Keisan NTA e-tax form ignores double tax treaties?

[kanpanela]

The Keisan NTA e-tax form seems to ignore double tax treaties

The double tax treaty between US and Japan says double taxation MAY happen on dividends but will NOT happen on capital gain tax (barring some cases which are not relevant here)

ref: https://www.irs.gov/pub/irs-trty/japan.pdf

Now playing around with the e-tax form to understand things, I tried putting the same amount
450K YEN, once as dividends and once as capital gain tax just to see how much tax payment to japan, if at all that would incur.

For dividends I assumed 25% (112,500 yen) taxation at source. The result was that 7.5% of the original dividends needs to be paid to Japan ~33K yen.

Next I tried removing the dividends and changing to capital gain tax with the same amount, and
exactly the same 7.5% payment due was written at the summary page for the e-tax form.
Not only that but the form does not take into account what country the dividend or capital gain
occurred in (I tried putting gibberish there), so it has no way to heeding double tax treaties as I assume they differ by country.

Considering that this is the case, are we supposed to file another special form to indicate
breach of double tax treaty every year there is a capital tax gain in addition to this e-tax form?

What were your experiences reporting capital tax gains on the keisan NTA e-tax form?

Any help is greatly appreciated!

[TokyoWart]

I can't tell you how many times I've tried to work my way through that tax treaty but I am still not confident in my interpretation because the savings clauses seem to state we can be double taxed anyway. In any case, my experience is:

1. I report US capital gains on 第三表 starting on line 65 上場株式等の譲渡 which contributes to line 73 and then a tax calculation on line 81. The tax calculated is 15% just as it would be for Japanese stock capital gains taxes at the national level.

2. I claim back US taxes paid on the same gains on 外国税額控除に関する明細書 which is used to populate the foreign tax credit (外国税額控除) on the first page of your Japanese tax return. That form assumes a 10% tax is paid (you can't adjust it higher even if you paid more) and then it gets a pro-rated adjustment in 所得税の控除限度額の計算. The result is that there is double taxation of both dividends and capital gains, but there is some foreign tax credit you can claim back.

The same is true for foreign dividends, they are just one line down from capital gains on that form. For the last several years I've had my Japanese tax return prepared by a tax accounting firm here.

[kanpanela]

I can't tell you how many times I've tried to work my way through that tax treaty but I am still not confident in my interpretation because the savings clauses seem to state we can be double taxed anyway. In any case, my experience is:

1. I report US capital gains on 第三表 starting on line 65 上場株式等の譲渡 which contributes to line 73 and then a tax calculation on line 81. The tax calculated is 15% just as it would be for Japanese stock capital gains taxes at the national level.

2. I claim back US taxes paid on the same gains on 外国税額控除に関する明細書 which is used to populate the foreign tax credit (外国税額控除) on the first page of your Japanese tax return. That form assumes a 10% tax is paid (you can't adjust it higher even if you paid more) and then it gets a pro-rated adjustment in 所得税の控除限度額の計算. The result is that there is double taxation of both dividends and capital gains, but there is some foreign tax credit you can claim back.

The same is true for foreign dividends, they are just one line down from capital gains on that form. For the last several years I've had my Japanese tax return prepared by a tax accounting firm here.

Thank you very much for sharing your experience!

> I can't tell you how many times I've tried to work my way through that tax treaty but I am still not confident in my interpretation because the savings clauses seem to state we can be double taxed anyway.

Which article are you referring to? I'd like to try to interpret it. I went over the table of contents but did not saw something related.

> That form assumes a 10% tax is paid (you can't adjust it higher even if you paid more) and then it gets a pro-rated adjustment in 所得税の控除限度額の計算. The result is that there is double taxation of both dividends and capital gains, but there is some foreign tax credit you can claim back.

And doesn't that contradicts the double taxation treaty right there? (Assuming the article about savings does not cancel that of course). If I can confirm that the savings article is not problematic, it sounds like I will have to go to the tax office do the calculation with them and then show them the treaty and ask about it.

Even if that form assumes only 10% tax is paid, I am still only reimbursed 7.5% which is less than 10% so that also breaches the treaty if I understand correctly.

Do you still plan to use a tax accounting firm? It sounds like you understand how to do it yourself, are the advantages worth the price? (I consider using one myself, although afarid to be ripped off)

[TokyoWart]

Unfortunately no one cares if you or I claim that Japan is breaching that treaty. I had the experience of going through a debate on interpretations of the treaty for a different matter (the handling of taxation for executives with international responsibilities at Japanese firms) where three Japanese tax accounting firms and one law firm initially interpreted Japanese tax law differently but eventually came around to a surprizing conclusion (there is no protection against double taxation for such an executive) and during that process no one cared about what language I could find in the treaty. I think you avoid double taxation by the US and Japan pretty well at lower income levels but not at higher earned income (once income exceeds FEIE limits) because of the AMT in the US and not even at lower levels for investment income because of the complications of US taxes that post-date the treaty (e.g. NIIT, additional Medicare taxes, differing short- and long-term capital gains tax rates by income, etc.) and the underlying assumption that the US only taxes investment income at 10%. The bottom line is that there is no robust protection against double taxation and neither the US nor Japan really cares that this is a problem for US expats.

