Business Operations in Japan (Portfolio 7200)

Tax Management Portfolio, Business Operations in Japan, No. 7200, deals with the most common legal and tax problems encountered by foreign firms doing business in Japan. To view this Portfolio, visit Bloomberg Tax for a free trial.

Bloomberg Tax

This Portfolio is available with a subscription to Bloomberg Tax, a comprehensive research solution including over 500 Tax Management Portfolios™, practice tools, primary sources and timely news.

Description

Tax Management Portfolio, Business Operations in Japan, No. 7200, deals with the most common legal and tax problems encountered by foreign firms doing business in Japan. Foreign operations within Japan are usually conducted through a limited liability stock corporation known as a kabushiki kaisha (KK) or through the registered branch of a foreign corporation. Although all forms of business organizations are discussed, the KK and the branch are analyzed in sufficient detail to enable a lawyer, accountant or business executive to become fairly well acquainted with their basic legal and tax characteristics. A typical set of articles of incorporation is included in the Worksheets.

The Detailed Analysis includes a discussion of the major elements in the taxation of domestic and foreign corporations. Because of the importance of the role of permanent establishments in determining resident taxability of a foreign firm in both domestic law and in the tax treaties, they are discussed at considerable length separately.

The domestic and tax treaty aspects of the Withholding Income Tax are also discussed in detail because of the extensive amount of business that is conducted with Japan on a nonresident basis. The full text of the U.S.-Japan Income Tax Treaty is included in the Worksheets together with all of the principal forms used to claim tax exemption or a reduced rate of tax based on the treaties.

Separate chapters deal with the taxation of individuals resident in Japan and inheritance and gift taxation. The Worksheets include further material to assist individuals in understanding the taxation of a foreigner resident in Japan.

This Portfolio may be cited as Takagi, 7200 T.M., Business Operations in Japan.

Authors

Shimon Takagi, Esq.

Shimon Takagi, Osaka City University (LL.B. 1988); New York University School of Law (LL.M. in Taxation 1995); admitted to Japanese Bar (1990); member, Tokyo Bar Association and New York State Bar.

