Japanese CFCs

The diagrams below show the scope of the Japanese rules corresponding to US Subpart F or UK CFC rules and which can result in the current taxation of the income of foreign subsidiaries.

Readers interested in the taxation of foreign subsidiaries of Japanese parent companies should see this section on Japanese CFCs and the tax haven countermeasures regulations and also consider the closely related issues around the exclusion of dividends from foreign subsidiaries discussed here.

Ownership ratios

Attribution of income for THCML purposes

This diagram is an example of a company, Foreign Op Co, that is treated as a Foreign Related Company for the purposes of the Japanese “Tax Haven Counter Measures Law” (the Japanese equivalent of US Subpart F rules) by virtue of its Japanese ownership through a number of different holding companies.

The diagram also illustrates how the proportion of income subject to Current Taxation is calculated given the share holding ratios concerned.

Three types of Japanese group relationship

Direct and indirect ownership for THCML purposes

This diagram illustrates how the ownership ratio is calculated for different combinations of direct and indirect shareholding ratios under the Japanese Tax Haven Countermeasure Rules.

Where overall ownership reaches fifty percent its Japanese shareholders may be treated as subject to Current Taxation on attributable income of the foreign subsidiary.