I will continue to use the tax accounting firm because it's necessary for my employer to calculate a partial tax equalization I get related to the problem above.

[kanpanela]

Unfortunately no one cares if you or I claim that Japan is breaching that treaty. I had the experience of going through a debate on interpretations of the treaty for a different matter (the handling of taxation for executives with international responsibilities at Japanese firms) where three Japanese tax accounting firms and one law firm initially interpreted Japanese tax law differently but eventually came around to a surprizing conclusion (there is no protection against double taxation for such an executive) and during that process no one cared about what language I could find in the treaty. I think you avoid double taxation by the US and Japan pretty well at lower income levels but not at higher earned income (once income exceeds FEIE limits) because of the AMT in the US and not even at lower levels for investment income because of the complications of US taxes that post-date the treaty (e.g. NIIT, additional Medicare taxes, differing short- and long-term capital gains tax rates by income, etc.) and the underlying assumption that the US only taxes investment income at 10%. The bottom line is that there is no robust protection against double taxation and neither the US nor Japan really cares that this is a problem for US expats.

I will continue to use the tax accounting firm because it's necessary for my employer to calculate a partial tax equalization I get related to the problem above.

Thanks for sharing your anecdote TokyoWart!

As we just talked about in the other thread, I am not a US expat, but I reckon that if the treaties are not protection against double taxation than nothing is.
Indeed I am at a lower income level and not an executive with international responsibilities so perhaps my case is simpler?
But a large part of your anecdote just flies over my head as I am not familiar with this world too much, but I still appreciate you sharing your story! Thanks again!

[TokyoWart]

Yeah, there was plenty of jargon and obscure abbreviations in my reply You can probably tell that I am in the middle of preparing tax returns for two countries and five family members. Sounds like you can safely ignore my venting (I mean, my response)!

[Beaglehound]

Yeah, there was plenty of jargon and obscure abbreviations in my reply You can probably tell that I am in the middle of preparing tax returns for two countries and five family members. Sounds like you can safely ignore my venting (I mean, my response)!

It is grim, for sure. An improvement on slavery and serfdom of course but tax time still feels like an imposition. The complex systems we have created...

[kanpanela]

> Yeah, there was plenty of jargon and obscure abbreviations in my reply You can probably tell that I am in the middle of preparing tax returns for two countries and five family members. Sounds like you can safely ignore my venting (I mean, my response)!

Wow! That is quite the undertaking!
Wish you the best of luck in getting through it as quickly and painlessly as possible!

[Tkydon]

If you are not a US Citizen (or Green Card Holder), then you will be taxed in the US on Dividends by Withholding, but not on Capital Gains.

You have to claim the Foreign Tax Credit.

For Dividend Income

You need to file a W8-BEN Form with your broker to claim the benefit of the US-Japan Tax Treaty.
If you do not file a W8-BEN correctly, then you will be subject to US Withholding Tax at 30%.
If you correctly file the W8-BEN, under the US-Japan Tax Treaty you will only be subject to US Withholding Tax at 10%. This tax is payable to Uncle Sam for US derived income.

Any Foreign National (non-US Citizen), including Japanese, who is filing a W8-BEN should in Part II state:

Part II Claim of Tax Treaty Benefits (for chapter 3 purposes only) (see instructions)
9. I certify that the beneficial owner is a resident of ___JAPAN___ within the meaning of the income tax treaty between the United States and that country.
10. Special rates and conditions (if applicable—see instructions): The beneficial owner is claiming the provisions of Article and paragraph
_10 2(b), 11 2(b)_ of the treaty identified on line 9 above to claim a ___10___ % rate of withholding on (specify type of income):
___Dividend and Interest Income___
Explain the additional conditions in the Article and paragraph the beneficial owner meets to be eligible for the rate of withholding:
___As A Resident Of Japan for Tax Purposes.___

The Broker will then withhold US Tax due to Uncle Sam at 10%

In Japan, you need to file a Kakutei Shinkoku by Mar 15, and you need to select the Separate Self-Assessment Taxation method (Form B - Pages 1&2 And Page 3).
Under the Separate Self-Assessment Taxation method, you will be liable to 20.315% Dividend Tax (15% National, 0.315% Reconstruction, and 5% Residential Taxes).

You should then receive a 1042-S Statement of US Taxes Withheld from your broker, around the beginning of April, in time for US Tax Filing (Apr 15).

You can then revisit and amend your Kakutei Shinkoku and claim the Foreign Tax Credit for the 10% Tax paid in the US - Form B Page 1 - Item 46.
So then your taxes become 10% US Withholding, 5% National, 0.315% Reconstruction, and 5% Residential Taxes.


For Capital Gains Tax

There is no Withholding in US for Capital Gains for non-US Citizens (or Green Card Holders)
Therefore, there is no Double Taxation and the US-Japan Tax Treaty does not apply.

In Japan, you need to file a Kakutei Shinkoku by Mar 15, and you need to select the Separate Self-Assessment Taxation method (Form B - Pages 1&2 And Page 3).
Under the Separate Self-Assessment Taxation method, you will be liable to 20.315% Capital Gains Tax (15% National, 0.315% Reconstruction, and 5% Residential Taxes).