Table of Contents

Detailed Analysis
I. Japan — The Country, Its People and Economy
A. Overview
B. Geography
C. People
D. Government
E. Economy
II. Operating a Business in Japan
A. Foreign Exchange and Foreign Trade Law
1. Share Acquisitions
a. Subsidiaries, Joint Ventures and Other Closely Held Corporations
b. Listed Corporations
c. Notification Procedures for Direct Inbound Investment
2. Branch Offices of Foreign Companies
3. Licenses and Technical Agreements
4. Loans
5. Remittances from Japan and Receipts Out of Japan
B. Anti-Monopoly Law
C. Protection, Licensing and Sales of Technology
III. Forms of Doing Business in Japan
Introductory Material
A. Sales Representative
B. Unregistered Liaison Representative Office
C. Registered Japanese Branch Office
D. Joint Stock Corporation (Kabushiki Kaisha)
1. Formation
a. Formation Solely by Promoters
b. Formation by Invitation of Nonpromoters
c. Registration
2. Name
3. Articles of Incorporation
4. Capital Stock
5. Retirement of Shares and Reduction of Paid-in Capital
a. Redemption of Treasury Stock
b. Reduction of Paid-in Capital
6. Corporate Officers
a. General
b. Directors
c. Representative Directors
d. Titled Directors
e. Statutory Auditors
f. Senior Accounting Counselor (Kaikei Sanyo)
g. Accountant Auditors
h. Other Officers
7. Shareholders' Meetings
8. Board of Directors' Meetings
9. Dividends and Distributions of Surplus
10. Accounts
a. Paid-in Capital
b. Legal Reserves
c. Voluntary Reserves
d. Assets
e. Financial Statements
f. Publication and Retention of Records
11. Debentures
a. General
b. Meetings of Debenture Holders
c. Debentures with Stock Purchase Option (Convertible Bonds and Warrant Bonds)
12. Statutory Merger, Exchange of Stock, Transfer of Stock and Corporate Split
a. Statutory Merger
b. Exchange of Stock and Transfer of Stock
c. Corporate Split
13. Dissolution
a. General
b. Shareholder Dissolution Petition
c. Dissolution of Presumed Dormant Corporation
14. Liquidation
a. General
b. Voluntary Liquidation
c. Special Liquidation
15. Reorganization
a. Petition
b. Administrator
c. Interested Persons
d. Meetings of Interested Persons
e. Reorganization Plan
E. Limited Company (Yugen Kaisha)
F. Unlimited Commercial Partnership Company (Gomei Kaisha)
1. General
2. Formation
3. Internal Relations
4. External Relations
5. Withdrawal and Removal of Partners
6. Dissolution of a Gomei Kaisha
G. Limited Commercial Partnership Company (Goshi Kaisha)
1. General
2. Formation
3. Internal Relations
4. External Relations
5. Dissolution and Change of a Goshi Kaisha
H. Limited Liability Partnership Company (Godo Kaisha)
1. General
2. Formation
3. Internal Relations
4. External Relations
5. Withdrawal and Removal of Partners
6. Dissolution of a Godo Kaisha
I. Civil Code Association (Kumiai)
1. General
2. Formation
3. Management
4. Rights and Liabilities of Members
5. Withdrawal and Removal of Members
6. Dissolution
J. Commercial Code Association (Tokumei Kumiai)
1. General
2. Formation
3. Management
4. Rights and Liabilities of Parties
5. Termination of Arrangement
IV. Principal Taxes
A. Structure of Japanese Tax Law
1. General Sources of Law
2. National Tax Law
3. Local Tax Law
4. Legislative Process
B. Structure of Japanese Tax Administration
1. National Tax Administration
2. Local Tax Administration
V. Corporate Income Tax (Domestic Taxpayers)
A. Classification of Corporate Taxpayers
B. National and Local Taxes
C. Taxation of Worldwide Income
D. Accounting
1. General
2. Accrual Method
3. Fiscal Period
4. Consolidated Reporting
E. Self-Assessment and Filing
1. General
2. Rates
a. Sample Calculation (Tokyo)
b. Detailed Rates
3. Blue Returns
4. Filing Deadlines
5. Interest and Penalties
6. Statute of Limitations
F. Calculation of Gross Income
1. General
2. Operating Income
a. Sales Income
b. Transfer Pricing
(1) In General
(2) Multinational Corporate Reporting System
(a) Country-by-Country Reporting
