- 2016 Tax reform
- Corporate tax filing in Japan
- Entertainment expenses
- Effect of the reverse-charge mechanism on foreign enterprises
- Restricted Stock
- Family Corporations under Japan tax law
- The treatment of donations (kifukin) under Japan tax law
- Filing requirements for the Country-by-Country report and Master File for a Specified Multinational Enterprise Group
- Procedures for claiming tax treaty benefits
- Restrictions on interest expense deduction
- Proposed change to the transfer pricing documentation rules
- Group taxation
The 2016 Tax Reform was released on 31 March 2016. Major reforms of Corporate tax and International tax are discussed in this issue.
Corporate taxpayers in Japan are usually required to file Corporation tax returns, Inhabitant tax returns, Enterprise tax returns, Consumption tax returns and Depreciable asset tax returns annually. Corporation tax is income tax levied by the national government. Inhabitant tax is income tax levied by prefectural governments and municipal governments. Enterprise tax is another income tax levied by prefectural governments. A corporate taxpayer must file national and local corporation tax returns within two months from the end of its business year. However, a one-month extension is allowed if an application is filed with the tax office. These corporate income tax returns may be filed either electronically or by paper.
In order to revitalize the economy through increased consumer spending, from accounting periods beginning on or after April 1, 2014, 50% of entertainment expenses spent on food and drink has been treated as tax deductible expenses. However, corporations whose capital is JPY100 million or less are able to choose to deduct 100% of all entertainment expenses up to JPY8 million instead of the 50% food and drink deduction described above (This is not applicable to a corporation held 100% by a parent company with capital of JPY500 million or more).
The Consumption Tax Act and other relevant laws and regulations were partially amended in 2015 introducing a new taxation mechanism for consumption tax, called the “Reverse Charge Mechanism”
In recent times, companies in Japan have introduced several plans to incentivize their directors, including Restricted Stock ("RS"). Prior to this year’s tax reform, the tax treatment related to RS was not clear, for example the amount and timing of deductions in a company’s income tax calculation were not clearly defined. Due the uncertainty, the 2016 reform clarified the tax treatment of this increasingly popular form of remuneration.
A family corporation is a corporation held by individual shareholders and their related persons. Special rules apply to family corporations which need to be considered when an entrepreneurial foreign business enters the Japan market by setting up a subsidiary.
The subject of donations is a complicated topic under Japan tax law,and their scope and deductibility can have an extensive impact certain transactions. The deductibility of a donation (kifukin) depends on the nature of the recipient and its definition under tax law is much broader than its literal meaning
Filing requirements for the Country-by-Country report and Master File for a Specified Multinational Enterprise Group
In response to BEPS Action 13, a three-tiered transfer pricing structure was introduced into domestic tax laws in the 2016 tax reform.
Japan has concluded 65 tax treaties which apply to 96 jurisdictions (shown in the Annex). A taxpayer wishing to claim treaty benefits is required to go through certain procedures provided for in the Law concerning special measures to the Income tax law, the Corporation tax law and the Local tax law in relation to executing tax treaties.
There are two sets of rules which disallow interest paid to foreign related companies. One is the thin capitalisation rule and the other is the earnings stripping rule. Both rules are targeted rules under BEPS Action 4. A fixed ratio approach where the general deduction of interest expense is restricted to a certain percentage of EBITDA under BEPS Action 4, has not been introduced.