Domestic Law or Tax Treaty — Which Prevails?

By MISAWA Masaki, Certified Tax Accountant (Zeirishi, Reg. No. 157367) — formerly of Japan’s tax authorities · Published July 12, 2026 · Reviewed July 17, 2026

In the previous article, we explained that tax treaties can reduce or eliminate withholding on payments made abroad. This article explains the principle that, where domestic law and a tax treaty provide differently, Japan applies the treaty — and the basis for that principle. The basis is found not in tax law, but in the Constitution.

Article 98(2) of the Constitution

Article 98, paragraph 2 of the Constitution of Japan provides that “the treaties concluded by Japan and established laws of nations shall be faithfully observed.” On this foundation, it is understood in Japan that treaties concluded by the state rank above domestic statutes. Where a statute and a treaty conflict, the treaty prevails. The world of taxation is no exception.

A worked example with royalties

Let us confirm this with a concrete example (assumptions: a Japanese company pays a royalty for software to be used within Japan to a company in a treaty-partner country; under domestic law, 20.42% withholding would be required, but the treaty exempts the royalty from taxation in the source country). In this case, provided the prescribed notification and other procedures are completed, the treaty overrides domestic law and no withholding is required. The provisions of the treaty come before the provisions of the statute enacted by the Diet.

The U.S. later-in-time rule

For reference, the United States takes a different approach from Japan. Under the U.S. Constitution, treaties and federal statutes stand on the same rank, and where their contents conflict, the one enacted later prevails (the so-called later-in-time rule). In the United States, therefore, Congress can enact later domestic legislation that overrides the content of a treaty — a “treaty override” — as a matter of institutional design. That reversal does not occur in Japan: even if a statute is amended after a treaty has been concluded, the structure in which the treaty prevails does not change. Relying on home-country instincts — “if the domestic law is the newer one, surely it governs” — will lead you astray in Japan.

Two practical cautions

There are, however, two practical cautions. First, the application of a treaty is not automatic. In many cases, procedures such as filing a notification before payment are required (see the previous article). Holding a right under a treaty and being in a position to actually use it are two different things.

Second, although the treaty prevails, a treaty will essentially never make your tax burden heavier than under Japanese domestic law. Tax treaties are arrangements that operate to restrict, reduce or eliminate taxation by the contracting states; where domestic law is more favourable, domestic law can be applied. (For a case where treaty conditions decide the outcome in practice, see our note: Winter Seasonal Workers in Niseko and Japanese Tax.)