Withholding tax laws forJapanese pensions sent overseas

[sensei86]

After retiring from teaching in Japan and moving to Canada in 2018, my employee pension has been subject to withholding tax in Japan. This year, the Canadian tax authority is conducting a review of the foreign tax credit applied on my annual Canadian income tax return for my Japanese pension income. It requires me to submit documentation from Japan to show that withholding tax on that pension is required despite me living outside Japan and also to state the tax rate that is applied. The Japan tax and pension sites I’ve checked don’t clearly answer these needs at least as far as I can tell. Does anyone know how I can access that information?

[ClearAsMud]

Wow, one would think that the shiharai chōsho 支払調書 you get would be enough.

The NTA's English guide to tax withholding can be downloaded here:
https://www.nta.go.jp/publication/pamph ... pdf/16.pdf

The disclaimer at the beginning notes that the English translation is unofficial (Japanese is the only official source), but this is as official as you're likely to get without obtaining some sort of certified translation.

Page 5 specifies that withholding applies to nonresidents for domestic sources of income from both public pensions (item 9) and private pensions (item 11); page 39 specifies the withholding rate at 20.42% for both (also items 9 and 11).

[ClearAsMud]

Here's the link to the page for downloading that document, along with links to relevant individual pages and other languages:

https://www.nta.go.jp/english/taxes/wit ... /index.htm

"witholing"?

[Tkydon]

According to the Canada Japan Tax Treaty, Article 20


Article 20
1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State.

Pensions are not dealt with in any other article, and are specifically excluded from Article 18.

Therefore, if you are resident in Canada, and receiving a pension from Japan, you should submit a Form in Japan to specifically claim the ability to receive your pension payments Gross, and free from Withholding, and only pay taxes on the Pension Income in Canada.

https://www.nta.go.jp/english/taxes/wit ... ention.htm

Form 9
APPLICATION FORM FOR INCOME TAX CONVENTION (Form 9) (PDF/207KB)
(Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Pensions, Annuities, etc.)
https://www.nta.go.jp/taxes/tetsuzuki/s ... f2/258.pdf

Then you would not need to claim a Foreign Tax Credit in Canada.

If you act quickly, I think you should be able to claim back withheld taxes from (maybe not 2018) 2019, 2020, and 2021...

For reference, the Rate of Withholding Tax on Pension Payments is 7.6575% National, Reconstruction and Residential Taxes,
or maybe 5.105% National and Reconstruction Taxes.

[ClearAsMud]

The NTA English pages I've looked at don't seem to touch on it (and I can't go through them all), but as I've noted elsewhere, a Japanese page on the Japan Pension Service website states that the Income Tax Convention form does not apply in the case of a number of countries that have tax treaties with Japan, including Canada, Sweden, Thailand, Macao, and some American territories.

https://www.nenkin.go.jp/service/jukyu/ ... 50129.html

From one of the notes in the second numbered section on the page ("提出についての注意点"):

「租税条約に関する届出書（様式9号）」については、老齢年金を受給されている方が提出するものになります。
日本国と租税条約が締結されていても、年金条項がない等の理由で適用にならない国や地域（カナダ、タイ、スウェーデンと中国のマカオ、アメリカにおいては、プエルトリコ、グアムなど）があります。

The same exclusion of Canada from benefiting from an exemption to pension withholding (for taishoku nenkin) on the basis of the treaty can be found in a recent Japanese document published by Mitsui Sumitomo Trust (see the bottom of page 3):
https://www.smtb.jp/business/pension/p ... 008dbs.pdf

Since there's always the possibility that things have changed or that applicability in your own case may be different, you might want to go ahead and submit the form and see if it works. After all, the worst that could happen is that the application would be disallowed, and the possible gain seems worth it. Direct contact is always the most reliable form of finding out what the NTA will do.

[ClearAsMud]

A little more information. Here is the Japanese NTA FAQ page on the applicability of the treaty to pension withholding:

https://www.nta.go.jp/law/shitsugi/gensen/06/11.htm

The FAQ notes that precisely because no stipulation regarding pensions exists in the Japan-Canada tax treaty, withholding will take place.

However, this particular FAQ specifically concerns defined-benefit corporate pensions, so it's not impossible that the public employees' pension (kouseinenkin) might be treated differently. Still another Japan Pension Service page states that because of the lack of a relevant treaty clause, it's the law of the the paying country that applies. See the last section of the following page:

https://www.nenkin.go.jp/service/shaho- ... anada.html

Withholding on pensions in Japan is indeed based on a 5.105% rate, but this doesn't necessarily apply to nonresidents (for nonresidents, 20.42% is mentioned in the withholding guidebook) -- another cause for uncertainty. Could OP perhaps shed some light on how much was actually withheld from his/her Japanese pension?

Because OP presumably already took a Canadian tax credit for Japanese withholding in previous years, it doesn't seem likely that the amount withheld earlier could be refunded. Still, if submitting the proper form leads to an exemption from withholding, that would undoubtedly be a desirable outcome.

I don't want to claim a deep level of competence on this -- simply reporting what I've been able to find in Japanese. And it's not easy finding relevant information -- website information can be vague and conflicting (so much information concerns lump-sum payments rather than regular pensions). Someone's personal experience would be really helpful for clarification purposes.

[Tkydon]

I reaffirm that Article 20 specifically states "all other income" not mentioned in the previous Articles, 所得（源泉地を問わない。) so DOES Cover Pensions.

Therefore, Form 9 applies.


https://www.canada.ca/en/department-fin ... -1999.html


Article 20

1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State.

