any resolution reached pursuant to the mutual
agreement procedure, the presenter of the case is not required to accept the resolution.
Subparagraph 7(e) provides that if the presenter of the case accepts the determination of
the arbitration panel, such determination shall constitute a resolution by mutual
agreement under Article 25 of the entire case and thus shall be binding on the Contracting
States. If timely accepted by the presenter of the case, the determination of the

15
arbitration panel shall be implemented even if such implementation otherwise would be
barred by the statute of limitations or by some other procedural limitation. Subparagraph
7(e), however, does not prevent the application of domestic-law procedural limitations
that give effect to the agreement (e.g., a domestic law requirement that the taxpayer file a
return reflecting the agreement within one year of the date of the agreement).

Subparagraph 7(f) provides that for purposes of an arbitration proceeding under
new paragraphs 5, 6 and 7 of Article 25, the members of the arbitration panel and their
staff shall be considered “persons or authorities” to whom information may be disclosed
under Article 26 of the Convention. (See paragraph 2 of new Article 26.)

Subparagraph 7(g) sets forth the confidentiality obligations of the competent
authorities regarding an arbitration proceeding. Subparagraph 7(g) provides that no
information relating to an arbitration proceeding (including the arbitration panel's
determination) may be disclosed by the competent authorities, except as permitted by this
Convention and the domestic laws of the Contracting States. In addition, all material
prepared in the course of, or relating to, an arbitration proceeding shall be considered to
be information exchanged between the Contracting States pursuant to Article 26.

Subparagraph 7(h) provides that the competent authorities shall ensure that
members of the arbitration panel and their staff agree in written statements not to disclose
any information relating to an arbitration proceeding (including the arbitration panel’s
determination), and to abide by and be subject to the confidentiality and nondisclosure
provisions of Article 26 and the applicable domestic laws of the Contracting States. In
the event those provisions conflict, the most restrictive condition shall apply. These
statements from the members of the arbitration panel shall also include acceptance of
their appointment to the arbitration panel. The final sentence of subparagraph 7(h) makes
clear that notwithstanding the provisions of subparagraph 7(h), the members of the
arbitration panel or their staff shall disclose the determination of the arbitration panel to
the competent authorities of both Contracting States.

Subparagraph 7(i) sets forth a non-exhaustive list of items related to the time
periods and procedures related to conducting an arbitration proceeding that the competent
authorities of the Contracting States must agree to in order to ensure the effective and
timely implementation of the provisions of new paragraphs 5, 6 and 7 of Article 25. Such
agreement must be consistent with the provisions of the Convention, and shall take the
form of published guidance before the date on which the first arbitration proceeding
commences. Subparagraph 7(i) lists the following items for which the competent
authorities shall agree on time frames and procedures:

i) notifying the presenter of the case of any agreements pursuant to
subparagraph 7(c)(i) or 7(d)(i) to modify the date on which an arbitration
proceeding could begin;

ii) the appropriate application of arbitration in the context of an advanced
pricing arrangement, including rules concerning the date on which an arbitration

16
proceeding shall begin for such cases;

iii) obtaining the statements of each concerned person, authorized
representative or agent, and member of the arbitration panel (including their staff)
as required in subparagraphs 5(b) and 7(h), in which each such person agrees not
to disclose to any other person any information received during the course of the
arbitration proceeding from the competent authority of either Contracting State or
the arbitration panel, other than disclosure of the determination of such panel to
the competent authorities of both Contracting States;

iv) the appointment of the members of the arbitration panel;

v) the submission of proposed resolutions, position papers, and reply
submissions by the competent authorities to the arbitration panel;

vi) the submission by the presenter of the case of a paper setting forth the
presenter’s views and analysis of the case for consideration by the arbitration
panel;

vii) the delivery by the arbitration panel of its determination to the competent
authorities;

viii) the acceptance or rejection by the presenter of the case of the
determination of the arbitration panel; and

ix) the adoption by the arbitration panel of any additional procedures
necessary for the conduct of its business.

Subparagraph 7(i) authorizes the competent authorities to agree in writing to such
other rules and procedures as may be necessary for the effective and timely
implementation of the provisions of new paragraphs 5, 6 and 7. Consistent with this
authority, the competent authorities may also agree on rules necessary to implement the
provisions of new paragraph 14 of the Protocol of 2003 as amended by Article XIV of the
Protocol (discussed below).

For the effective date for new paragraphs 5, 6, and 7 of Article 25, see paragraph
3 of Article XV of the Protocol (discussed below).

Article XII

Article XII of the Protocol replaces Article 26 of the existing Convention. This
Article provides for the exchange of information between the competent authorities of the
Contracting States. While mutual agreement procedures are addressed in Article 25,
exchanges of information for purposes of the mutual agreement procedures are governed
by new Article 26.

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Paragraph 1 of New Article 26

The obligation to obtain and provide information to the other Contracting State is
set out in paragraph 1. The information to be exchanged is that which is foreseeably
relevant for carrying out the provisions of the Convention or the domestic laws of either
Contracting State concerning taxes of every kind applied at the national level. This
language incorporates the standard of the OECD Model. The Contracting States intend
for the phrase “is foreseeably relevant” to be interpreted to permit the exchange of
information that “may be relevant” for purposes of section 7602 of the Code, which
authorizes the IRS to examine “any books, papers, records, or other data which may be
relevant or material.” (Emphasis added.). In United States v. Arthur Young & Co., 465
U.S. 805, 814 (1984), the Supreme Court stated that the language “may be” reflects
Congress’s express intention to allow the IRS to obtain “items of even potential
relevance to an ongoing investigation, without reference to its admissibility.” (Emphasis
in original.) However, the language “may be” would not support a request in which a
Contracting State (the requesting State) simply asked for information regarding all bank
accounts maintained by residents of the requesting State in the other Contracting State
(the requested State). Thus, the language of paragraph 1 is intended to provide for
exchange of information in tax matters to the widest extent possible, while clarifying that
Contracting States are not at liberty to engage in “fishing expeditions” or otherwise to
request information that is unlikely to be relevant to the tax affairs of a given taxpayer.

