Japan: Corporate and international tax proposals in tax reform package

The ruling coalition (the Liberal Democratic Party and the New Komeito) on 14 December 2018 agreed to an outline of tax reform proposals that include corporate and international tax measures.

The corporate tax proposals include:

• Measures for improvement to the revenue gaps affecting local governments
• Tax credits for research and development (R&D) costs as enhanced incentives
• Expanded definition of “large scale companies” for purposes of the preferential tax measures available for small and medium-sized companies
• Rules for tax treatment of virtual currencies
• Changes to rules on taxation of reorganizations including “squeeze-out transactions” and triangular reorganizations

The international tax proposals include:

• Amendments to the earnings stripping rules, with a limitation on deductions for interest payments
• Changes to the controlled foreign corporation (CFC) regime (considering the corporate tax rate reduction in the United States)
• Transfer pricing changes (read TaxNewsFlash-Transfer Pricing)
• ”Repo transactions” by specified foreign company changes expanding the scope of certain bonds

The proposals are only an outline indicative of the government’s plans for tax reform, and details are expected to be unveiled with the future release of bills, cabinet orders, and ministerial ordinances. Thus, the final version of the tax reform provisions could differ from these proposals.

Read a December 2018 report prepared by the KPMG member firm in Japan

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