第二十条
１ 一方の締約国の居住者の所得（源泉地を問わない。）で前各条に規定がないものに対しては、当該一方の締約国においてのみ租税を課すること
ができる。


The only mention of the word 'pension' is in Article 18, which states

Article 18
1. a ) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that Contracting State or a political subdivision or a local authority thereof, in the discharge of functions of a governmental nature, shall be taxable only in that Contracting State.

A Pension is not 'Remuneration' in this case, as a Pension is not paid in respect of services rendered to that Contracting State or a political subdivision or a local authority thereof, in the discharge of functions of a governmental nature...

This Article actually refers to salary of Canadian Government employees working in Japan being taxable only in Canada, or salary of Japanese Government employees working in Canada being taxable only in Japan, but if they retire, then Article 20 applies, and the Pension is only taxable in the country where the Retiree is Resident; Japanese pension recipient resident in Canada only being taxable in Canada. Canadian pension recipient resident in Japan only being taxable in Japan.


File Form 9, and if they think it is not applicable, they will come back to you, and then you can appeal.

Article 20 applies.

1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State...

If you are resident in Canada, then the pension income is only taxable in Canada.



https://www.mof.go.jp/tax_policy/summar ... nada_j.pdf

第二十条
１ 一方の締約国の居住者の所得（源泉地を問わない。）で前各条に規定がないものに対しては、当該一方の締約国においてのみ租税を課すること
ができる。

https://www.mof.go.jp/tax_policy/summar ... nada_e.pdf

Article 20
1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State.


File Form 9, and if they think it is not applicable, they will come back to you, and then you can appeal.



I sent this message to the NTA and Nenkin on your behalf...


https://www.nta.go.jp/law/shitsugi/gensen/06/11.htm

カナダ人ではないですが、この情報は正しくないと思います。

https://www.mof.go.jp/tax_policy/summar ... _en_fr.pdf

http://www.mof.go.jp/tax_policy/summary ... nada_j.pdf

http://www.mof.go.jp/tax_policy/summary ... nada_e.pdf

Article 20

1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State.

第二十条
１ 一方の締約国の居住者の所得（源泉地を問わない。）で前各条に規定がないものに対しては、当該一方の締約国においてのみ租税を課することができる。


全てのの所得対応ではないでしょうか？

第十八条
１(a) 政府の職務の遂行として一方の締約国又は当該一方の締約国の地方政府若しくは地方公共団体に対し提供される役務につき、個人に対し当該一方の締約国又は当該一方の締約国の地方政府若しくは地方公共団体によつて支払われる報酬（退職年金を除く。）に対しては、当該一方の締約国においてのみ租税を課することができる。

には「（退職年金を除く。）」と書いてありますが、これはカナダで働く日本公務員は日本だけで税を課すること、日本で働くカナダ人公務員はカナダだけで税を課すること、ですが、退職年金は第二十条によって退職年金をもらうの居住者の居住国だけで所得として税を課すること、ではないでしょうか？

以上

[ClearAsMud]

I'm happy to encourage the OP to submit the form, and it would be nice to hear later (from anyone) about success in doing so.

Do note that Article 20 contains three provisions, and only the first is quoted above. The full article reads as follows:

Article 20

1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State.

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State not dealt with in the foregoing Articles of this Convention and arising in the other Contracting State may be taxed in that other Contracting State.


The Japanese sources I have cited take the third provision, which takes precedence over the first two, as the one applying in this case. The NTA FAQ I cited says this:

3　カナダの居住者については、源泉徴収が必要です。
　日加租税条約においては、いわゆる年金条項が設けられていないので、同条約第20条の「その他所得条項」に基づき課税関係を判断することとなります。同条第3項によれば、日本に源泉のある所得については、同条第1項の居住地国課税の特例として、源泉地国においても課税することができるとされていますので、カナダの居住者に支払う日本に源泉のある本件退職年金については、国内法の規定により源泉徴収が必要です(所得税法第161条第1項第12号ロ、第212条第1項)。

Again, I'm not sure whether this is meant to refer only to defined-benefit corporate pensions, but the Japanese is not unclear. I think a real-world case is needed.

[ClearAsMud]

I posted my reply before Tkydon's edit, and thank Tkydon for taking the time to write to the NTA! Let's hope a response is forthcoming.

[Tkydon]

It does indeed look like the provisions of Paragraphs 1 and 3 of Article 20 of the Tax Treaty are self contradictory.

In which case, under Article 21, the recipient should file a Foreign Tax Credit against taxes in th country of residence.

Article 21
1. In the case of Canada, double taxation shall be avoided as follows:
(a) Subject to the existing provisions of the laws of Canada regarding the deduction from tax payable in Canada of foreign tax paid and to any subsequent modification of those provisions which shall not affect the general principle hereof, and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Japan on profits, income or gains arising in Japan shall be deducted from any Canadian tax payable in respect of such profits, income or gains.
(b) Subject to the existing provisions of the laws of Canada regarding the determination of the exempt surplus of a foreign affiliate and to any
subsequent modification of those provisions which shall not affect the general principle hereof, for the purpose of computing Canadian tax, a company which is a resident of Canada shall be allowed to deduct in computing its taxable income any dividend received by it out of the exempt surplus of a foreign affiliate which is a resident of Japan.
For the purposes of this paragraph, profits, income or gains of a resident of Canada which are taxed in Japan in accordance with the provisions of this Convention shall be deemed to arise from sources in Japan.

and vice versa..