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
Taxation of TK distributions under Japanese domestic tax law.Read More
Roles and taxation of the TK operator and TK investor.Read More
Issues on sale of interests in TK agreements.Read More
Interpretation and application of tax treaties to TK contracts.Read More
Diagrams and overview of TK taxation.Read More
Penalties for failure to file tax returns and requests for tax repayment in Japan are heavy and the rules themselves are complex with plenty of traps for the unwary.
Corporation tax filing and payment
Corporation tax returns are due within two months from the day following the last day of each tax accounting period end and should include the matters prescribed by the relevant jurisdiction tax office (in practice, this means it should be made on the required schedules). The amount shown as due on the return has to be paid. Also where a tax accounting period exceeds six months, then an interim tax return and payment is required. Read More
Recent years has seen a real revolution in Japanese corporate law and one area is the greatly increased flexibility in the different types of shares that can be issued. For tax purposes ownership of 100% of all classes of shares is a requirement to tax consolidate a subsidiar however the share types are used in a variety of transactions – poison pills, minority squeeze outs, that of course have tax implications and that will be explored in later posts.
Article 108 of the CL allows companies to issue more than one type of share. A company issuing more than two types of share under its articles of association (teikan/定款) is called a shurui kabishiki hakkou kaishi/種類株式発行会社 – a ‘Company Issuing Types of Shares’ could be a decent translation. The table below summarises these types: Read More
Uni, Japanese for sea urchin, is for some an expensive gourmet delicacy while for others it is a rather revolting and funny tasting yellow gloop.
Uni is certainly an acquired taste and even for the editor it took a few tries to actually get used to, but the taste is certainly unique. The occasional visitor to Japan is most likely to come across uni on top of a bit of rice surrounded by dried “nori” seaweed at a “kuru kuru” sushi restaurant (the revolving conveyor belt style sushi restaurant which is the fast food of Japanese sushi and often not the gourmet experience eating sushi should be). European visitors to Japan tend to assume that uni is not eaten in Europe, but southern Italians will recognise it from (to my mind) a rather tasty spaghetti sauce. 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