- The blue tax return system and its benefits
- Research and development tax credits under Japan tax law
- Tax Procedures at the time of Dissolution and Liquidation
- Treatment of estimated expenses under Japan tax law
- Size-based business taxation in Japan
- Revised Transfer Pricing Documentation requirements
- Penalty taxes
- Valuation loss on assets
- Taxable enterprises under Consumption Tax Law
- 2017 tax reform proposal in Japan
- Tax Qualified Corporate Reorganizations under Japan tax law
The “blue tax return” system (named for the color of the tax form) was initiated following a recommendation by the Shoup Mission in 1950 in order to promote the use of modern accounting methods by taxpayers with conferring certain benefits on the “blue form” tax filers.
Japan tax law contains an exemption system for research and development expenses as a tax incentive measure for enterprises conducting research and development (“R&D”). In the 2017 tax reform, development of the “fourth industrial revolution type service”, such as big data, was added to the list of qualifying activities.
In some cases the shareholders of a company may wish to withdraw from the Japan market due to poor business results or other internal reasons. In these situations, Company Law prescribes the procedures that need to be undertaken to dissolve and liquidate the company.
Deductible expenses under Japan corporation tax law are determined as follows: 1) Cost of goods sold (COGS) 2) Selling, general and administrative expenses (SGA) 3) Losses The amount of allowable expenses is computed according to generally accepted accounting principles (GAAP) and with some adjustments under Japan tax law.
Size-based business tax is a component of Enterprise tax and is levied on a company’s business scale, not on the size of its profit. The tax applies to corporate taxpayers with share capital of more than JPY100M at the end of a fiscal year. The tax basis consists of three factors,taxable income, value added and paid in capital.
The major reform of Transfer pricing documentation rules was made in 2016 and the relevant law and legulation were changed. This reform was made as a response to Organisation for Economic Co-operation and Development (OECD) Base erosion and profit shifting (BEPS) Action Plan 13. The National Tax Agency issued four guidelines, as shown below, that provide concrete explanations and practical examples related to this reform for the members of multinational enterprise in Japan.
Penalty taxes in Japan can be complicated, with the amounts and types imposed depending on a variety of factors. They consist of penalty tax for under-reporting/non-filing etc as an administrative penalty and delinquency tax as interest.
A valuation loss on an asset is generally disallowed in calculating taxable income (Article 33①of Corporation Tax Law (“CTL”)). However, a loss can be deductible in limited circumstances where the assets are devalued due to legal procedures, such as company rehabilitation procedures, or the assets are physically devalued.
Persons who transfer taxable assets in Japan or import foreign cargo from bonded areas are required to file a consumption tax return and pay consumption tax to the government (Article 5 of Consumption Tax Law (“CTL”). However, persons are exempt from filing a consumption tax return and paying consumption tax where the amount of taxable sales in the base period is not larger than JPY 10 million (Article 9① of CTL). The base period for a corporate enterprise is the business year two years prior to the current business year (Article 2①(14))1. Taxable enterprises are taxable persons who are not exempt from the requirement to file tax returns and make tax payments.
The 2017 tax reform proposal was released on December 8, 2016. This article summarizes proposed changes, which are expected to affect businesses.