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On 20 January 2022, the OECD released the 2022 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“2022 edition”).

The exit tax was introduced in the 2015 tax reform. The exit tax applies to residents in Japan holding relevant financial assets worth JPY100 million or more (hereinafter referred to as“relevant assets”) and is imposed on the unrealized capital gains of those assets at the time of their departure from Japan.

From 2023 tax year onwards, amendments is scheduled to take effect with regard to Assets and Liabilities Report (Zaisan Saimu Chosho) and Overseas Assets Report (Kokugai Zaisan Chosho).

A tax resident is defined as a person who has (1) domicile or (2) a house for continuously 1 year or more in a place where the Income Tax Law is enforced. Domicile is a person’s centre of living as defined by Article 22 of the Civil Code. A person who satisfies one of the following conditions is deemed to have a domicile in Japan.

When dissolving an insolvent Japanese subsidiary, an unexpected tax charge may arise unless the subsidiary’s tax positions are reviewed and appropriate legal procedures are taken.

Where an individual taxpayer does not have an address and place of residence in Japan, or where a corporate taxpayer does not have a head office or principal office in Japan, they are required to appoint a tax agent who does have an address and place of residence in Japan to submit tax their returns or handle their matters concerning national taxes. When taxpayers appoint a tax agent, they are required to notify the district director of tax office of the appointment.

Tax losses of a corporation that files a blue tax return can be carried forward and will be able to offset against certain taxable income in the future financial years. However, a restriction may be applied in the case of a controlling interest acquisition, in a merger or group relief system.

Due to the prolonged Covid-19 pandemic, more and moreJapanese companies are selling off their headquarter buildings and other real estate holdings in order to secure cash reserves and drastically downsize their office space. Among the buyers are foreignfunds, foreign corporations, and wealthy foreign individuals. In thisbulleting, we will review the tax treatment of a foreign corporation and a non-resident individual that leases office space in Japan to a Japanese company or a Japanese resident.

Under the 2021 tax reform, a tax credit for new employee payroll expenses will be available for corporations that actively recruit human resources through new graduates and mid-career hires and invest in human resource development for fiscal years beginning between April 1, 2021 and March 31, 2023.

In order to achieve corporate transformation (digital transformation) using digital technology during and after the COVID era, it is essential to implement management and digital strategies in an integrated manner. The 2021 tax reform established a system that allows companies to receive support measures for digital-related investments using cloud technology necessary to realize DX after company wide approval has been granted by the competent minister.

The Act on Special Measures for Preservation of National Tax-Related Books and Documents Prepared Using Computers (hereinafter referred to as the "Act on Electronic Preservation System for Books/Documents") has been revised and it will take effect on January 1, 2022.

From October 1, 2023, the qualified invoice preservation method will be introduced as a way of the purchase tax credit of the consumption tax to correspond to the multiple consumption tax rates. Under the method, the preservation of "qualified invoices" issued by "qualified invoice issuers" will be a requirement for the purchase tax credit.

On 11 February 2020, as part of tax base erosion and profit shifting project, the OECD released final Transfer Pricing Guidance on financial transactions. The Guidance mainly addressed regarding the intra-group loans, cash pooling arrangements, financial guarantees, and captive insurance. This article aims to summarize the key chapters of the Guidance and the possible impact the Guidance may have on transfer pricing arrangements for financial transactions within a multinational enterprise group.

An individual taxpayer liable for income tax is classified as a resident or a non-resident. A resident is an individual who has a domicile or has had a residence continuously for one year or more in Japan. A non-resident is an individual who is not a resident.A non-permanent resident is a resident who does not have Japanese nationality and who has had a domicile or a residence in Japan for not more than five years in total within the past ten years. With respect to income generated from overseas assets (foreign sourced income), such as interests on overseas deposits or dividends of overseas shares, non-permanent residents are taxed when those are either paid in, or deemed to be remitted to Japan. Residents other than non-permanent residents are taxed on worldwide income.

Under Japan’s traditional employment practice represented by lifetime employment and seniority-based wage systems, employees’ wages increased at an accelerated speed during the later years of career.

Under the Corporation Tax Acts, where monetary claims such as account receivables, loan receivables etc. become uncollectible, losses on such monetary claims are tax deductible subject to certain conditions. Further, SME1 and certain other corporate taxpayers are allowed to make a tax-deductible provision for bad debt allowance subject to the deductible limitation.