Thin capitalisation – tax filing schedule

Light summer kimono's - Yukata in Japanese

Attached here is the form required in a Japanese tax return that is used to calculate the leverage ratios required for thin capitalisation purposes (see this post for details) and hence any disallowance of interest for Japanese thin capitalisation purposes.

The form has been annotated in English to show the information required to complete the calculations required for Japanese thin capitalisation purposes.

The original form can be found here on the NTA website. Of course, proper professional advice should be sought before completing the form for real.

Thin capitalisation rules in Japan

Thin capitalization – kashou shihon zeisei

The Japanese thin capitalization system is intended to prevent foreign over-leveraging their Japanese subsidiaries or branches in order to claim excess corporation tax deductions through interest charges. It can be compared to earning stripping legislation in the US.

In more concrete terms, the system has applied from financial years starting on or after 1 April 1992 in circumstances where interest is paid on liabilities due to a Foreign Controlling Shareholder (kaigai shihai kabunushi) or a Capital Supplier (shihon kyouyosha). Where the average balance of liabilities due to either a Foreign Controlling Shareholder or Capital Supplier exceeds three times of the capital in the paying entity held by the Foreign Controlling Shareholder then the amount of interest payable on the excess amount of such liabilities is not deductible. Read More