Japan

2020 Tax Reform

On 27 March 2020, the 2020 Tax Reform Act was approved by the Diet, and, on 31 March 2020, the 2020 Tax Reform Act, the Enforcement Orders, and Regulations were promulgated, which are effective for corporate tax years beginning on or after 1 April 2020, in principle.

The 2020 Tax Reform Act provides for tax measures to promote investment in innovative corporations and to encourage investment for the introduction of 5G technology.

Among others, one major change to the domestic corporate tax rules is abolishment of the current Japanese consolidated tax regime and introduction of a new ‘group tax relief’ regime, under which each member of a corporate group would file its own tax return, as well as other related changes.

On the international tax front, a key change is the introduction of a requirement that a parent adjust its basis in certain subsidiaries’ shares upon the receipt of dividends from those subsidiaries; the purpose of which is to prevent the parent from reducing any capital gain arising in a subsequent transfer of that subsidiary’s shares.

On the administration side of international taxation, the 2020 Tax Reform Act would allow the tax authorities a three-year extension on the current statute of limitations with regard to international transactions if the Japanese tax authorities issue an information exchange request to the tax authorities of a tax treaty partner country.

Special tax measures to cope with COVID-19

On 20 April 2020, the Cabinet approved the Emergency Economic Measures to cope with the economic crisis due to COVID-19, and the tax bill to implement the Economic Measures was approved and became effective on 30 April 2020. The tax bill provides special measures of tax relief, mainly for small to medium size enterprises (SMEs).

The number of tax treaties covered by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) increased

On 1 January 2019, the MLI entered into force for Japan. As of 1 January 2021, 29 jurisdictions, which are among the Japanese covered convention, deposited the instrument of ratification, acceptance, or approval of the Convention, and the MLI entered into force for 27 jurisdictions.

Consumption tax

From 1 October 2019, the multiple consumption tax rates system was introduced. Transitional book-keeping measures are in place for the four-year period until 1 October 2023, when an invoicing method will be introduced.