Posts Tagged ‘interest’

Dividends and Attributable Interest

Wagashi traditional Japanese sweets often reflecting the seasons

The Japanese Dividends Received Deduction (‘DRD’) helps mitigate the double taxation a company would otherwise suffer through tax on dividends the company receives from other Japanese companies.  However the DRD regulations also include provisions that effectively disallow financing costs that are attributable to dividends to which the DRD is applied.  Read More

Interest withholding tax rates under Japan’s treaties

March 22, 2010  |  Tax Treaties, Withholding tax  |  No Comments

Rates of withholding tax on interest under Japan's tax treaties.

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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