THE Japanese tax reform proposals have been released with changes made
to the intercompany loan regulations. The regulations include the introduction
of earnings stripping rules by the Japanese government. Under the current
Japanese tax law, deductions on interest payments by Japanese companies to
foreign controlling shareholders are subject to thin capitalization rules, which
disallow excess interest payments. The earning stripping rules adopted by the
Japanese government proposes disallowing of current deductions on the excess of
net interest payments to related persons over 50 percent of the adjusted taxable
income.
The
earnings stripping rules do not apply in the following scenarios:
When
“Net interest payments” to related persons do not exceed JPY 10,000,000 for the
relevant taxable year.
When
“Interest payments to related persons” do not exceed 50 per cent of gross
interest paid for the relevant taxable year.
Apart
from this high earning coporate directors will have to pay higher taxes.
Previously, under the Japanese tax law, lump-sum retirement benefits were taxed
at lower rates which high earning coporate directors used as a tactic to avoid
their tax burden. The government has now made this unavailable to the coporates
for those who have served less than five years at the time of retirement.
Individuals resident in Japan for tax purposes with aggregate foreign
asset holdings of JPY50 million on an actual value basis as of the end of each
calendar year are required to file a report describing their foreign asset
holdings. Certain penalty taxes will be reduced in the case of reassessment of
income tax or inheritance tax with respect to the relevant asset if such asset
has been included in the report.
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