On 15 September 2010 the 12th division of the Tokyo High Court issued a judgment concerning the taxation of gain arising from the extinguishment of debt in a debt equity swap (‘DES’) transaction. Read More
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
Japanese retailer Daiei was assessed JPY25Bn (USD294m @85) for understating taxable income for four years. The Asahi newspaper reported as follows: Read More
There are a number of routes in Japan by which a company may end up liable to meet another company’s tax liability.
Some of these routes – such as succeeding to tax liabilities on a merger or of other consolidated group members in a consolidated tax group – are common to other tax systems. Read More
The Japanese Ministry for Economics and Industry (keizai sangyousho/経済産業省) has sponsored a private research group (the ‘DES Research Group’) to look at the taxation of debt equity swaps (DES). One issue which they focus on is the uncertainty around the valuations used in the transactions concerned.
The DES Research Group published their report in January. Below are notes on the report written by the author of this post. The report which includes a useful summary of the history of tax reform in the area and the group’s proposals. Future postings will look in more detail at the taxation of DES and other corporate reconstruction transactions. Read More
Advantages of a business transfer in minjisasei proceedings
In the law relating to minjisaisei proceedings there are regulations that allow easy and rapid procedures for business transfers. In contrast mergers, corporate splits, Japanese law share for share exchanges – kabushiki koukan, 株式交換 – have to be carried out under the reconstruction plan. A business transfer can be accomplished after the application to commence minjisaisei proceedings without the approval of a shareholder’s meeting but with the approval of the court.
In addition to helping prevent business operations from degrading and allow the business itself to be rebuilt with greater ease the business transfer has a number of other advantages. Read More
Varieties of Japanese corporate reconstruction
As is the case in many jurisdictions in Japan means of corporate reconstruction can be divided into two broad categories: Private corporate reconstructions – shitekisaisei – 私的再生 – and reconstructions further to specified legal process – houtekisaisei – 法的再生. Shitekisaisei are private agreements among creditors or between creditors and the debtor concerned. They would typically include the following types of agreements:
- Debt rescheduling involving the extention of debt repayment or ammendment of terms
- Debt – debt swaps typically involving one part of the debt being reduced in priority to others, perhaps becomign unsecured
- Debt-equity swaps
- Discharge of indebtedness
- Introduction of new funds through equity placement or similar
Given that at the time of writing JAL is commencing the largest corporate rehabilitation in Japan it looks like a good opportunity to look at the process for tax purposes.
The Japanese legal framework includes three different process for corporate rehabilitation that can be tax preferred these being minjisaisei – 民事再生, kaishyakousei – 会社更生 and rehabilitation under [RCC]. It it important to understand how the differences between these methods can impact M&A or other transactions, with the main difference between that creditors to whom kaisyakousei are corporate creditors whose objective is the maintenance and rehabilitation of the company concerned. In contrast the minjisaisei process has no such limitation and the objective is the preservation of the business or economic activity of the creditors concerned. The table below compares minjisaisei – 民事再生- and kaishyakousei – 会社更生. Read More