(b) Business Operations Reporting
(c) Arm's-Length Price Documentation (Local Files)
c. Timing of Realization
3. Capital Gains
4. Nonoperating Income
a. Interest and Royalties
b. Donation Income
(1) Assets
(2) Free Services and Loans
(3) Advertising Assets
(4) Artificially Low Prices
(5) Forgiveness of Debt
(6) Exceptions
c. Income from Trust Assets
d. Revaluation of Assets
e. Foreign Currency Gains and Losses
5. Exclusions from Gross Income
a. Dividends
(1) Exclusion from Income
(2) Constructive Dividends
(3) Stock Splits
b. Nonrecognition of Capital Gains
(1) Qualifying Merger, Qualifying Corporate Split, Qualifying Contribution-in-Kind and Qualifying Distribution-in-Kind
(2) Qualifying Exchange of Stock and Qualifying Transfer of Stock
(3) Exchange of Certain Like-Kind Property
(4) Reinvestment of Insurance Proceeds
(5) Involuntary Conversion
(6) Reinvestment of Sale Proceeds in Certain Real Property
c. Refunds of Nondeductible Taxes
G. Business Expenses
1. General
2. Organizational Expenses
3. Wages and Personnel Expenses
a. Ordinary Employees
b. Company Officers
4. Capital Losses
5. Interest and Royalties
a. General
b. Thin Capitalization
c. Earnings Stripping
6. Taxes
a. General
b. Nondeductible Taxes
c. Deductible Corporate Taxes
d. Timing of Deductions
7. Depreciation and Amortization
a. General
b. Ordinary Depreciation
c. Special Accelerated Depreciation
d. Amortization of Intangible Assets
8. Abandonment of Obsolete Equipment
9. Entertainment Expenses
10. Donations
11. Casualty Losses
12. Devaluation of Certain Assets
a. General
b. Inventory
c. Securities
d. Fixed Assets and Certain Deferred Expenses
13. Bad Debts
14. Ordinary Reserve Accounts
a. General
b. Bad Debt Reserves — Percentage Inclusion
c. Bad Debt Reserves — Specific Inclusions
d. Sales Returns Reserves
15. Special Tax Incentive and Other Reserve Accounts
16. Special Tax Incentive Deductions
a. General
b. Mineral Exploration Deduction
c. Deduction for Certain Real Property Transfers
H. Tax Loss Carryover and Carryback
1. General
2. Casualty Losses
3. Losses Set Off Against Certain Income of Financially Troubled Corporations
I. Reorganizations
1. General
2. Incorporation
a. Incorporation and Increase of Capital of Ordinary Corporation
b. Qualified Contribution-in-Kind
c. Distribution-in-Kind
3. Liquidation
a. Tax on Liquidating Corporation
b. Receipt by Shareholder of Residual Assets
c. Special Treatment
4. Merger of Corporations
5. Corporate Split
a. Tax Treatment of Nonqualified Corporate Split
b. Qualified Corporate Split Requirements
c. Tax Treatment of Qualified Corporate Split
6. Special Rule on the Disregarding of a Transaction and Accounting Relating to Reorganization
7. Qualified Exchange of Stock
8. Qualified Stock Transfer
9. Squeeze-Out of Minority Shareholders
10. Retirement of Shares
11. Reorganization of a Financially Troubled Corporation
12. Goodwill
J. Tax Credits
1. General
2. Withheld Income Tax Credit
3. Foreign Tax Credit
4. Research and Development Credit
5. Credit for Overpayment of Taxes Due to Deliberate Misrepresentation
6. Small and Medium-Sized Corporations Investment Promotion Tax Credit
7. Environmental Load Reduction Facilities, Etc.
8. Employment Promotion Tax System
K. Family Corporations
1. General
2. Denial of Transactions
3. Tax on Undistributed Profits
L. Tax on Qualified Pension Plans
M. Other Corporate Taxes
1. Corporate Taxes Relating to Real Property and Other Fixed Assets
a. Taxes Assessed Annually
(1) Fixed Asset Tax
(2) City Planning Tax
(3) Land Value Tax (Suspended)
b. Taxes Assessed at the Time of Transfer
(1) Real Estate Acquisition Tax
(2) Registration Tax
2. Per Capita Taxes
3. Stamp Tax
4. Mineral Production Tax
5. Registration Tax (Other than for Real Property and Fixed Assets)
6. Business Premises and Gross Compensation Taxes
7. Miscellaneous Taxes
VI. Taxation of Nonresidents — Permanent Establishment in Japan