Consistent with the OECD Model, a request for information does not constitute a
“fishing expedition” solely because it does not provide the name or address (or both) of
the taxpayer under examination or investigation. In cases where the requesting State does
not provide the name or address (or both) of the taxpayer under examination or
investigation, the requesting State must provide other information sufficient to identify
the taxpayer. Similarly, paragraph 1 does not necessarily require the request to include
the name or address of the person believed to be in possession of the information.

The standard of “foreseeable relevance” can be met in cases dealing with either
one taxpayer (whether identified by name or otherwise) or several taxpayers (whether
identified by name or otherwise). Where a Contracting State undertakes an investigation
into an ascertainable group or category of persons in accordance with its laws, any
request related to the investigation will typically serve the objective of carrying out the
domestic tax laws of the requesting State and thus will comply with the requirements of
paragraph 1, provided it meets the standard of “foreseeable relevance.” In such cases, the
requesting State should provide, supported by a clear factual basis, a detailed description
of the group or category of persons and of the specific facts and circumstances that have
led to the request, as well as an explanation of the applicable law and why there is reason
to believe that the taxpayers in the group or category of persons for whom information is
requested have been non-compliant with that law supported by a clear factual basis. The
requesting State should further show that the requested information would assist in
determining compliance by the taxpayers in the group or category of persons.

Exchange of information with respect to each State’s domestic law is authorized

18
to the extent that taxation under domestic law is not contrary to the Convention. Thus, for
example, information may be exchanged even if the transaction to which the information
relates is a purely domestic transaction in the requesting State and, therefore, the
exchange is not made to carry out the provisions of the Convention. An example of such
a case is provided in the subparagraph 8(b) of the OECD Commentary to Article 26: A
company resident in one Contracting State and a company resident in the other
Contracting State transact business between themselves through a third-country resident
company. Neither Contracting State has a treaty with the third state. To enforce their
internal laws with respect to transactions of their residents with the third-country
company (because there is no relevant treaty in force), the Contracting States may
exchange information regarding the prices that their residents paid in their transactions
with the third-country resident.

The information that may be exchanged relates to information as is foreseeably
relevant for carrying out the provisions of the Convention or the assessment or collection
of, the enforcement or prosecution in respect of, or the determination of appeals in
relation to, the taxes covered by the Convention. Thus, the competent authorities may
request and provide information for cases under examination or criminal investigation, in
collection, on appeals, or under prosecution.

The taxes covered by the Convention for purposes of this Article constitute a
broader category of taxes than those referred to in Article 2 of the Convention. Exchange
of information is authorized with respect to taxes of every kind imposed by a Contracting
State at the national level. Accordingly, information may be exchanged with respect to
U.S. estate and gift taxes, excise taxes or, with respect to Japan, nationally imposed value
added taxes.

Information exchange is not restricted by paragraph 1 of Article 1. Accordingly,
information may be requested and provided under this Article with respect to persons
who are not residents of either Contracting State. For example, if a third-country resident
has a permanent establishment in Japan and that permanent establishment engages in
transactions with a U.S. enterprise, the United States could request information with
respect to that permanent establishment, even though the third-country resident is not a
resident of either Contracting State. Similarly, if a third-country resident maintains a
bank account in Japan, and the Internal Revenue Service has reason to believe that funds
in that account should have been reported for U.S. tax purposes but have not been so
reported, the Internal Revenue Service can request information from Japan with respect
to that person’s account, even though that person is not the taxpayer under examination.

Although the term “United States” does not encompass U.S. possessions or
territories for most purposes of the Convention, section 7651 of the Code authorizes the
Internal Revenue Service to utilize the provisions of the Code to obtain information from
the U.S. possessions or territories pursuant to a proper request made under Article 26. If
necessary to obtain requested information, the Internal Revenue Service could issue and
enforce an administrative summons to the taxpayer, a tax authority (or a government
agency in a U.S. possession or territory), or a third party located in a U.S. possession or

19
territory.

The final sentence of paragraph 1 provides that the requesting State may specify
the form in which information is to be provided (e.g., authenticated copies of original
documents (including books, papers, statements, records, accounts, and writings)). The
intention is to ensure that the information may be introduced as evidence in the judicial
proceedings of the requesting State. The requested State shall, if possible, provide the
information in the form requested to the same extent that it could obtain information in
that form under its own laws and administrative practices with respect to its own taxes.

Paragraph 2 of New Article 26

Paragraph 2 provides assurances that any information exchanged will be treated
as secret, subject to the same disclosure constraints as information obtained under the
laws of the requesting State. The confidentiality rules cover competent authority letters,
including the letter requesting information. At the same time, it is understood that the
requested State can disclose the minimum information contained in a competent authority
letter (but not the letter itself) necessary for the requested State to be able to obtain or
provide the requested information to the requesting State, without frustrating the efforts
of the requesting State. If, however, court proceedings or the like under the domestic
laws of the requested State necessitate the disclosure of the competent authority letter
itself, the competent authority of the requested State may disclose such a letter unless the
requesting State otherwise specifies.

