Global Daily Tax News, Japan, Philippines Sign New, Replacement DTA, (Jun 1, 2026)

Japan and the Philippines signed a new double tax agreement on May 28, 2026.

The new convention wholly amends the existing convention, which entered into force in 1980 and which was partially amended in 2008.

The new agreement amends maximum withholding tax rates that may be charged at source.

Under the existing agreement, a concessionary 10 percent rate applies where the recipient holds, for at least six months, at least 10 percent of the voting power of the paying company, and 15 percent in other cases.

The new agreement retains these rates but newly provides that, for recipients in the Philippines, the recipient must hold at least 10 percent of the capital of the paying company for at least six months.

A new five percent maximum withholding tax rate will be available where the recipient holds at least 90 percent of: voting power, when paid to a company in Japan, or capital, when paid to a company in the Philippines, of the company distributing the dividend.

The existing rules for interest income will be retained – that is, an exemption for interest income received by government entities, or 10 percent.

For royalties, the maximum withholding tax rate will be capped at 10 percent. The 15 percent rate for royalties in respect of cinematograph films will be withdrawn under the new agreement.

The agreement includes provisions intended to counter tax base erosion and profit shifting. It includes a preamble that states that the DTA is not intended to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance, or treaty shopping.

Further, the agreement includes provisions to counter treaty abuse, prevent the artificial avoidance of permanent establishment status, neutralize the effects of hybrid mismatch arrangements, and improve dispute resolution mechanisms.