Cross-border Corporate Reorganizations and Non-discrimination Clauses : Focusing on Two Protocols in Japanese Tax Treaties

There have been arguments for improving the flexibility of tax treaties for cross-border issues arising from corporate reorganizations. This article focuses on non-discrimination clauses, and reviews present situations on Japanese tax treaty conclusion policy for corporate reorganizations. Then, this article clarifies current issues of its policy, mainly based on an internationally well-known Professor Domingo’s scholarly work. Only two protocols of current Japanese tax treaties have non-discrimination clauses for corporate reorganizations. If the assets leave the tax jurisdiction of the state of source through corporate reorganizations, such two protocols exclude preferential tax regimes for such reorganizations at the state of source from non-discriminately treatments. From this study, it follows that existing tax treaties (including the OECD Model) have two issues on non-discrimination clauses for corporate reorganizations: (1) Existing non-discrimination clauses (e.g. article 24 of the OECD Model) have no valid grounds to envisage preferential tax treatments for corporate reorganizations; (2) Practices of some states when negotiating their bilateral tax treaties might support the interpretation favouring the inclusion of corporate reorganizations within the scope of the relief of non-discrimination clauses. In conclusion, this study shows two following findings: (1) Current Japanese tax treaty conclusion policy for non-discrimination clauses can be evaluated as normal responses in line with the OECD Model; (2) Practices of above-mentioned two protocols can be reference options for Japan as well as Australia and New Zealand when negotiating Japanese bilateral tax treaties. For the second finding, it is worth noting that such non-discriminatory treatments have to be discussed as part of the overall system of international income taxation as Professor Masui points out. It seems that the relationship between such non-discriminatory treatments and article 13 of the OECD Model is important and that such treatments show examples of how that relationship should be.