Information received may be disclosed only to persons or authorities, including
courts and administrative bodies, involved in the assessment, collection, or administration
of, the enforcement or prosecution in respect of, or the determination of appeals in
relation to, the taxes referred to in paragraph 1 or the oversight of such functions. The
information must be used by these persons in connection with the specified functions.
Information may also be disclosed to legislative bodies, such as the tax-writing
committees of the U.S. Congress and the U.S. Government Accountability Office,
engaged in the oversight of the preceding activities. Information received by these bodies
must be for use in the performance of their role in overseeing the administration of U.S.
tax laws. Information received may be disclosed in public court proceedings or in
judicial decisions.

In situations in which the requested State determines that the requesting State
does not comply with its duties regarding the confidentiality of the information
exchanged under this Article, the requested State may suspend assistance under this
Article until such time as proper assurance is given by the requesting State that those
duties will indeed be respected. If necessary, the competent authorities may enter into
specific arrangements or memoranda of understanding regarding the confidentiality of the
information exchanged under this Article.

Paragraph 3 of New Article 26

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Paragraph 3 provides that the obligations undertaken in paragraphs 1 and 2 to
exchange information do not require a Contracting State to carry out administrative
measures that are at variance with the laws or administrative practice of either State. Nor
is a Contracting State required to supply information not obtainable under the laws or
administrative practice of either State, or to disclose trade secrets or other information,
the disclosure of which would be contrary to public policy. Finally, paragraph 3 clarifies
that no obligation is imposed to obtain or provide information relating to certain
confidential communications between a client and an attorney, solicitor, or other admitted
legal representative.

Thus, a requesting State may be denied information from the other State if the
information would be obtained pursuant to procedures or measures that are broader than
those available in the requesting State. However, the statute of limitations of the
requesting State should govern a request for information. Thus, the requested State
should attempt to obtain the information even if its own statute of limitations has passed.
In many cases, relevant information will still exist in the business records of the taxpayer
or a third party, even though it is no longer required to be kept for domestic tax purposes.

While paragraph 3 states conditions under which a Contracting State is not
obligated to comply with an information request from the other Contracting State, the
requested State is not precluded from providing such information, and may, at its
discretion, do so subject to the limitations of its internal law.

Paragraph 4 of New Article 26

Paragraph 4 provides that when information is requested by a Contracting State in
accordance with this Article, the requested State is obligated to obtain the requested
information as if the tax in question were the tax of the requested State, even if that State
has no direct tax interest in the case to which the request relates. In the absence of such a
paragraph, some taxpayers have argued that subparagraph 3(a) prevents a Contracting
State from requesting information from a bank or fiduciary that the Contracting State
does not need for its own tax purposes. This paragraph clarifies that paragraph 3 does not
impose such a restriction and that a Contracting State is not limited to providing only the
information that it already has in its own files.

Paragraph 5 of New Article 26

Paragraph 5 provides that a Contracting State may not decline to provide
information because that information is held by banks, other financial institutions,
nominees or persons acting in an agency or fiduciary capacity or because the information
relates to ownership interests in a person. Thus, paragraph 5 would effectively prevent a
Contracting State from relying on paragraph 3 to argue that its domestic bank secrecy
laws (or similar legislation relating to disclosure of financial information by financial
institutions or intermediaries) override its obligation to provide information under
paragraph 1. This paragraph also requires the disclosure of information regarding the
beneficial owner of an interest in a person, such as the identity of a beneficial owner of

21
bearer shares.

Subparagraphs 3(a) and (b) do not permit the requested State to decline a request
where paragraph 4 or 5 applies. Paragraph 5 would apply, for instance, in situations in
which the requested State’s inability to obtain the information was specifically related to
the fact that the requested information was believed to be held by a bank or other
financial institution. Thus, the application of paragraph 5 includes situations in which the
tax authorities’ information-gathering powers with respect to information held by banks
and other financial institutions are subject to different requirements than those that are
generally applicable with respect to information held by persons other than banks or other
financial institutions. This would, for example, be the case where the tax authorities can
only exercise their information-gathering powers with respect to information held by
banks and other financial institutions in instances where specific information regarding
the taxpayer under examination or investigation is available. This would also be the case
where, for example, the use of information-gathering measures with respect to
information held by banks and other financial institutions requires a higher probability
that the information requested is held by the person believed to be in possession of the
requested information than the degree of probability required for the use of information-
gathering measures with respect to information believed to be held by persons other than
banks or financial institutions.

Paragraph 10 of the Exchange of Notes clarifies that new Article 26 shall have
effect from the date of entry into force of the Protocol without regard to the taxable year
to which the matter relates, provided all of the conditions and requirements of the Article
are satisfied. Thus, for example, the competent authority may seek information under
new Article 26 with respect to a taxable year prior to the entry into force of the Protocol.

Article XIII

Article XIII of the Protocol replaces Article 27 of the existing Convention with a
new Article 27. New Article 27 provides rules under which the United States and Japan
will lend each other assistance in the collection of certain revenue claims, as defined in
paragraph 1 of the new Article 27.

