The following case study considers whether or not a transaction that does not have the legal form of a guarantee may still be treated as, in substance, being a guarantee from a Foreign Controlling Shareholder for the purposes of the Japanese thin capitalisation regulations.
This section should be read in conjunction with the articles on the Japanese thin capitalisation regulations which can be found here.
Capitalised terms below are as defined in the thin capitalisation section.
The following article is a case study looking at the application of the Japanese thin capitalisation regulations to a stock borrowing transaction.
This article should be read in conjunction with the articles outlining Japanese thin capitalisation regulations which can be found here.
Terms in capitals are as defined in the thin capitalisation articles unless otherwise explained below.
This article consists of three diagrams which illustrate how the Japanese thin capitalisation regulations are applied. The first diagram illustrates the most straightforward application of the rules, the second illustrates the impact of a parent company guarantee Read More
This post is the first in a series looking at how the return of funds to shareholders is treated for Japanese tax purposes. Funds can be returned to a company’s shareholders through dividends, deemed dividends, share-buy backs, return of surplus on a liquidation and other transactions (below ‘Shareholder Distributions’).
In order to understand how Shareholder Distributions are taxed Read More
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 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