2020 Tax Reform Proposals - Announced

Japan Inbound Tax & Legal Newsletter December 2019, No.49

On 12 December 2019, proposals for the 2020 tax reform were announced by the Liberal Democratic Party (LDP) and the New Komeito Party.

On 12 December 2019, proposals for the 2020 tax reform were announced by the Liberal Democratic Party (LDP) and the New Komeito Party and posted on the LDP’s website. (Japanese / PDF).

The 2020 proposals include changes to the tax consolidation system, which is expected to be replaced with a group aggregation system, new incentives to encourage investment in start-ups, and the ability to the extend the Japanese consumption tax filing deadline. Also, the proposals introduces an anti-avoidance provision preventing companies from inappropriately creating capital losses and a number of provisions impacting individuals.

To date, Japan has been a first mover in the region in locally implementing the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) related measures. While the 2020 proposals do not include any measures related to the OECD’s BEPS project, in the introductory statements of the tax reform, the Government specifically highlighted the importance of the ongoing OECD work relating to taxation of the digital economy. This may signal that the Japanese government once again intends to be at the forefront of change resulting from the work currently being undertaken by the OECD.

This newsletter highlights some of the key items that may affect foreign headquartered companies doing business and individuals residing in Japan. It should be emphasized that these proposals have not been enacted and could change prior to becoming law.

1. Corporate Tax

(1) Change from tax consolidation system to group aggregation system

(2) Establishment of the Tax System for Promoting Open Innovation

(3) Revisions of Existing Tax Incentive Systems

2. International Tax

(1) Anti-tax avoidance measures on transfers of certain subsidiaries’ shares

(2) Revision to the earning stripping rules

3. Consumption Tax

(1) Introduction of extension to file Japanese Consumption Tax (“JCT”) returns for corporations

(2) Revision of the JCT credit system, etc. on the purchases of residential rental buildings

4. Individual Tax

(1) Taxation of financial securities

(2) Revisions to the angel tax regime

(3) Revisions to derivative transactions using cryptocurrency

(4) Revisions to the housing loan deduction on local inhabitant’s (resident) tax

(5) Treatment of offsetting profit and loss on income from second-hand buildings outside of Japan

(6) Revisions to charitable organizations applicable for the charitable contributions deduction

(7) Revisions to the Overseas Dependents Deduction

(8) Revisions to the calculation of taxable miscellaneous income

(9) Revisions to foreign asset reporting

(376KB, PDF)

* This Article is based on the relevant Japanese or specific country’s tax law and other authorities in effect on the date of this Article. This Article would not be guaranteed updating if there are any changes in Japanese tax law, any other law, or interpretations by the courts or tax authorities thereof after the date of this Article.

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