Paragraph 1 of New Article 27

Paragraph 1 provides that subject to the conditions set forth in new Article 27, the
Contracting States shall lend assistance to each other in the collection of “revenue
claims,” defined to be taxes (insofar as the taxation is not contrary to the Convention or
any other agreement to which the United States and Japan are parties), together with
interest, costs of collection, additions to such taxes, and civil or administrative penalties
related to such taxes. Paragraph 5 of the Exchange of Notes sets forth the understanding
of the Contracting States that the obligation to lend assistance shall be satisfied in cases
where the State from which assistance is requested (the requested State) had made
reasonable efforts to lend assistance, but was unsuccessful in collecting the revenue claim
on behalf of the State requesting assistance (the applicant State).

22

Collection assistance is not limited by the provisions of paragraph 1 of Article 1
of the Convention. Accordingly, assistance may be requested and provided under new
Article 27 regarding revenue claims in respect of persons who are not residents of either
Contracting State, provided that all of the requirements of the Article are satisfied. For
example, new Article 27 would permit the United States to request assistance from Japan
regarding the collection of a finally determined revenue claim against an individual who
is a resident of a third country, has assets in Japan, provided services in the United States,
and filed a fraudulent U.S. tax return.

Paragraph 2 of New Article 27

Paragraph 2 limits the scope of revenue claims for which collection assistance
may be sought pursuant to new Article 27. Subparagraph 2(a) limits the scope of revenue
claims in respect of companies, and subparagraph 2(b) limits the scope of revenue claims
in respect of individuals.

The benefits afforded under new Article 27 are not intended to provide a means to
bypass or circumvent the application of the mutual agreement procedure as set forth in
Article 25 of the Convention. Consistent with this policy, subparagraph 2(a) provides
that collection assistance will be available only for the following revenue claims in
respect of a company: (i) revenue claims the determination of which are not eligible to be
resolved by mutual agreement procedure pursuant to Article 25; (ii) revenue claims the
determination of which have been mutually agreed upon pursuant to Article 25; or (iii)
revenue claims with respect to the determination of which the company has terminated
the mutual agreement procedure are eligible for collection assistance.

Subparagraph 2(b) describes those revenue claims against individuals which are
eligible for collection assistance. A Contracting State may request collection assistance
with respect to a revenue claim against an individual who is a national of that State (or a
national of a third state) without limitation other than limitations imposed by the other
paragraphs of new Article 27. However, in the case of revenue claims against an
individual who is a national of the requested State, collection assistance shall be provided
only for revenue claims with respect to which the individual or a person acting on behalf
of the individual (i) has filed a fraudulent tax return or a fraudulent claim for refund; (ii)
has willfully failed to file a tax return with the intention of evading taxes; or (iii) has
transferred assets into the requested State to avoid collection of the revenue claim.

Paragraph 3 of New Article 27

Paragraph 3, which is equivalent to Article 27 of the existing Convention, applies
notwithstanding the limitations of paragraph 2. Paragraph 3 provides for assistance in
collection of taxes to the extent necessary to ensure that treaty benefits are enjoyed only
by persons entitled to those benefits under the terms of the Convention, provided that the
requested State agrees with such determination of improper granting of treaty benefits.
For example, if the payer of a U.S.-source portfolio dividend receives a Form W-8BEN

23
or other appropriate documentation from the payee, the withholding agent is generally
permitted to withhold at the reduced portfolio dividend rate of 15 percent. If, however, it
is subsequently discovered that the payee is merely acting as a nominee on behalf of a
third-country resident, paragraph 3 of new Article 27 would require Japan to withhold
and remit to the United States the additional tax that should have been collected by the
U.S. withholding agent.

Paragraph 4 of New Article 27

Paragraph 4 provides that new Article 27 shall apply only to revenue claims in
respect of the taxes covered by Article 2 and certain additional taxes.

In the case of Japan, the additional taxes with respect to which collection
assistance may be requested are the consumption tax, the inheritance tax, and the gift tax.
Paragraph 6 of the Exchange of Notes clarifies that the term “consumption tax” means
only the consumption tax imposed at the national level by Japan, and does not include
any consumption tax imposed by a local authority of Japan.

In the case of the United States, the additional taxes with respect to which
collection assistance may be requested are the Federal estate and gift taxes, the Federal
excise tax on insurance policies issued by foreign insurers, the Federal excise taxes
imposed with respect to private foundations, and the Federal taxes related to employment
and self-employment. Paragraph 7 of the Exchange of Notes clarifies that the term
“Federal excise tax on insurance policies issued by foreign insurers” means taxes
imposed pursuant to Section 4371 through 4374 of the Internal Revenue Code.
Paragraph 8 of the Exchange of Notes clarifies that the term “Federal excise tax imposed
with respect to private foundations” means taxes imposed pursuant to sections 4940
through 4948 of the Code. Paragraph 9 of the Exchange of Notes clarifies that the term
“Federal taxes related to employment and self-employment” means taxes imposed
pursuant to Chapter 2 and Chapters 21 through 23A of the Internal Revenue Code.

Paragraph 5 of New Article 27

Paragraph 5 requires the applicant State to certify that the revenue claim for
which collection assistance is sought has been "finally determined." For purposes of
paragraph 5, a revenue claim has been finally determined when the applicant State has
the right under its internal law to collect the revenue claim and all administrative and
judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or
been exhausted.