Introductory Material
A. Permanent Establishments — Types
1. Office, Branch, or Other Fixed Place of Business (“Branch Permanent Establishment”)
a. Domestic Law
b. Tax Treaties
2. Construction, Installation, Assembly Project (“Construction Permanent Establishment”)
a. Domestic Law
b. Tax Treaties
3. Dependent Agent (“Agency Permanent Establishment”)
a. Contracting Agent
b. Fills Order Agent
c. Negotiating (Secures Orders) Agent
4. Subsidiaries
B. Specific Exemptions from Permanent Establishment Status
1. Mere Purchase of Goods
2. Exemption Relating to Storage, Display, Delivery and Processing of Goods
3. Agencies Exempt from Permanent Establishment Status
a. Airline Companies
b. Independent Agents
4. Exemption for Auxiliary Activities
5. Exemption for Investment Partnership
C. Tax Treaty Benefits in the Absence of a Permanent Establishment
1. Industrial or Commercial Profits
2. Capital Gains from the Disposal of Shares and Other Personal Property
3. Earned Income
4. Income Received by an Entertainer or an Athlete
D. Taxation of a Permanent Establishment
1. “Entire” and “Attributable” Income Methods
2. Taxation of Business Income of a Permanent Establishment Under Domestic Law
3. Taxation of Nonbusiness Income of a Permanent Establishment Under Domestic Law
4. Taxation of a Permanent Establishment Under a Tax Treaty
E. Domestic-Source Income
1. Business Income — Offshore Branch
2. Business Income — Allocation
3. Sales Income from Inventory Property (No Manufacturing)
4. Sales Income (Manufacturing)
5. Income from Purchasing
6. Noninventory Personal Property
7. Stocks and Securities
8. Dividend Income
9. Interest Income
10. Royalties and Rentals
11. Real Property Income
12. Personal Service Business Income
13. Income from Labor or Personal Services
14. International Transportation Income
15. Insurance Income
16. Other Business and Asset Income
F. Taxation in the Absence of a Permanent Establishment
1. Income from Assets
2. Income from the Sale of Immovables
3. Income from Certain Business
4. Income from Certain Rentals
5. Income from the Sale or Transfer of the Stock of a Japanese Corporation
6. Income Derived While Present in Japan
7. Golf Course Rights
8. Income from Insurance
9. Income from Gifts
10. Income from Treasure
11. Income from Prizes
12. Occasional Income
13. Any Economic Benefit
G. Income of a Permanent Establishment from Intra-company Transactions
1. Intra-company Loans
2. Intra-company Transfers of Technology
3. Intra-company Auxiliary Services
H. Intra-company and Other Expenses of a Permanent Establishment
1. Purchases
2. Interest
3. Royalties
4. Services
5. Head Office Administrative Expenses
I. Qualification of a Permanent Establishment
VII. Taxation of Nonresidents: Withholding Tax
A. Basic Considerations
1. The Place of Withholding in the Tax System
2. General Scheme of Withholding as Applied to Nonresidents
a. Meaning of “Foreign Corporation”
b. Meaning of “Nonresident Individual” and “Domicile”
c. Presumptions as to Domicile
(1) Presumptions as to Domicile in Japan
(2) Presumptions as to Domicile Outside Japan
d. Application of Presumptions of Domicile
e. Domicile of Government Officials
f. Domicile of Students
g. Domicile of Ship and Aircraft Crews
h. Domicile of United States Military and Civilian Employees
i. Nonpermanent Residents
j. Dual Residence
3. Income Subject to Withholding
4. Income Not Subject to Withholding
5. Exemption from Withholding
a. Nonresident with a Permanent Establishment
b. Registered Securities and Exemption from Withholding Tax
c. Interest on Foreign-Issued Corporate Bonds
d. Interest on Deposits, etc., with a Tokyo Offshore Account
e. Payment of Interest on or After January 1, 2016
6. Party Liable to Pay Withholding Tax
7. Tax Treaties
a. Reduction in Withholding Rate Under Tax Treaties
b. Obtaining Treaty Reduced Rates or Exemptions
8. General Pattern of Taxation of Nonresidents
