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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Case study: Thin cap – matters equivalent to a guarantee

February 10, 2011  |  Thin Capitalisation  |  No Comments

A sculpture from the Sapporo snow festival. Hokkaido, Japan's northernmost island of which Sapporo is the capital, remains home to a high concentration of wild bears.

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.

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Case study: Thin cap and stock borrowing

February 9, 2011  |  Thin Capitalisation  |  No Comments

A rainy night in Shinjuku, probably taken on the streets of Kabukicho, one of the liveliest districts in town.

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.

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The definition of Japan source interest income

November 1, 2010  |  Japan Source Rules, Withholding tax  |  No Comments

Okonomiyaki: A Japanese disk made of cabbage mixed with other flavouring and binding ingredients. Often cooked by the restaurant patrons themselves.

Where a foreign company earns income with the economic nature of interest (referred to below as ‘Funding Income’) from lending to a business carried out in Japan, investing in a bond with a Japanese issuer or from a similar transaction (referred to below as a ‘Funding Transaction’), Japanese withholding tax (‘WHT’) will apply if the income is treated as falling within defined categories of Japan source income. Read More

The agent PE under Japanese domestic tax law

One of more than two hundred and fifty bars clustered into the Golden Gai area in Shinjuku. Usually there is only seating for a half dozen or so people.

Japanese domestic tax law and related Tax Instructions include detailed regulations addressing when a person in Japan acting as an agent on behalf of a foreign company can create a taxable presence – a permanent establishment or ‘PE’ – of the foreign company in Japan. Read More

Japanese taxes payable by a non-resident individual

October 5, 2010  |  Individual, Japan Source Rules  |  2 Comments
A ceremonial taiko drum from Hiyoshi Taisha shrine in Shiga prefecture.

A ceremonial taiko drum from Hiyoshi Taisha shrine in Shiga prefecture.

This article looks at the scope of Japanese taxation of non-resident individuals.  This topic is also likely to be of interest to individuals who are giving up their Japanese residence status, such as non-Japanese expatriate individuals who have lived and worked in Japan for a few years who are returning to their home country or Japanese expatriates going to work overseas. Read More

The Japanese ‘Fixed Place of Business’ PE

October 3, 2010  |  Taxable Presence  |  No Comments
The 'Ohara Hadaka Matsuri' or 'Ohara Naked Festival', held once a year in Chiba. The shrine is carried in a rush into the sea.

The 'Ohara Hadaka Matsuri' or 'Ohara Naked Festival' held once a year in Chiba. The shrine is carried in a rush into the sea.

A long established convention of international tax law is that in order for the business income of a company to be taxable in a foreign country, the company must have a ‘permanent establishment’ or ‘PE’ in the foreign country concerned through which its business is conducted.

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Japanese taxes payable by a foreign company

September 23, 2010  |  International Taxation, Japan Source Rules  |  No Comments

A view of one of Nara's temples

Under Japanese tax law, Japanese companies are taxed on their worldwide income while foreign companies are taxed only on their Japanese source income.

This article explains when a foreign company will suffer Japanese withholding tax or when it has an obligation to file a Japanese corporate tax return. Read More

Information exchange under Japan’s tax treaties

September 15, 2010  |  International Taxation, Latest, Tax Treaties  |  No Comments

A colorful display of Japanese kanji

An objective of Japan’s 2010 tax reform program has been the extension of the network of tax treaties that allow Japan to exchange taxpayer information with tax authorities in other jurisdictions.  Such extension should be of help in allowing Japan to more effectively pursue international tax evasion.

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The new Netherlands Japan tax treaty

September 14, 2010  |  International Taxation, Tax Treaties  |  No Comments
Signing ceremony for the new Netherlands Japan tax treaty

Signing ceremony for the new Netherlands Japan tax treaty

On August 25th 2010 the new Japan Netherlands tax treaty (below the ‘Treaty’) was signed between Mr. Koichi Takemasa, State Secretary for Foreign Affairs of Japan and His Excellency Dr. Philip De Heer, Ambassador Extraordinary and Plenipotentiary of the Kingdom of the Netherlands to Japan. Read More