New paragraph 15 of the Protocol of 2003 as amended by paragraph 3 of Article
XIV provides that for the purposes of evaluating the final determination of a U.S. revenue
claim for which the United States may request assistance pursuant to Article 27, the
existence of administrative or judicial rights available to the taxpayer in connection with
the finally determined revenue claim that arise after collection actions have begun, such
as collection due process rights (CDP) and collection appeals rights (CAP), shall not be

24
interpreted by Japan to mean that such revenue claim is not finally determined under U.S.
principles. New paragraph 15 of the 2003 Protocol does not limit a taxpayer’s access to
CDP or CAP rights with respect to collection by the United States of a U.S. revenue
claim, including revenue claims for which the United States has requested collection
assistance from Japan.

In the case of Japan, new paragraph 15 of the Protocol of 2003 provides that the
right to take action pursuant to Article 36 of the Administrative Case Litigation Act (Law
No. 139 of 1962) of Japan shall not be interpreted by the United States to mean that such
revenue claim is not finally determined under Japanese principles.

Paragraph 6 of New Article 27

Paragraph 6 of new Article 27 provides that when an application for assistance by
the applicant State has been accepted for collection by the requested State pursuant to the
provisions of Article 27, the revenue claim of the applicant State shall be treated, to the
extent necessary for collection under the laws of the requested State, as assessed under
the laws of the requested State as of the time the application is received, and shall be
collected by the requested State as though such revenue claim were the requested State’s
own revenue claim in accordance with the laws applicable to the collection of the
requested State’s own revenue claims.

Paragraph 7 of New Article 27

Paragraph 7 of new Article 27 provides that notwithstanding the provisions of
paragraph 6, acts of collection carried out by the requested State in pursuance of an
application for assistance, which, according to the laws of the applicant State, would have
the effect of suspending or interrupting the period of limitation on the collection of a
revenue claim in the applicant State if carried out by the applicant State, shall also have
this effect with respect to the revenue claim under the laws of the applicant State. For
example, assume that in the pursuance of an application for assistance, the competent
authority of the requested State had reached an agreement with the taxpayer to enter into
a plan under which the revenue claim would be paid over time in a series of installments.
If under the administrative practices of the applicant State, the use of an installment
agreement would have the effect of extending the applicant State’s statute of limitations
for collection, then by virtue of this paragraph 7, the conclusion of an installment
agreement between the taxpayer and the requested State shall have the effect of extending
the statute of limitations in the applicant State. Paragraph 7 obligates the requested State
to inform the applicant State about such acts.

Paragraph 8 of New Article 27

Paragraph 8 of new Article 27 provides that the time limits of the requested State,
i.e., time limitations beyond which a revenue claim cannot be enforced or collected, shall
not apply to a revenue claim in respect of which the applicant State has made a request
under this Article. Only the time limits of the applicant State are applicable. Thus, as

25
long as a revenue claim can still be enforced or collected in the applicant State, the
requested State may not refuse to pursue a request based on its own time limits.
Paragraph 8 applies notwithstanding paragraph 6 of new Article 27, which requires the
requested State to generally treat the revenue claim of the applicant State as its own
revenue claim.

Paragraph 8 also provides that the rules of the requested State giving its own
revenue claims priority over the claims of other creditors shall not apply to a revenue
claim in respect of which a request for assistance has been made under new Article 27.
Such rules are often included in domestic laws to ensure that tax authorities can collect
taxes to the fullest possible extent.

The words “by reason of its nature as such” found at the end of the paragraph
indicate that the time limits and priority rules of the requested State to which the
paragraph applies are only those that are specific to unpaid taxes. Thus, the paragraph
does not prevent the application of general rules concerning time limits or priority that
would apply to all debts (e.g., rules giving priority to a claim by reason of that claim
having arisen or having been registered before another claim).

Paragraph 9 of New Article 27

Paragraph 9 of new Article 27 provides that nothing in Article 27 shall be
construed as creating in the requested State any rights of administrative or judicial review
of the applicant State's finally determined revenue claim. Thus, when an application for
collection assistance has been accepted, the substantive validity of the applicant State's
revenue claim cannot be challenged in an action in the requested State, irrespective of
any such rights that may be available under the laws of either Contracting State.

Paragraph 10 of New Article 27

Paragraph 10 of new Article 27 provides that if, at any time pending execution of
an application for assistance under Article 27, the applicant State loses the right under its
domestic law to collect the revenue claim or otherwise terminates collection, the
competent authority of the applicant State shall promptly withdraw the application for
assistance in collection and the requested State shall cease all measures of collection of
the revenue claim.

Paragraph 11 of New Article 27

Paragraph 11 of new Article 27 provides that if, at any time pending execution of
an application for assistance under Article 27, the applicant State suspends collection of
the revenue claim according to the laws of the applicant State, the competent authority of
the applicant State shall promptly notify the competent authority of the requested State of
that fact, and the competent authority of the applicant State shall either suspend or
withdraw its request at the option of the competent authority of the requested State and
the requested State shall suspend or cease all measures of collection of the revenue claim

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accordingly.

Paragraph 12 of New Article 27

Paragraph 12 of new Article 27 provides that amounts collected by the requested
State pursuant to this Article shall be remitted to the competent authority of the applicant
State.

Paragraph 13 of New Article 27

Paragraph 13 of new Article 27 provides that unless the competent authorities of
both Contracting States otherwise agree, the ordinary costs incurred in providing
assistance in collection shall be borne by the requested State, and any extraordinary costs
so incurred shall be borne by the applicant State.

