Insights

[Glossary] NOLs

M&A Tax

Net operating losses, so called “NOLs”, are the tax deductible expenses and losses in excess of taxable revenues and gains incurred in a given tax year. Where NOLs are incurred in a given tax year, the NOLs may be carried forward by a company to offset taxable income incurred in certain tax years in the future, provided that the company has blue-form tax return filing status.

Explore content

NOLs

Net operating losses, so called “NOLs”, are the tax deductible expenses and losses in excess of taxable revenues and gains incurred in a given tax year. Where NOLs are incurred in a given tax year, the NOLs may be carried forward by a company to offset taxable income incurred in certain tax years in the future, provided that the company has blue-form tax return filing status.

NOLs’ deduction system has several important points to be considered. First of all, the NOLs can generally be carried forward and utilized against taxable profits for the 9 succeeding tax years in a case where such NOLs are incurred in tax years ended on or after April 1, 2008. Secondly, the maximum deductible amount of the NOLs is set out depending on the size of the company. All of taxable income incurred in a given tax year can be offset with the NOLs incurred in past tax years for small and medium-sized companies (i.e. the company whose stated capital is JPY 100 million or less, except the cases where 100 percent of the shares of the company are directly or indirectly held by a company whose stated capital is JPY 500 million or more). On the other hand, for large companies (i.e., companies other than small and medium-sized companies), the use of NOLs is capped at 80% of the taxable income before NOLs’ deduction. Furthermore, it should be noted that the 2015 tax reform proposal, which was released on December 30, 2014, indicates that the cap of NOLs’ use by large companies would be decreased to 65% of the taxable income for tax years beginning on or after April 1, 2015, and then to 50% for tax years beginning on or after April 1, 2017.

On top of the above, there are many points to be considered in a re-organization event such as, whether NOLs will be assumed and/or forfeited, which tax years of the surviving company the dissolving company’s NOLs will be attributed to, and so on.

(As of January 2015)

This article is general in nature and is not intended to provide any tax advice on specific transactions. This article may not be relied upon by anyone and we accept no liability to anyone who took actions based on this article.

M&A Tax Glossary

Please click here to see more M&A Tax terms.

Did you find this useful?