New U.S.-Japan Income Tax Treaty Eliminates Royalty Withholding

According to an August 2, 2004 article from Stroock & Stroock & Lavan LLP, under a new US-Japan Treaty, royalties arising in the United States and payable to a company in Japan generally are taxed only in Japan unless the Japanese licensor has a permanent establishment in the U.S. or the royalties are at amounts that exceed the royalty that would be paid if the parties dealt at arms-length (e.g., if royalties were really disguised dividends). Also, the practice of licensee withholding of royalty payments is now unnecessary in most cases, provided that the proper IRS Form W-8BEN (which identifies the licensor and otherwise establishes eligibility for the benefits of the Treaty) is completed and given on a timely basis to the licensee.