B. Taxation of Royalty and Rental Income
1. Summary of Taxation of Technology Placements
2. Definition of Domestic-Source Royalty Income
3. Industrial Property Rights
4. Production Methods Using Special Technology and the Like
5. Tax Treaty Definition of Royalties
6. Nontaxability of Expenses Incidental to Royalty Contract
7. Personal Services Income Distinguished from Royalty
8. Damages for Infringement of Patent and Other Industrial Property Rights
9. Expenses of Joint Research and Development
10. Sale, Transfer or Exchange of Technology
11. Technology Investment-in-Kind
12. Taxable Basis, Rate and Payment
13. Taxation of Royalty Limited to Use in Japan
14. Placing the Tax Burden on the Licensee
15. Rentals of Machinery and Equipment
16. Example of Taxation of License and Technical Assistance Agreement
a. Transfer of Patents
b. Know-How
c. Plan for Plant
d. Technical Services
17. Example of Cross-License of Know-How
18. Royalty Withholding Tax Rates Under Japan's Tax Treaties
C. Taxation of Income from a Personal Services Business
1. Summary
2. Nature of a Personal Services Business
3. Types of Businesses that Are Not Personal Services Businesses
4. Domestic-Source Income
5. Travel and Living Expenses
6. Payments Made by an Entrepreneur to Performers and Employees
7. Rate of and Liability for Tax
8. Credit for Tax Withheld
9. Office in Japan
10. Japan-United States Tax Treaty
11. United States Corporations Providing Services of Entertainers and Athletes
12. Other Tax Treaties
13. Withholding Tax on Exempt Entertainment Corporation
14. How to Claim Treaty Benefits
D. Taxation of Employment Income and Compensation for Personal Services
1. Summary
2. Employment Income and Compensation for Personal Services — Definition
a. Annuity Income and Retirement Allowances
b. Domestic-Source Income
c. Services Performed Within and Without Japan
d. Treatment of Directors of Japanese Corporations
e. Services Performed Aboard a Japanese Ship or Aircraft
f. Travel and Living Expenses
g. Compensation for Damages
h. Reporting and Payment of Tax
i. Persons Exempt from Tax
3. Treatment of Employment and Personal Services Income Under Japan's Tax Treaties
a. Tax Treaty Exemption for Employees
b. Tax Treaty Exemption for Entertainers
c. Tax Treaty Exemption for Independent and Professional Services
d. Tax Treaty Treatment of Director's Compensation
e. Tax Treaty Exemption for Students and Trainees
f. Tax Treaty Exemption for Teachers and Researchers
g. Tax Treaty Exemption for Government Employees
4. Taxation of Retirement Allowances
a. Domestic Treatment
b. Tax Treaty Exemption for Pensions and Annuities
E. Taxation of Rentals from Immovable Property, Ships and Aircraft
1. Summary
2. What Rentals and Other Income Are Taxable?
3. Taxation of Rentals from Immovables
4. Charter of Ships and Aircraft — Domestic Law
a. Exemption Based on Reciprocal Treatment
b. Treatment Under the Japan-United States Tax Treaty
(1) Lessor Not Engaged in Operations in International Traffic
(2) Lessor Engaged in Operations in International Traffic
c. Other Tax Treaties
F. Taxation of Dividends
1. Summary of Withholding on Dividends
2. Types of Dividends
a. Constructive Dividends
b. Illustration of Constructive Dividends
c. Stock Dividends
d. Presumptive Dividends
e. Scope of Listed Shares, etc.
3. Dividends Paid by a Foreign Corporation
4. Tax Rates and Withholding
5. Tax Treaty Provisions
a. Claiming a Tax Treaty Reduced Rate
b. Tax Treaty Rates
G. Taxation of Interest Income
1. Summary
2. Scope of Interest Income
a. Domestic-Source Interest Income
b. Withholding on Interest Income
3. Taxation of Nonresident with Permanent Establishment
4. Nontaxability of, and Reduction of Tax on, Interest on Foreign-Issued Corporate Debt Securities
5. Nonapplicability of Withholding Tax to Interest Received by Financial Institutions
6. Tax Exemption for Collectively Registered Japanese Government Bonds