Paragraph 14 of New Article 27

Paragraph 14 of new Article 27 sets forth limitations on the obligations imposed
on the requested State. The requested State is at liberty to refuse to provide assistance in
the cases referred to in the paragraph. However, if it does provide assistance in these
cases, it remains within the framework of the Article and it cannot be objected that this
State has failed to observe the provisions of the Article.

In the first place, the paragraph provides that a Contracting State is not bound to
go beyond its own internal laws and administrative practice or those of the other State in
fulfilling its obligations under the Article. However, types of administrative measures
authorized for the purpose of the requested State’s tax must be utilized, even though
invoked solely to provide assistance in the collection of taxes owed to the requesting
State.

Paragraph 8 of this Article provides that a Contracting State’s time limits will not
apply to a revenue claim in respect of which the other State has requested assistance.
Subparagraph 14(a) is not intended to defeat that principle. Providing assistance with
respect to a revenue claim after the requested State’s time limits have expired will not,
therefore, be considered to be at variance with the laws and administrative practice of that
or of the other Contracting State in cases where the time limits applicable to that claim
have not expired in the requesting State.

Subparagraph 14(b) includes a limitation to carrying out measures contrary to
public policy.

Paragraph 15 of New Article 27

Paragraph 15 of new Article 27 sets forth additional limitations on the obligations
imposed on the requested State. Under subparagraph 15(a), the requested State is not
obliged to satisfy a request for assistance if the applicant State has not pursued all

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reasonable measures of collection available under its laws or administrative practices.
Under subparagraph 15(b), the requested State may also reject a request for assistance for
practical considerations, for instance if the costs that it would incur in collecting a
revenue claim of the requesting State would exceed the amount of the revenue claim.

Paragraph 16 of New Article 27

Paragraph 16 of new Article 27 mandates the competent authorities of both
Contracting States to reach a written agreement on the mode of application of the Article
before any assistance shall be lent under the Article other than pursuant to paragraph 3.
The written agreement shall include: 1) measures to ensure comparable levels of
assistance to each Contracting State; 2) a limit to the number of applications for
assistance that a Contracting State may make in a particular year; and 3) minimum
monetary thresholds for a revenue claim for which assistance is sought. In addition, the
written agreement shall also set forth procedural rules related to the remittance of
amounts collected pursuant to the provisions of the Article.

Paragraph 10 of the Exchange of Notes clarifies that new Article 27 shall have
effect from the date of entry into force of the Protocol without regard to the taxable year
to which the revenue claim relates, provided all of the conditions and requirements of the
Article are satisfied. Thus, for example, a Contracting State could request assistance
under new Article 27 with respect to a revenue claim that arose prior to the entry into
force of the Protocol.

Article XIV

Article XIV of the Protocol makes numerous amendments to the Protocol of 2003.

Paragraph 1

Paragraph 1 of Article XIV of the Protocol makes two non-substantive changes to
paragraph 1 of the Protocol of 2003. The two references to “United States excise tax” are
replaced with the term “Federal excise tax.” Paragraph 7 of the Exchange of Notes
clarifies that for purposes of revised paragraph 1 of the Protocol of 2003, the term
“Federal excise tax on insurance policies issued by foreign insurers” means taxes
imposed pursuant to Section 4371 through 4374 of the Internal Revenue Code.
Paragraph 8 of the Exchange of Notes clarifies that for purposes of revised paragraph 1 of
the Protocol of 2003, the term “Federal excise tax imposed with respect to private
foundations” means taxes imposed pursuant to Section 4940 through 4948 of the Internal
Revenue Code.

Paragraph 2

Paragraph 2 of Article XIV of the Protocol deletes paragraph 9 of the Protocol of
2003 in order to conform with changes relating to capital gains that Article V of the
Protocol makes to Article 13 of the Convention.

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Paragraph 3

Paragraph 3 of Article XIV of the Protocol adds two new paragraphs to the
Protocol of 2003. New paragraph 14 of the Protocol of 2003 (discussed below) sets forth
a number of clarifications and rules regarding the application of the mandatory binding
arbitration provisions in new paragraphs 5, 6 and 7 of Article 25 of the Convention as
modified by Article XI of the Protocol. New paragraph 15 of the Protocol of 2003 is
discussed above in the explanation of paragraph 5 of new Article 27 of the Convention.

New Subparagraph 14(a) of the Protocol of 2003

New subparagraph 14(a) of the Protocol of 2003 is discussed above in the
explanation of new paragraph 5 of Article 25 of the Convention as amended by Article
XI of the Protocol.

New Subparagraph 14(b) of the Protocol of 2003

New subparagraph 14(b) of the Protocol of 2003 sets forth rules that the
competent authorities shall follow for selecting the members of the arbitration panel. The
arbitration panel shall consist of three individual members. The members appointed shall
not be employees nor have been employees within the twelve-month period prior to the
date on which the arbitration proceeding begins, of the tax administration, the Ministry of
Finance or the Treasury Department of the Contracting State which identifies them. Each
competent authority shall select one member of the arbitration panel. In the event that the
competent authority of one Contracting State fails to select a member for the arbitration
panel in the manner and within the time periods agreed by the competent authorities
pursuant to new subparagraph 7(i)(iv) of Article 25 of the Convention, the competent
authority of the other Contracting State shall select a second member. The two members
of the arbitration panel who have been selected shall select the third member, who shall
serve as Chair of the arbitration panel. If the two initial members of the arbitration panel
fail to select the third member in the manner and within the time periods agreed by the
competent authorities pursuant to new subparagraph 7(i)(iv) of Article 25 of the
Convention, these members shall be dismissed, and each competent authority shall select
a new member of the arbitration panel. The Chair shall not be a national or lawful
permanent resident of either Contracting State. Furthermore, the members appointed
shall not have any prior involvement with the specific matters at issue in the proceeding
for which they are being considered as arbitrators.

