Japanese tax authority clarifies tax treatment of US LPs

Published: 13 February 2017


Japan’s National Tax Agency (NTA) has issued a note  to confirm the treatment of a US limited partnership (LP) for Japanese tax purposes.

Japanese taxpayers, such as pension funds, have been seeking clarity for income derived through a US LP, after the Japanese Supreme Court Decision in 2015 that considered a Delaware LP to be an opaque entity and not fiscally transparent (apparently generating US withholding tax consequences). The notice is a relevant development, in that it reverses the position of the Supreme Court. According to the NTA, for purposes of applying the US-Japan income tax convention, a Japanese resident that derives an item of income through a US LP, and that meets all other requirements under the tax treaty would be eligible to claim treaty benefits. Therefore, the US LP can be treated as transparent for Japanese tax purposes. The Notice, is not limited to a US LP formed under Delaware law and appears to apply to US LPs generally. For further information, please contact Paul Hale or Enrique Clemente.