Bill S-3

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	SCHEDULE 8 (Sections 45 to 47)
	SCHEDULE IV.1 (Section 8)
	PROTOCOL AMENDING THE CONVENTION BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF JAPAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME
	The Government of Canada and the Government of Japan, desiring to amend the Convention between the Government of Canada 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 Tokyo on May 7, 1986 (hereinafter referred to as ``the Convention''), have agreed as follows:
	ARTICLE I
	Article 8 of the Convention shall be deleted and replaced by the following:
	``Article 8
	1. Profits from the operation of ships or aircraft in international traffic carried on by an enterprise of a Contracting State shall be taxable only in that Contracting State.
	2. Notwithstanding the provisions of Article 2, provided that no political subdivision or local authority in Canada levies an income tax or a tax similar to the enterprise tax in Japan in respect of the operation of ships or aircraft in international traffic carried on by an enterprise of Japan, an enterprise of Canada shall be exempt from the local inhabitant taxes and the enterprise tax in Japan in respect of the operation of ships or aircraft in international traffic.
	3. The provisions of the preceding paragraphs shall also apply to profits from the participation in a pool, a joint business or an international operating agency.''
	ARTICLE II
	Article 9 of the Convention shall be deleted and replaced by the following:
	``Article 9
	1. Where
	(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or
	(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,
	and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.
	2. Where a Contracting State includes, in accordance with the provisions of paragraph 1, in the profits of an enterprise of that Contracting State - and taxes accordingly - profits on which an enterprise of the other Contracting State has been charged to tax in that other Contracting State and where the competent authorities of the Contracting States agree, upon consultation, that all or part of the profits so included are profits which would have accrued to the enterprise of the first-mentioned Contracting State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other Contracting State shall make an appropriate adjustment to the amount of tax charged therein on those agreed profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention.
	3. Notwithstanding the provisions of paragraph 1, a Contracting State shall not change the profits of an enterprise of that Contracting State in the circumstances referred to in paragraph 1 after seven years from the end of the taxable or taxation year in which the profits that would be subject to such change would, but for the conditions referred to in paragraph 1, have accrued to that enterprise.
	4. The provisions of paragraphs 2 and 3 shall not apply in the case of fraud or wilful default.''
	ARTICLE III
	Paragraph 2 of Article 10 of the Convention shall be deleted and replaced by the following:
	``2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that Contracting State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
	(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least 25 per cent of the voting shares of the company paying the dividends throughout the period of six months immediately before the end of the accounting period for which the distribution of profits takes place;
	(b) 15 per cent of the gross amount of the dividends in all other cases.
	The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.''
	ARTICLE IV
	Paragraph 2 of Article 11 of the Convention shall be deleted and replaced by the following:
	``2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that Contracting State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.''
	ARTICLE V
	Paragraph 2 of Article 12 of the Convention shall be deleted and replaced by the following:
	``2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.''
	ARTICLE VI
	The following new Article shall be inserted immediately after Article 24 of the Convention:
	``Article 24A
	1. Each of the Contracting States shall endeavour to collect such taxes imposed by the other Contracting State as will ensure that any exemption or reduced rate of tax granted under this Convention by that other Contracting State shall not be enjoyed by persons not entitled to such benefits. The Contracting State making such collections shall be responsible to the other Contracting State for the sums thus collected.
	2. In no case shall the provisions of paragraph 1 be construed so as to impose upon either of the Contracting States endeavouring to collect the taxes the obligation to carry out administrative measures at variance with the laws and administrative practice of that Contracting State or which would be contrary to the public policy (ordre public) of that Contracting State.''
	ARTICLE VII
	Sub-paragraph (b) of Article 28 of the Convention shall be deleted and replaced by the following:
	``(b) in Japan:
	(i) with respect to taxes withheld at source, for amounts taxable on or after the first day of January of the calendar year next following that in which the notice of termination is given; and
	(ii) with respect to taxes on income which are not withheld at source and the enterprise tax, as regards income for any taxable year beginning on or after the first day of January of the calendar year next following that in which the notice of termination is given.''
	ARTICLE VIII
	1. The reference in sub-paragraph (c) of paragraph 7 of the Protocol signed at Tokyo on May 7, 1986 (hereinafter referred to as ``the Protocol of 1986'') to ``10 per cent'' shall be deleted and replaced by a reference to ``5 per cent''.
	2. The following new paragraphs shall be added immediately after paragraph 7 of the Protocol of 1986:
	``8. With reference to Article 8 of the Convention, it is understood that profits from the operation of ships or aircraft in international traffic shall also include:
	(a) profits derived from the rental on a full basis or on a bare boat basis of ships or aircraft;
	(b) profits derived from the use of containers (including trailers and related equipment for the transport of containers) used in international traffic;
	if such profits are incidental to profits to which the provisions of paragraph 1 of that Article apply.
	9. Notwithstanding the provisions of sub-paragraph (a) of paragraph 2 of Article 10 of the Convention, dividends paid by a company that is a resident of Canada and a non-resident-owned investment corporation to a company that is a resident of Japan, that owns at least 25 per cent of the voting shares of the company paying the dividends throughout the period of six months immediately before the end of the accounting period for which the distribution of profits takes place and that is the beneficial owner of such dividends, may be taxed in Canada at a rate not exceeding 10 per cent of the gross amount of the dividends. For the purposes of this paragraph, the term ``non-resident-owned investment corporation'' has the meaning it has under the provisions of subsection 8 of section 133 of the Income Tax Act of Canada as they are in force on February 19, 1999, and any subsequent modification of those provisions which shall not affect the general principle hereof.''
	ARTICLE IX
	1. This Protocol shall be ratified and the instruments of ratification shall be exchanged at Tokyo as soon as possible.
	2. This Protocol shall enter into force on the thirtieth day after the date of the exchange of instruments of ratification and shall have effect:
	(a) in Canada:
	(i) in respect of tax withheld at source on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which this Protocol enters into force; and
	(ii) in respect of other Canadian tax for taxation years beginning on or after the first day of January in the calendar year next following that in which this Protocol enters into force; and
	(b) in Japan:
	(i) with respect to taxes withheld at source, for amounts taxable on or after the first day of January of the calendar year next following that in which this Protocol enters into force; and
	(ii) with respect to taxes on income which are not withheld at source and the enterprise tax, as regards income for any taxable year beginning on or after the first day of January of the calendar year next following that in which this Protocol enters into force.
	3. This Protocol shall remain in effect as long as the Convention remains in force.
	IN WITNESS WHEREOF the undersigned, duly authorized thereto by their respective Governments, have signed this Protocol.
	DONE in duplicate at Ottawa on February 19, 1999, in the English, French and Japanese languages, each text being equally authentic.
	FOR THE GOVERNMENT FOR THE GOVERNMENT OF CANADA: OF JAPAN: Lloyd Axworthy Katsuhisa Uchida