The US and Japan have agreed on a proposed treaty to eliminate taxes on some transactions between a company based in one nation and its subsidiaries in the other, US Secretary of the Treasury John Snow said.
"The proposed treaty reduces barriers to trade and investment between the United States and Japan," Snow said in the text of a speech to the Japan Society in New York.
The treaty ends withholding taxes imposed on certain dividends, interest payments and royalties received by companies operating in both countries, Snow said. Under the existing agreement reached 30 years ago, companies often have to pay taxes to both nations on those transactions.
Lawmakers in both nations must still ratify the agreement, which has been under negotiation since October 2001. In March, Snow signed a similar accord with the UK to revamp an agreement made 23 years ago.
"It's not just double taxation that needs fixing, but that companies and employees also have to pay some social insurance costs twice," said Shinozaki Mitsuru, a spokesman for the Tokyo-based Japan Business Federation.
The group, representing Japan's largest corporations, is headed by Hiroshi Okuda, who is also chairman of Toyota Motor Corp, the world's third largest automaker.
The proposed changes to tax rules should result in savings for corporations, make it easier for firms to consolidate subsidiaries into group accounting and encourage firms to avoid using tax havens, Shinozaki said.
While cautioning that he wasn't prescribing remedies, Snow advised Japan to combat its non-performing bank loans, tight economic regulations and deflation.
"Our challenge today is that the leading economies are suffering from a growth deficit -- their potential far exceeds their performance," Snow said. "Japan must find Japanese solutions, not through isolation, but through openness, leadership and a legendary will. The solutions must meet the needs of Japan's unique society and institutions to win broad public support."
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