New subparagraph 14(c) of the Protocol of 2003

New subparagraph 14(c) of the Protocol of 2003 sets forth conditions under which
the arbitration process with respect to particular cases shall terminate. Subparagraph
14(c)(i) provides that an arbitration proceeding with respect to a case shall terminate if
the competent authorities reach a mutual agreement to resolve the case. Subparagraph
14(c)(ii) provides that an arbitration proceeding with respect to a case shall terminate if

29
the presenter of the case withdraws his request for arbitration. Subparagraph 14(c)(iii)
provides that an arbitration proceeding with respect to a case shall terminate if a decision
concerning the case is rendered by a court or administrative tribunal of one of the
Contracting States during the arbitration proceeding. Subparagraph 14(c)(iv) provides
that an arbitration proceeding with respect to a case shall terminate if any concerned
person or their authorized representatives or agents willfully violates the written
nondisclosure statement required by new subparagraph 5(b) of Article 25, and the
competent authorities of both Contracting States agree that such violation should result in
the termination of the arbitration proceeding.

New Subparagraph 14(d) of the Protocol of 2003

Subparagraph 14(d) of the Protocol of 2003 sets forth the rules governing the
submission of proposed resolutions for consideration by the arbitration panel. Each
competent authority shall be permitted to submit a proposed resolution addressing each
adjustment or similar issue raised in the case. Such proposed resolution shall be a
resolution of the entire case and shall reflect without modification all matters in the case
previously agreed between the competent authorities. Such proposed resolution shall be
limited to a disposition of specific monetary amounts (for example, of income, profit,
gain or expense) or, where specified, the maximum rate of tax charged pursuant to the
Convention for each adjustment or similar issue in the case. Each competent authority
shall also be permitted to submit a supporting position paper for consideration by the
arbitration panel.

New Subparagraph 14(e) of the Protocol of 2003

New subparagraph 14(e) of the Protocol of 2003 provides a special rule for
proposed resolutions involving an initial determination of a threshold question (such as
the existence of a permanent establishment). Subparagraph 14(e) provides that
notwithstanding the provisions of subparagraph 14(d) of the Protocol of 2003, it is
understood that, in the case of an arbitration proceeding concerning: (i) the tax liability of
an individual with respect to whose State of residence the competent authorities have
been unable to reach agreement; (ii) the taxation of the business profits of an enterprise
with respect to which the competent authorities have been unable to reach an agreement
on whether a permanent establishment exists; or (iii) such other issues the determination
of which are contingent on resolution of similar threshold questions, the proposed
resolutions and position papers may include positions regarding ( i), (ii) or (iii) above, in
addition to proposed resolutions limited to specific monetary amounts (for example, of
income, profit, gain or expense) or, where specified, the maximum rate of tax charged
pursuant to the Convention due as a consequence of the arbitration panel’s determination
regarding residency, the existence of a permanent establishment or other threshold
questions. The determination of the arbitration panel regarding the threshold question
may preclude the need for a further determination regarding specific monetary amounts
or the maximum rate of tax.

New Subparagraph 14(f) of the Protocol of 2003

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New subparagraph 14(f) of the Protocol of 2003 provides that where an
arbitration proceeding concerns a case comprising multiple adjustments or issues each
requiring a disposition of specific monetary amounts of income, profit, gain or expense
or, where specified, the maximum rate of tax charged pursuant to the Convention, the
proposed resolution may propose a separate disposition for each adjustment or similar
issue. This flexibility permits each adjustment or issue to be resolved independently
through the arbitration proceeding, such that the determination of the arbitration panel
will constitute a mutual agreement of the entirety of the issues in the case.

New Subparagraph 14(g) of the Protocol of 2003

New subparagraph 14(g) of the Protocol of 2003 provides that each competent
authority shall receive the proposed resolution and position paper submitted by the other
competent authority, and shall be permitted to submit a reply submission to the
arbitration panel. Each competent authority shall also receive the reply submission of the
other competent authority.

New Subparagraph 14(h) of the Protocol of 2003

New subparagraph 14(h) of the Protocol of 2003 provides that the presenter of the
case shall be permitted to submit for consideration by the arbitration panel a paper setting
forth the presenter’s analysis and views of the case. The submission by the presenter of
the case is not a proposed resolution that the arbitration panel could select in making its
determination. The submission by the presenter may not include any information not
provided to the competent authorities prior to the initiation of the arbitration proceeding.
The competent authorities shall determine an appropriate time frame for submission of
such paper by the presenter in order to ensure that the competent authorities have
sufficient time to consider the information.

New Subparagraph 14(i) of the Protocol of 2003

New subparagraph 14(i) of the Protocol of 2003 provides that the arbitration panel
shall deliver a determination in writing to the competent authorities. The determination
reached by the arbitration panel in the arbitration proceeding shall be limited to one of the
proposed resolution submitted by one competent authority for each adjustment or similar
issue and any threshold questions, and shall not include a rationale or any other
explanation of the determination. The determination of the arbitration panel shall have no
precedential value with respect to the application of the Convention in any other case.

