2016 Tax Reform Proposal
Japan:Inbound Tax Alert December 2015, No.15
On 16 December 2015, the Liberal Democratic Party and the New Komeito Party released the 2016 Tax Reform Proposals (“Proposals”). According to the Proposals, the Japanese government intends to further promote growth-oriented corporate tax reform by reducing the effective corporate tax rate to below 30%, specifically to 29.97% in 2016 and 29.74% in 2018. Also, there will be further expansion of factor-based enterprise tax and broadening of the tax base through the revision of depreciation system and other measures are proposed. (Japan:Inbound Tax Alert December 2015, No.15)
Other notable proposals include provisions regarding transfer pricing documentation requirements based on OECD recommendations regarding the Action Plan on Base Erosion and Profit Shifting (“BEPS”). With regard to consumption tax, the tax rate will be raised to 10% and a multiple rate system under which a lower rate of 8% on foods and beverages will be implemented on 1 April 2017. Also, a qualified invoice system will be implemented on 1 April 2021.
This alert highlights several key proposals that may affect foreign companies doing business in Japan. It should be emphasized that these proposals have not been enacted yet and could change prior to becoming law.
1. Corporate Tax
(1) Reduction of the national corporate tax rate
(2) Revision of the NOL carryforward system
(3) Revision of the factor-based enterprise tax rate
(4) Revision of the depreciation system
(5) Amendments to special economic zones
(6) Tax Measures for Corporate Reorganization
(7) Revision to implement provisions in the Japan-Taiwan Tax Agreement
2. Transfer Pricing
3. Consumption Tax
(2) Expansion of JCT-free shopping system for foreign tourists
(3) Amendment for business-to-business digital services
(4) Restriction on application of special tax relief for SMEs
4. Individual Tax
(1) Clarification of the definition of securities as covered assets for exit tax
(2) Expansion in the scope of persons for employer equity reporting
(3) Commuting allowance
(4) Addition to the scope of medical expenses eligible for deduction
Deloitte Tohmatsu Tax Co., with its global network covering 150 countries, provides Japanese and foreign affiliated companies in Japan with a diverse range of tax consulting and compliance services, utilizing its advanced and deep knowledge and extensive experience in various areas related to tax.