7. Taxation of Interest Under the Japan-United States Tax Treaty and Japan's Other Tax Treaties
H. Taxation of Interest on Business Loans
1. Summary
2. Interest on Business Loans
3. Interest on Loans to Purchase Ships and Aircraft
4. Interest on Short-Term Credit Extended on Purchase of Goods and Services
5. Usance — When Not Regarded as Interest
6. Nonresident with a Permanent Establishment
7. Payments of Interest by Guarantor
8. Tax Treaty Treatment of Interest on Business Loans
I. Taxation of Original Issue Discount
1. Summary
2. Exemption for Certain Interest-Bearing Foreign Debt Securities
3. Withholding Tax with Respect to Certain Japanese Bonds
4. Tax Treaty Treatment of Original Issue Discount
a. Original Issue Discount as Interest
b. Original Issue Discount Exempt from Japanese Tax
c. Original Issue Discount Subject to Japanese Tax
5. Purchase and Sale on Secondary Market
6. Repeal of Withholding Tax on Original Issue Discount
J. Taxation of Miscellaneous Domestic-Source Income
1. Prizes Awarded for Advertising Purposes
2. Annuity Income
3. Distribution of Profits of an Undisclosed Partnership (Tokumei Kumiai)
VIII. Taxation of Partnerships
A. General
B. Methods of Reporting
C. Timing of Realization
IX. Individual Income Taxation
A. General
1. Individuals Subject to Tax
a. Residence Principle
b. Definition of Residence
c. Nonresidents
d. Nonpermanent Residents
(1) Domestic-Source Income
(2) Foreign-Source Income
e. Permanent Residents
f. Residence for Local Inhabitants Tax Purposes
g. Special Problems for Foreigners
(1) Temporary Visitors
(2) Foreign Employees Assigned to Japan
2. Aggregation of Income
3. National and Local Income Taxes
4. Filing and Payment
a. National Tax
b. Local Inhabitants Taxes
c. Enterprise Tax
5. Rates
a. National Individual Income Tax Rates
b. Local Prefectural and Municipal Inhabitants Income Tax Rates
c. Local Enterprise Tax Rates
d. Sample Calculation
6. Compulsory Calendar Year and Accrual Reporting
7. No Joint Returns and Uniformity of Rates
8. No Income Averaging
9. Blue Returns
10. Limited Deduction for Interest and Local Taxes
11. Undistributed Tax Haven Profits
B. Calculation of Income for Purposes of National Income Tax
1. Aggregate Ordinary Income
a. Interest Income
b. Dividend Income
c. Real Estate Rental Income
d. Business Income
e. Employment Income
f. Capital Gains from the Sale of Assets Other than Real Property and Securities
g. Occasional Income
h. Miscellaneous Income
2. Income Taxed Separately
a. Forestry Income
b. Business or Miscellaneous Income from the Sale of Land
c. Capital Gains from the Sale of Real Property
d. Capital Gains from the Sale of Securities
e. Retirement Income
3. Exclusions from Taxable Income
a. General
b. Certain Interest Income
c. Certain Dividend Income
d. Certain Employee Benefits
e. Gains from the Sale of Personal Effects
f. Gains from the Sale of Shares and Other Corporate Securities
g. Gains from Involuntary Conversions
h. Gains Realized on Contributions to Public Entities and Transfers to Satisfy Inheritance Tax Liability
i. Inheritances and Gifts
j. Insurance Proceeds, Compensation for Damages, etc.
4. Use of Losses to Reduce Other Income
C. Deductions from Income
1. General
2. Casualty Losses
3. Medical Expenses
4. Social Insurance Premiums
5. Small Enterprise Mutual Aid Premiums
6. Handicapped Mutual Aid Premiums
7. Life Insurance Premiums
8. Earthquake Insurance Premiums
9. Contributions
10. Deduction for Spouse and Dependent Relatives
11. Additional Deduction for the Physically Handicapped
12. Additional Deduction for Widows, Widowers and Single Parents
13. Additional Deduction for Working Student
14. Basic Deduction
D. Computation of National Income Tax
1. General
2. Aggregate Ordinary Income
3. Forestry Income
4. Long-Term Capital Gains from the Sale of Land and Buildings
5. Short-Term Capital Gains from the Sale of Land and Buildings
