1. National Tax Agency Japan Masaharu Koga (Mr.) ―Introduction of Arbitration Procedure― 1

2.  The MAP has increased in number and complexity.  In Japan, the number of cases requested doubled over10 years.  In Japan, cases relating to transfer pricing consist of over 90% of all MAP cases.  Major concerns from business:  MAP gives no guarantee for a resolution.  MAP can take long time.  Resolving disputes effectively and efficiently under MAP becomes increasingly important for both tax administrations and taxpayers. 2

3.  The NTA’s effort to improve MAP:  Closer communication with the other CAs;  Enhance the CA functions;  Number of MAP officers: BY2000 17 → BY2010 41  Enhance the transparency;  Publication of domestic administrative guidance on MAP and other information on MAP.  Publication of country profile and statistical information on MAP by the OECD initiative. 3

4.  Introduction of Grace of Tax Payment for transfer pricing cases.  Introduction of arbitration procedure.  Japan - Hong Kong Tax Convention (Agreement) (signed in 2010, in force in 2011)  Japan – the Netherlands Tax Convention (signed in 2010) 4

5. 5

6.  The first bilateral tax treaty which contains arbitration provision (the US- Germany) was signed in 1989.  The EU Arbitration Convention was signed in 1990.  The OECD introduced arbitration in paragraph 5 of Article 25 in 2008 update of the OECD Model Tax Convention. 6

7.  Now more than 100 bilateral tax Conventions in force have a provision of arbitration, including Convention between;  Japan –Hong Kong (signed in 2010)  Hong Kong – Lichtenstein (2010)  Australia – New Zealand (2009)  Mongolia – Austria (2003)  Indonesia – Mexico (2002)  Mongolia – Canada (2002)  Singapore- Mexico (1994) 7

8. Number of Conventions Year Bilateral Tax Treaties (Agreements) in force. Source: IBFD Tax Treaty Database 101 Tax Conventions (in force ) as of the end of June 2011. 2010.6 8

9. Country X (CA) Issues to be resolved A B C Country Y (CA) Country Y (CA) Country X (CA) Issues to be resolved A B C NegotiationAgreement 9

10.  The case has been presented under para 1 of Art. 25.  The CAs have not reached an agreement within 2 years.  The taxpayer concerned requests for arbitration.  The administrative tribunal or court in either Contracting State has not made decision on the case. 10

11. Country X (CA) Issues to be resolved A B C Country Y (CA) Country Y (CA) Country X (CA) Issues to be resolved A B C Negotiation Agreement Arbitration Board Unresolved issueArbitration Decision 11

12.  Arbitration is a part of MAP procedure.  Not an alternative but a supplementary mechanism to solve disputes under Convention.  If the CAs reach an agreement before the arbitration decision, the arbitration decision will not be provided. 12

13.  “We love arbitration but never use it.” 13

14.  “The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph.” (paragraph 5 of Article 25 of Model Convention)  There are only a few published Arbitration Arrangements.  The NTA concluded arbitration arrangements with the CAs of Hong Kong and the Netherlands in 2010. 14

15. The CAs has not reached on an agreement within 2 years. (i) Taxpayer’s request for arbitration (ii) The CA’s decision on Terms of Reference (iii) Selection of arbitrators (iv) Arbitration panel’s consideration (v) Arbitration decision (vi) Implementation of arbitration decision Within 90 days Within 150 days Within 120 days Within 180 days Within 2 years 15

16.  Submitted to the CA in writing.  Has to include:  Sufficient information to specify the case; and  Statement that no decision has already been rendered by a court or administrative tribunal of either Parties. 16

17.  After the request for arbitration:  The CAs will decide on the issues to be resolved by the arbitration panel; and  Communicate them in writing (Terms of Reference) to the person who made the request for arbitration. 17

18.  Arbitration panel consists of 3 arbitrators.  The CAs will each appoint one arbitrator.  Two arbitrators will appoint the third arbitrator (chair).  Arbitrators are subject to confidential /non-disclosure obligation under EOI Article and applicable domestic laws of Contracting Parties. 18

19.  Arbitrator will:  have expertise or experience in international tax matters;  not be employees of the tax authorities of Contracting Parties;  not have had dealt with the case in any capacity.  In addition, the third arbitrator will:  be a person who is regarded as neutral to the case by virtue of his/her nationality and residence. 19

20.  The CAs will provide the arbitrators with information necessary for the arbitration decision.  Information that was not available before the request for arbitration will not be taken into account.  The taxpayers may present their position in writing, or if permitted by arbitrator, orally to the arbitrators. 20

21.  Arbitration decision:  will be determined by a simple majority.  has no formal precedential value.  will not be made public unless the concerned taxpayer and the CAs agree on the form and contents of the publication. 21

22.  The arbitration decision is binding on the CAs if the concerned taxpayers agree with it.  The CAs will implement the arbitration decision by reaching a mutual agreement in accordance with the decision. 22

23.  As the importance of the transfer pricing increases, the double taxation cases will increase as a result.  To maintain the confidence of the taxpayer, the CAs should continue efforts to improve the MAP.  This will promote the economic relations between the Contracting States. 23

24. 24 THANK YOU ！ NTA JAPAN Masaharu Koga (Mr.)