ARTICLE 21

Entitlement to Benefits

(1) Except as otherwise provided in this Article, a resident of a Contracting State that derives income from the other Contracting State shall be entitled to all the benefits under this Agreement for a taxable year only if such resident is a qualified person as defined in paragraph 2 and satisfies any other specified conditions in the relevant provisions of the Agreement for the obtaining of such benefits.

(2) A resident of a Contracting State is a qualified person for a taxable year only if such resident is either:

• (a) an individual;
• (b) a qualified governmental entity;
• (c) a company, if its principal class of shares is listed or registered and is regularly traded on one or more recognised stock exchanges;
• (d) a pension fund or pension scheme, provided that, as of the end of the prior taxable year, more than 50 percent of the beneficiaries, members or participants of that pension fund or pension scheme are individuals who are residents of either Contracting State;
• (e) a person established under the laws of that Contracting State and operated exclusively for a religious, charitable, educational, scientific, artistic, cultural or public purpose, only if all or part of its income may be exempt from tax under the laws of that Contracting State; or
• (f) a person other than an individual, if at least 65 percent of the voting shares or other beneficial interests of the person are owned, directly or indirectly, by residents of that Contracting State that are qualified persons by reason of sub-paragraph (a), (b), (c), (d) or (e).

(3) Notwithstanding that a resident of a Contracting State may not be a qualified person, that resident shall be entitled to a benefit under this Agreement in respect of an item of income derived from the other Contracting State if that resident satisfies any other specified conditions in the relevant provisions of the Agreement for the obtaining of such benefit and if:

• (a) at least 65 percent of the voting shares or other beneficial interests of the person are owned, directly or indirectly, by persons who, if they had derived the item of income directly, would, under the Agreement, be entitled to equivalent or more favourable benefits; or
• (b) at least 90 percent of the voting shares or other beneficial interests of the person are owned, directly or indirectly, by persons who, if they had derived the item of income directly, would, under the Agreement or an agreement that the Contracting State from which the item of income arise has concluded with another State, be entitled to equivalent or more favourable benefits.

(4) Where the provisions of sub-paragraph (f) of paragraph 2 or paragraph 3 apply:

• (a) in respect of taxation by withholding at source, a resident of a Contracting State shall be considered to satisfy the conditions described in that subparagraph or that paragraph for the taxable year in which payment of an item of income is made if such resident satisfies those conditions during the 12 month period preceding the date of the payment (or, in the case of dividends, the date on which entitlement to the dividends is determined);
• (b) in all other cases, a resident of a Contracting State shall be considered to satisfy the conditions described in that sub-paragraph or that paragraph for a taxable year if such resident satisfies those conditions on at least half the days of the taxable year.

(5)

• (a) Notwithstanding that a resident of a Contracting State may not be a qualified person, that resident shall be entitled to a benefit under this Agreement in respect of an item of income derived from the other Contracting State if:
  • (i) that resident is engaged in the active conduct of a business (other than the business of making or managing investments for that resident's own account, unless the business is banking, insurance or securities business carried on by a bank, insurance company or securities dealer) in the first-mentioned Contracting State;
  • (ii) the income derived from that other Contracting State is derived in connection with, or is incidental to, that business; and
  • (iii) that resident satisfies any other specified conditions in the relevant provisions of the Agreement for the obtaining of such benefit.
• (b) If a resident of a Contracting State derives an item of income from a business carried on by that resident in the other Contracting State or derives an item of income arising in the other Contracting State from a person that has with that resident a relationship described in sub-paragraph (a) or (b) of paragraph 1 of Article 9, the conditions described in sub-paragraph (a) of this paragraph shall be considered to be satisfied with respect to such item of income only if the business carried on in the first-mentioned Contracting State is substantial in relation to the business carried on in that other Contracting State. Whether such business is substantial for the purpose of this paragraph shall be determined on the basis of all the facts and circumstances.
• (c) In determining whether a person is engaged in the active conduct of a business in a Contracting State under sub-paragraph (a), the business conducted by a partnership in which that person is a partner, and the business conducted by a person connected to such person only to the extent that both persons are engaged in the same or complementary lines of business, shall be deemed to be conducted by such person. A person shall be connected to another if one owns, directly or indirectly, at least 50 percent of the beneficial interests in the other (or, in the case of a company, at least 50 percent of the voting shares of the company) or another person owns, directly or indirectly, at least 50 percent of the beneficial interests (or, in the case of a company, at least 50 percent of the voting shares of the company) in each person. In any case, a person shall be considered to be connected to another if, on the basis of all the facts and circumstances, one has control of the other or both are under the control of the same person or persons.

(6) A resident of a Contracting State that is neither a qualified person nor entitled under paragraph 3 or 5 to the benefits referred to in those paragraphs shall, nevertheless, be granted all the benefits under this Agreement or a benefit under the Agreement in respect of an item of income derived from the other Contracting State if, upon request from that resident, the competent authority of that other Contracting State determines, in accordance with its domestic law or administrative practice, that the establishment, acquisition or maintenance of such resident and the conduct of its operations are considered as not having the obtaining of such benefits as one of the principal purposes. The competent authority of the Contracting State to which a request has been made under this paragraph by a resident of the other Contracting State will consult with the competent authority of that other Contracting State before rejecting the request.

(7) For the purposes of this Article:

• (a) the term "qualified governmental entity" means the Government of a Contracting State, of a federal state (Land) thereof, or of any political subdivision or local authority thereof, the Bank of Japan, the Federal Bank of Germany (Deutsche Bundesbank) or a person that is wholly owned, directly or indirectly, by the Government of a Contracting State, of a federal state (Land) thereof, or of a political subdivision or local authority thereof;
• (b) the term "principal class of shares" means the class or classes of shares of a company which represent a majority of the voting shares of the company;
• (c) the term "recognised stock exchange" means:
  • (i) any stock exchange established under the terms of the Financial Instruments and Exchange Law (Law No. 25 of 1948) of Japan;
  • (ii) any regulated market pursuant to the Markets in Financial Instruments Directive 2004/39/EC (as amended) or any successor Directive;
  • (iii) Hong Kong Exchanges and Clearing, the NASDAQ System, the New York Stock Exchange, Singapore Exchange, SIX Swiss Exchange and the Taiwan Stock Exchange; and
  • (iv) any other stock exchange which the competent authorities of the Contracting States agree to recognise for the purposes of this Article;
• (d) the term "pension fund or pension scheme" means any person that:
  • (i) was constituted and is operated exclusively or almost exclusively to administer or provide pensions or other similar benefits; or
  • (ii) was constituted and is operated to invest funds for the benefit of persons referred to in clause (i), provided that substantially all the income of that person is derived from investments made for the benefit of these persons.

(8) Notwithstanding the other provisions of this Agreement, a benefit under the Agreement shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the Agreement.

(9) Nothing in this Agreement shall be construed as restricting, in any manner, the application of any provisions of the law of a Contracting State which are designed to prevent the avoidance or evasion of taxes as long as those provisions are in accordance with the object and purpose of the Agreement.