6. Business and Miscellaneous Income from the Sale of Land
7. Retirement Income
8. Total National Income Tax Before Credits
E. Credits Against National Income Tax
1. Dividend Credit
2. New Residence Credit
3. Research and Development Credit
4. Foreign Tax Credit
5. Credit for Student Support
6. No Reduction to Less than Zero
7. Prepayments and Tax Withheld
F. Local Inhabitants Taxes
1. General
2. Gains from the Sale of Land and Buildings
3. Deductions
4. Credits Against Local Tax
5. Per Capita Taxes
X. Inheritance and Gift Taxes
A. Administration of Estates in Japan
1. Statutory Succession
2. Wills and Trusts
3. Forced Heirship
4. Administration of Estates
5. Ancillary Administration
B. Gift Tax
C. Inheritance Tax
1. Major Features of Inheritance Tax
a. Liability for Tax
b. Application of Tax Rates
c. Basic Exemption and Spouse's Credit
d. Relation to Income Tax
2. Scope of Inheritance Tax
3. Property Taxed
4. Property Excluded from Tax
a. Property Outside Japan
b. Charitable Bequests
c. Damaged Property
d. Life Insurance
e. Retirement Allowances
f. United States Armed Forces
5. Valuation of Property
6. Situs of Property
a. Immovable and Movable Property
b. Debts
c. Shares
d. Ships and Aircraft
e. Other Intangible Rights
f. Other Property
7. Deductible Liabilities
8. Tax Calculation
a. Taxable Property
b. Basic Exemption
c. Basic Tax
d. Surtax
e. Credit for Gift Tax
f. Spouse's Credit
g. Credit for Minors
h. Credit for Handicapped Persons
i. Credit for Successive Inheritances
j. Credit for Foreign Tax
XI. Consumption Tax (Shohizei)
A. Main Features of the Consumption Tax
B. Taxpayer
C. Businesses Exempt from Tax
D. Taxable Transactions
1. Domestic Transactions
a. Included Transactions
b. Excluded Transactions
2. Import Transactions
E. Nontaxable Transactions
F. Exemptions
1. Exemption for Exports
2. Exemption for Stores Selling Export Products
G. Time of Transfer
H. Tax Period
I. Tax Base and Rate
1. Tax Base — Domestic Transactions
2. Tax Base — Import Transactions
3. Tax Rate
J. Calculation of Tax
1. Computation
2. Deduction of Tax on Taxable Purchases
a. Taxable Purchases
b. Simplified Tax Method for Calculating Taxable Purchases
3. Deduction for Bad Debts
K. Tax Returns and Payment of Tax
XII. Social Security Taxes
A. Social Security System
B. Resident Employer
C. Resident Employee
D. Payment of Premiums
E. Benefits Received
F. International Agreements
XIII. Inter-Company Pricing
XIV. Undistributed Profits of Designated Tax Haven Subsidiaries
A. General
B. Japanese Shareholders Subject to Current Reporting Requirement
C. Definition of “Designated Tax Haven Subsidiary”
1. Organized in Specified Tax Haven
2. Controlled by Japanese Shareholders
a. Indirect Ownership
b. Constructive Ownership
3. General Full Corporate Level Aggregation
4. Partial Aggregation of Passive Income
5. Full Corporate Level Aggregation of Income of Certain Foreign Related Corporations
D. Calculation of “Taxable Undistributed Profits”
1. Adjusted Pre-tax Subsidiary Income
2. Deduction of Carried Over Losses
3. Deduction of Tax Paid to the Local Tax Haven
E. Later Receipt of Taxable Undistributed Profits
1. Dividends
2. Sale of Shares
3. Liquidation
F. Filing and Reporting Requirements
XV. Avoidance of Double Taxation
A. Foreign Tax Credit
1. General
2. Direct Foreign Tax Credit
3. Taxable Undistributed Profits of a Designated Tax Haven Subsidiary
4. Excess Foreign Tax Credits
5. Deduction Instead of Credit
B. Double Taxation Agreements
1. In General
2. Tax Sparing
3. United States-Japan Tax Treaties
a. Japan-United States Tax Treaty
(1) Dividends
(2) United States Branch Profits Tax
(3) Interest
(4) Royalties
(5) Gains
(6) Other Income
(7) Transfer Pricing and Related Issues
(8) Stock Options
(9) Limitation on Benefits
(10) Miscellaneous
b. Japan-United States Estate Tax Treaty
(1) Persons Covered
(2) Situs Rules
(3) Credits
(4) Mutual Assistance in Collection and Exchange of Information

