"Exchange of Notes (Jan 24, 1967) and Agreed Minutes"

EXCHANGE OF NOTES

Tokyo, January 24, 1967

Monsieur le Minister,

I have the honour to refer to the Convention between the United States of Brazil and Japan for the Avoidance of Double Taxation with respect to Taxes on Income which was signed today and to confirm, on behalf of the Government of the United States of Brazil, the following understandings reached between the Government of the United States of Brazil and the Government of Japan:

1. With reference to paragraph (2) of Article 3:

Where an individual is a resident of both Contracting States, the question shall be settled by mutual agreement taking into consideration the following rules:

1. He shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest (center of vital interests);
2. If the Contracting State in which he has his center of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
3. If he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;
4. If he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

2. With reference to sub-paragraphs (c) and (d) of paragraph (3) of Article 4, the term "solely for the purpose of storage, display or delivery" means the case where no sales operations are carried on in the country in which such facilities are situated.

3. With reference to paragraph (3) of Article 5, the term "expenses which are incurred for the purposes of the permanent establishment" means all expenses actually incurred whether in the Contracting State in which the permanent establishment is situated or elsewhere, reasonably allocable to such permanent establishment, and which have contributed to earning of profits

4. With reference to paragraph (2) of Article 7, the two Governments agree that, if the Government of the United States of Brazil, a political subdivision or local authority thereof introduces any taxes of a character substantially similar to the local inhabitant taxes or the enterprise tax in Japan after the date of signature of the Convention, the two Governments will consult for the purpose of amending the said provisions with a view to including those taxes.

5. With reference to paragraph (6) of Article 9, the terms "tax on activities of minor importance" and "excess remittance tax" mean the Brazilian tax imposed under Articles 295 and 299, respectively, of the Brazilian Income Tax Regulations as consolidated by Decree 58.400, of May 10, 1966.

6. Sub-paragraph (a) of paragraph (2) of Article 10 shall not apply to the interest arising in a Contracting State and paid to a bank or other financial institution which is a resident of the other Contracting State having a permanent establishment in the first-mentioned Contracting State, if such interest which arises from the debt-claims is treated as income attributable to the above-mentioned permanent establishment.

7. With reference to the sub-paragraph (b) of paragraph (2) of Article 10:

1. the term "industrial undertaking" means an undertaking falling under any of the classes mentioned below:

    

   1. manufacturing, assembling and processing;
   2. constructing, civil engineering and ship-building;
   3. electricity, hydraulic power, gas and water supply;
   4. mining, including the working of a quarry or any other source of mineral deposits;
   5. plantation, agriculture, forestry and fishery; and
   6. any other undertaking which may be declared to be "an industrial undertaking" for the purposes of Article 10 by the competent authority of the Contracting State in which the undertaking is situated;

    

2. the term "such loans are made" means the time when a contract for such loans is concluded or the time when such loans are actually disbursed.

8. With reference to paragraph (6) of Article 11, in determining whether or not the royalties are a fair and reasonable consideration in respect of the rights for which they are paid, the competent authority of a Contracting State may take into account the provisions of its own tax legislation.

9. With reference to sub-paragraph (b) (ii) of paragraph (2) of Article 22:
 

1. the special incentive measures designed to promote economic development in Amazonian Region and Northern and Northeastern Region of Brazil are those set forth in the following articles of the Brazilian Income Tax Regulations of May, 1966:
    
   1. in the case of Northern and Northeastern Region:

      Law Nº 3692 of 1959 – Article 19
      Law Nº 3995 of 1961 – Article 34
      Law Nº 4239 of 1963 – Articles 13 to 18
      Law Nº 4357 of 1964 – Article 14
      Law Nº 4506 of 1964 – Article 9
      Law Nº 4869 of 1965 – Articles 12 to 24
       

   2. in the case of Amazonian Region
       

   Law Nº 1806 of 1953 – Article 2
   Law Nº 3692 of 1959 – Article 19
   Law Nº 4069-B of 1962 – Articles 1 and 2,

   and also those set forth in the Law Nº 5174 of October, 1966 – Articles 1, 2, 7, 8, 9, 10, 17 and 19.
    

2. if new legislation is enacted in Brazil within the scope of the special incentive measures mentioned in the said Article or in substitution for the Articles of the Brazilian legislation enumerated in paragraph (1) above effective on the date of signature of the Convention, the Government of the United States of Brazil will inform the Government of Japan on such legislation and the two Governments will consult for the purpose of a new exchange of notes with a view to including those modifications which arise from the above legislation.

I have further the honour to request Your Excellency to be good enough to confirm the foregoing understandings on behalf of the Government of Japan.

I avail myself of this opportunity to extend to Your Excellency, Monsieur le Ministre, the assurances of my highest consideration.

II

Tokyo, January 24, 1967