Japan Tax Bulletin

Limitation on deductions for interest payments

As previously reported in our April Japan tax bulletin, the earnings stripping rule was revised by the 2019 tax reform to reflect the recommendations of the final report on Action 4 of BEPS Project.
There are two sets of rules which apply to Japanese legal entities the earnings stripping rule and the thin capitalisation rule. Both disallow interest paid to
foreign related companies for Japanese legal entity (e.g.: KK, GK).
Where both the earnings stripping rule and the thin capitalisation rule are applicable, the rule which disallows the greater amount is applied.

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