Working Papers

Table of Worksheets
Worksheet 1 Articles of Incorporation
Worksheet 2 Corporate Tax and Withholding Tax on Foreign Corporations under Domestic Law (CTL Basic Circular, Sec. 20-2-12)
Worksheet 3 Withholding Tax on Income of a Nonresident Without a Permanent Establishment in Japan
Worksheet 4 Overseas Investment Loss Reserve
Worksheet 5 Real Property Sales and Purchases Qualifying for Deferral of Capital Gains Taxation
Worksheet 6 Form 1 — Relief from Japanese Income Tax on Dividends
Worksheet 7 Form 2 — Relief from Japanese Income Tax on Interest
Worksheet 8 Form 3 — Relief from Japanese Income Tax on Royalties
Worksheet 9 Attachment Form for Limitation on Benefits Articles
Worksheet 10 Form 4 — Extension of Time for Withholding of Tax on Dividends with Respect to Foreign Depositary Receipt
Worksheet 11 Form 5 — Relief from Japanese Income Tax on Dividends with Respect to Foreign Depositary Receipt
Worksheet 12 Form 6 — Relief from Japanese Income Tax on Remuneration Derived from Rendering Personal Services
Worksheet 13 Form 7 — Relief from Japanese Income Tax on Income Earned by Professionals, Entertainers, Sportsmen, or Temporary Visitors
Worksheet 14 Form 8 — Relief from Japanese Income Tax on Remuneration, Grants, etc., Received by Professors, Students, or Business Apprentices
Worksheet 15 Form 9 — Relief from Japanese Income Tax on Pensions, Annuities, etc.
Worksheet 16 Form 10 — Relief from Japanese Income Tax on Income Not Expressly Mentioned in the Income Tax Convention
Worksheet 17 Form 11 — Application Form for Refund of Overpaid Withholding Tax Other than on Profit from Redemption of Securities and Remuneration Derived from Rendering Personal Services Exercised by an Entertainer or a Sportsman in Accordance with the Income Tax Convention
Worksheet 18 Form 12 — Application Form for Refund of the Withholding Tax on Remuneration Derived from Rendering Personal Services Exercised by an Entertainer or a Sportsman in Accordance with the Income Tax Convention and Instructions
Worksheet 19 Form 13 — Application Form for Refund of the Withholding Tax on Profit from Redemption of Securities in Accordance with the Income Tax Convention (Discount Government Bonds Only)
Worksheet 20 Form 14 — Application Form for Refund of the Withholding Tax on Profit from Redemption of Securities in Accordance with the Income Tax Convention (for Discount Debentures Other than Discount Government Bonds); Application for the Nonresident Promoter; Application for Certification of Tax Payment; Certificate of Tax Payment
Worksheet 21 Form 18 — Application Form for Competent Authority Determination
Worksheet 22 Form 13.07 — Application Form for Nonresident Promoter
Worksheet 23 Application for Mutual Agreement Procedure
Worksheet 24 Application Concerning Confirmation of Calculation Method, etc. with Regard to Arm's Length Price
Worksheet 25 Documents Subject to Stamp Tax
Worksheet 26 List of Countries with Which Japan Has In Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2018
Worksheet 27 [Reserved.]
Worksheet 28 2003 Japan-United States Income Tax Treaty
Worksheet 29 Protocol Signed January 24, 2013 (not yet ratified)
Worksheet 30 1954 Japan-United States Estate, Inheritance and Gift Tax Treaty