New Subparagraph 14(j) of the Protocol of 2003

New subparagraph 14(j) of the Protocol of 2003 provides that unless the
competent authorities of both Contracting States agree to a longer time period, the
presenter of the case shall have 45 days from receiving the determination of the
arbitration panel to notify, in writing, the competent authority of the Contracting State to

31
whom the case was presented, his acceptance of the determination. In the event the case
is pending in litigation and the presenter desires to accept the determination, each
concerned person who is a party to the litigation must also advise, within the same time
frame, the relevant court of its acceptance of the determination of the arbitration panel as
the resolution by mutual agreement and its intention to withdraw from the consideration
of the court the issues resolved through the proceeding. If any concerned person fails to
so advise the relevant competent authority and relevant court within this time frame, the
determination of the arbitration panel shall be considered not to have been accepted by
the presenter of the case. Where the determination of the arbitration panel is not
accepted, the case will not be eligible for any subsequent further consideration by the
competent authorities.

New Subparagraph 14(k) of the Protocol of 2003

New subparagraph 14(k) of the Protocol of 2003 provides that the fees and
expenses of the members of the arbitration panel, as well as any costs incurred in
connection with the proceeding by the Contracting States, shall be borne equitably by the
competent authorities.

Article XV

This Article contains rules for bringing the Protocol into force and giving effect to
its provisions.

Paragraph 1

Paragraph 1 provides for the ratification of the Protocol by both Contracting
States according to their constitutional and statutory requirements. The Protocol shall
enter into force on the date that the Contracting States exchange instruments of
ratification.

In the United States, the process leading to ratification and entry into force is as
follows: Once a treaty has been signed by authorized representatives of the two
Contracting States, the Department of State sends the treaty to the President who formally
transmits it to the Senate for its advice and consent to ratification, which requires
approval by two-thirds of the Senators present and voting. Prior to this vote, however, it
generally has been the practice for the Senate Committee on Foreign Relations to hold
hearings on the treaty and make a recommendation regarding its approval to the full
Senate. Both Government and private sector witnesses may testify at these hearings.
After the Senate gives its advice and consent to ratification of the protocol or treaty, an
instrument of ratification is drafted for the President's signature. The President’s
signature completes the process in the United States.

Paragraph 2

The date on which a treaty enters into force is not necessarily the date on which

32
its provisions take effect. Paragraph 2, therefore, provides rules regarding when the
provisions of the Protocol will have effect.

Under subparagraph 2(a), the Protocol will have effect with respect to taxes
withheld at source (principally dividends, interest and royalties) for amounts paid or
credited on or after the first day of the third month following the date on which the
Convention enters into force. For example, if instruments of ratification are exchanged
on April 25 of a given year, the withholding rates specified in new Article 11 of the
Convention would be applicable to any interest paid or credited on or after July 1 of that
year. This rule allows the benefits of the withholding reductions to be put into effect as
soon as possible, without waiting until the following calendar year. The two- to
three-month delay is required to allow sufficient time for withholding agents to be
informed about the change in withholding rates. If, after the provisions regarding taxes
withheld at source have entered into force, a U.S. withholding agent withholds at a higher
rate than that provided by the Convention (perhaps because the withholding agent was
not able to re-program its computers before the payment was made), a beneficial owner
of the income that is a resident of Japan may make a claim for refund pursuant to section
1464 of the Code.

For all other taxes, subparagraph 2(b) specifies that the Protocol will have effect
for any taxable period beginning on or after January 1 of the year following entry into
force.

Paragraph 3

Paragraph 3 provides that notwithstanding the provisions of paragraph 2, the
mandatory binding arbitration rules provided in new paragraphs 5, 6 and 7 of Article 25
of the Convention as amended by Article XI of the Protocol shall have effect with respect
to (a) cases that are under consideration by the competent authorities as of the date on
which the Protocol enters into force and (b) cases that come under such consideration
after the date on which the Protocol enters into force. Thus, the mandatory binding
arbitration rules may apply with respect to tax liabilities (or potential tax liabilities)
arising before the Protocol enters into force.

With respect to cases that are under consideration by the competent authorities as
of the date on which the Protocol enters into force, the commencement date (defined in
new paragraph 7(b) of Article 25) shall be the date on which the Protocol enters into
force. As a result, cases that are open and unresolved as of the entry into force of the
Protocol will go into binding arbitration on the later of two years after the entry into force
of the Protocol (unless both competent authorities have previously agreed to a different
date) and the earliest date upon which all the agreements required by new subparagraph
7(c) of Article 25 have been received by both competent authorities.

Paragraph 4

Paragraph 4 contains special rules regarding the effective dates of the provisions

33
of revised Articles 26 and 27 of the Convention as amended by Articles XII and XIII
respectively of the Protocol. Notwithstanding the provisions of paragraph 2 of this
Article XV, the provisions of revised Articles 26 and 27 shall have effect from the date of
entry into force of the Protocol, and as clarified by paragraph 10 of the Exchange of
Notes, without regard to the matter or revenue claim to which the request relates,
provided all of the conditions and requirements of the respective Articles are satisfied.

Paragraph 5

Paragraph 5 provides that notwithstanding the entry into force of the Protocol, an
individual who is entitled to the benefits of Article 20 of the existing Convention (relating
to teachers and researchers) at the time of the entry into force of the Protocol shall
continue to be entitled to such benefits until such time as the individual would have
ceased to be entitled to such benefits if the Protocol had not entered into force.

Paragraph 6

Paragraph 6 provides that the Protocol shall remain in effect as long as the
Convention remains in force.