Case Study: Japanese companies incorporating an overseas branch

A monochrome picture of Modern Japan that manages to capture some of the atmosphere of the pre war Showa period.

The Japanese tax rules related to the taxation of corporate reorganisations (discussed here) can be applied, with some modification and additional considerations, to transactions involving foreign companies.

The following article gives an example of their application to a relatively simple transaction, the incorporation of a foreign branch of a Japanese company.

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Shareholder and creditor protection in Japanese mergers

The eves of 'Kinkakuji' or the 'Temple of the Golden Pavillion' in Kyoto, rebuilt after its destruction through arson by a Buddhist acolyte in 1950 as described in the book by Yukio Mishima of the same name.

The Japanese Corporate Law (‘JCL’) includes measures allowing creditors or shareholders of the Ceasing or Surviving Companies in a Japanese merger to object to the merger along with mechanisms allowing the companies involved to resolve such objections.  This article describes these measures in more detail.

Procedures for the protection of creditors

Under JCL articles 789-2 and 799-2 the Ceasing and Surviving Companies of a merger are required to Read More

Steps in a Japanese merger

Autumnal flowers floating in drinking bowl in a Kyoto temple.

This article outlines the steps required to complete a Japanese absorptive merger involving one company (below the ‘Surviving Company’) taking over the assets and liabilities of a liquidating company (below the ‘Ceasing Company’ and collectively with the Surviving Company the ‘Companies’) under a process defined by the Japanese Corporate Law (the ‘JCL’).

Please see this article for more background to legal aspects of Japanese mergers and this article for an overview of merger taxation. Read More

Introduction to legal aspects of a Japanese merger

A leaf from a gingko tree, a Tokyo Minicipal symbol often depicted on railings or other street furniture.

A Japanese merger involves two or more companies becoming one company further to a defined process in the Japanese Corporate Law (below the ‘JCL’).  This article outlines legal aspects of the merger process as background for more detailed analysis of the Japanese tax treatment of mergers and other corporate reorganizations. Read More

Impairment losses on shares in a subsidiary

Japanese judicial decisions

This case concerns a Japanese company which claimed a deductible impairment loss on shares in a recently acquired US subsidiary which it had re-capitalized.  The facts of the case reflect what is probably a relatively common commercial situation. Read More

Nin’i kumiai – Japanese civil code partnerships

September 28, 2010  |  Business combinations  |  No Comments

A Japanese serow or in Japanese a Kamoshika, capricornis crispus, photographed near Mount Asama, an active volcano near Karuizawa about an hour and a half from Tokyo by bullet train.

A Japanese serow or in Japanese a Kamoshika, capricornis crispus, photographed near Mount Asama, an active volcano near Karuizawa about an hour and a half from Tokyo by bullet train.

The Japanese Civil Code (‘CC’) defines the Japanese partnership form, the Nin’I Kumiai.  Not to be confused with the Tokumei Kumiai defined under the Japanese commercial code, the legal form of the Nin’I Kumiai is more similar to a conventional US or UK partnership.

For tax purposes a Nin’I Kumiai is treated as a pass through. One commonly used translation of Nin’I Kumiai is ‘voluntary partnership’, in Japanese 任意組合 and referred to below as an NK. Read More

Contributing assets for shares

September 9, 2010  |  Business combinations  |  No Comments

Steller's Sea Eagle taken in Shiretoko Hokkaido

Steller's Sea Eagle taken in Shiretoko Hokkaido

A common transaction in a group reorganization is the contribution by a company of assets other than monetary assets in exchange for shares in another company. Such a transaction would typically occur in an incorporation transaction or perhaps in the process of consolidating subsidiaries under a single parent company. Read More

Taxation of mergers

Tale from a zen koan

For many years I was looking for the ox. I was so stupid! In fact I found a Cow! - A attractive photo-montage illustrating a Zen Koan

This article is an outline of the taxation of Japanese corporate reorganizations, focusing on mergers and looking at the key criteria that will determine how Ceasing KK in the merger will be taxed.

Please also see this article for diagrams with an outline of Japanese merger transactions and this article with an overview of the accounting treatment of Japanese enterprise combinations.

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Joint venture formation and enterprise combination accounting

Criteria for a Japanese enterprise combination to be treated as a JV Formation

This article consists of a flowchart which applies the criteria used to determine whether or not an enterprise combination is treated as a JV Formation transaction under Japanese accounting standards.  The background to this treatment and the related standards is explained in this article. Read More

Japanese accounting for mergers and other enterprise combinations

A mendicant Buddhist outside Ueno station.

A mendicant Buddhist outside Ueno station.

This article discusses how mergers, takeovers and similar enterprise combinations are accounted for in Japan.
The articles looks at which accounting standards apply, the different categories of enterprise combinations defined in those standards and finally how purchase accounting Read More